About four centuries ago Dutch housewives were known to break into their favorite cookie jars and take out as many florins as possible with which to buy contracts for the future delivery of Dutch tulip bulbs.
Historians subsequently termed the period as "The DutchTulip Craze". The process leading up to sky rocketing prices for a tulip bulb of up to several thousands of florins, was called a Bubble. As we know, the tulip prices eventually crashed, to what was judged to be a normal economic price level for tulip bulbs. The period before the spectacular crash was filled with speculators who were drawn magnetically to an opportunity to make a quick buck or florin as the case was.
The events surrounding the gyrating stock market prices of the internet dot.com stock prices, are not totally unrelated to the above mentioned bubble. The sight of little known and unprofitable internet related companies emerging from private to public life and, in the process, achieving valuations of several hundred millions of dollars within hours, contains a kernel of similarity to the past. The perceived ability of a small army of nimble electronic traders to get in synch with the rise and fall of Yahoo!, Amazon, Broadcast.com and tens of other less likely companies, to skim fat gains, is a powerful magnet for others and is further fueled by the media, stumbling over its cameras and laptops to capture the spectacle of skyrocketing valuations. The modern journalists, who have not experienced the great Wall Street Crash of 1929, are drawing on historical comparisons and not on real-life experience. The cover of a recent Economist issue, portrayed the crash of dot.com., the editorial predicting the inevitability of a bursting internet bubble. Never doubting the power of the press nor the self-fulfilling aspect of media's predictions, in mid-February many of the dots in dot.com received a smashassaging which left some wondering about the concept of bursting bubbles.
After some very heavy price falls Wall Street analysts continued to beat their drums: February 18. CSFB analyst Lise Buyer told investors to take "opportunistic" positions in top names like Amazon.com, AOL, and Yahoo! At the time of writing Amazon.com now trades at $89, versus its very recent high of $199. Wall Street analysts who touted internet stocks and published reports predicting future major share price gains, continued to promote their favorites. InfoBeat reminded us that "But never fear, that old target-price magic still does the trick". Broadcast.com jumped $10 to $68 after DLJ upped it from "market perform" to "buy" and raised its price target from $40 to $100.
AOL gobbled up Mirabilis for $287 million when Mirabilis had 16 million users of its friendly communication software, but not a cent of income.
When AOL bought the instant-messaging Israeli product ICQ last year, ICQ had 16 million users, but no revenues whatsoever. What was AOL thinking? Fred Singer, the AOL-appointed CEO of ICQ Inc. explained that his company's new business strategy would be built around one-to-one marketing. "It's the same concept that's propelling Free-PC: Develop a medium in which you know a lot about your consumers individually (as opposed to statistically), then create a system to deliver targeted commerce-based content straight to their desktops." This strategy made excellent sense. As it turned out, a large number of ICQ users posted detailed information about their interests and hobbies in the ICQ "white pages". Whether they want this information shared with retail businesses is unknown, but clearly, AOL is betting that they will.
The marketing specialists at AOL are about to turn to the now nearly 50 million strong Mirabilis audience with e-commerce pitches.
The cyber cash registers will tinkle for AOL, YAHOO! Amazon and many others. They are beginning to deliver the promise of tomorrow today while outdistancing the pack which is in the pursuit of the prize --- leadership in its field. The internet companies will compete and they will merge smaller companies into themselves until these dominant forces will be in place to meet the new cyber world of the 21st century, as the housefraus of today foresake tulip bulbs for dot.com stocks. Already, a number of internet companies are performing a gravity defying act of earning money from internet activity. The overriding image of "luftmenschen" active in "luftgeschaften" suffered a blow as the strategy of gaining a massive eyeballing audience even without selling one dollar worth of goods, is beginning to show how a few companies are beginning to emerge as leaders as Ford did at the turn of the century.
If Wall Street gives up some of its seven year old gains, most long-term market participants will still be well off. When this does come to be it will be because America's economy has finally been infected by the spreading malaise of the economies of emerging countries.