Comment Articles

Is this the last chance for gratuitous IPOs?

Tony Westbrook AnchorDesk

Published: 14 Mar 2000 16:22 GMT

But the really big question is the one about the viability of these dot-com companies that the share prices represent. Fellow AnchorDesk regular Guy Kewney has spoken with conviction about his view. He sees it as a bubble about to burst, though he is clear that there will be exceptions.

Tune into the BBC's Today programme on Radio 4 however, and in amongst the hurrumphs of technophobe anchorman John Humphries whenever the Internet is mentioned, you'll hear rent-a-Jeremiah Will Hutton, editor of the Observer and depressed economist wibble on about the absurdity of all these valuations when compared with traditional companies like Whitbread. And who can argue, for this is indeed true.

But the underlying reasons for the stellar valuations of dot com companies are more profound than sheer greed alone. To compare this phenomonen to the 18th Century South Sea Bubble of the or the Dutch Bulb craze that ended in crash on 1637 is to fail to recognise the real and new value the Internet can bring to business when it is done properly. The real problem is that investors are buying futures here: they are hoping that the company they buy into will be the next Microsoft. Unfortunately, there is only one Microsoft and a trail of wannabe companies that didn't make it. The same will be true for dot com companies.

So Will is right: There is absurdity in this market, and valuations must move into line with simple business verities like profit. But I contend that, unlike tulip bulbs or south sea bonds, the mania is not based on a worthless commodity. While manufacturers must always remain at one end of any chain of distribution, and customers at the other, the intermediaries between the two are changing fast, and this is where the dot com companies come it. This process of change is further advanced in business to business transactions than business to consumer ones.

A few of these new intermediary companies will succeed, will grow and will be valuable to have a share of. Will lastminute.com be one? Ask your financial adviser for a proper answer, but my guess is not. Will competing travel booking site Expedia be one? Quite probably. And doubtless we'll see mergers and acquisitions of valuable brands along the way.

Read on...