the fall is still to come. 27 July, 2000 by johnmichael patrick monty monteith

So you have a few bucks and you were thinking of cashing in on the low prices on technology shares, right? Just itching to do some day trading and make huge bucks on any one of a billion dot com startups? Not that you would follow my advice, but if you did, I have some bad news for you. The tech stock fall has not happened yet. Sure, Amazon.com went from one hundred and thirteen dollars to thirty two bucks a share in a very short period of time. Yes, the NASDAQ took a huge hit compared to where it once was. Still, the real shake up is still around the bend.

Right now technology stocks, despite the hard hit, are still the hippest things out there. What has happened over the past few months is that day traders and even some long term buyers have realized that there are a considerable number of bad-apple's out there in the dot com world. Despite what we might have been duped into believing, www.ihatedoughnutholes.com is not going to take the world by storm. Yes, there are a lot of people that are not big fans of doughnut holes, but people are starting to wake up to the possibility that not all dot com corporations will see a profit. In fact, some might even go out of business.

What still has not sunk in yet, however, is that according to a number of recent studies (depending on which one you believe), anywhere from seventy to ninety-five percent of all current dot com companies will be history within the next two years. So, even though a couple of online toy stores and CD shops may have bit the big wiener lately, it is hardly a shakeup of any percentage of the industry. In fact, the number of dot com corps that have filed chapter eleven is still infinitesimal compared to the number that surely awaits around the bend.

Why is it that everyone believes the industry is poised for a big shake-up? Because, even though some dot com companies are starting to be compared to a like dot com, they are still not being compared to the rest of the business world. We still do not hold these companies accountable to the same standards that we hold every other company. Yet, that will eventually happen. Eventually even the Internet companies will be old-hat, and when that happens they will be held accountable to a bottom line.

Lets do an example… Amazon.com, one of the more prominent and powerful corporations in the dot com community, has yet to ever turn a profit. Not a surprise. You could count the number of dot com profit dollars on a single hand. Still, they are a company with much promise, even if their revenue is not anywhere near that of normal retailers. Maybe someday.

So, lets stop focusing on the negative and pretend that Amazon.com becomes as powerful and profitable as their wildest dreams. Lets say, for example, that their chief operating officers stop leaving after one year, and they are able to become one of the most popular department store outlets ever to exist. Lets say they become as big and as powerful as one of the largest department store chains in the world. Even as big as Sears.

In this fantastical imagination we have dreamt the best possible scenario for Amazon.com, and one that is light-years away from where they currently are (a company that has never turned a profit). But, say they did.. What do you suppose their stock price would be worth when they achieve this amazing feat? Amazon once sold for a hundred when it never made a profit, so what would it be worth then? Five hundred a share? Six hundred?

Sears, a company that makes millions and hands out dividends every quarter, is selling for thirty bucks a share. Amazon.com, without a dime profit to the name? Thirty six bucks a share. Not hard to see why ninety-five percent of these companies will not be around in two years.

Yet, the worst news is to come. Lets say that Sears, a company with deep pockets and a knack at making money, decides to put Amazon.com out of business. How long do you suppose it would take Sears to build a web site that keeps Amazon.com from ever being profitable? Web sites are easy to build. They already have the merchandise, and it is a safe bet that Sears has a little bit of experience in cataloging merchandise. How long do you suppose it would take them to destroy Amazon? If you own stock in Amazon, this is genuine reason for concern.

This is the main reason most of these companies will not be around for long. Normal retailers are waiting for the point at which the Internet hits a critical mass for profitability. Despite all the hoopla, it has not happened yet. Soon, but not yet. There will come a point when all of the regular retailers will get "in" on the action, and suddenly their stock prices will soar and the Amazon's of the dot com world will plummet. That critical mass is not too far away, either.

With all of the bad-mouthing of Amazon, I need to do a mild retraction. Of all of the online vendors, Amazon has the best chance of surviving. That should come as sobering news if you were planning on buying a piece of that doughnutholes site. My advice? Buy a share of Dunkin Doughnuts instead. Or better yet, just go buy a doughnut.