Profit, the Prime Directive
By Lincoln D. Stein
I smiled ingratiatingly at the Ferengi. "Of course you should invest in the Internet," I advised him, "everybody else is." He scowled, wrinkling his nose in disgust, and snarled back, "Invest in the Internet? You huumaans have no business sense. There's no profit in it!"
These days a lot of investors are acting like the hard-nosed Ferengi of "Star Trek: The Next Generation." There was an initial rush of enthusiasm, during which Internet retailers ("e-tailers") received billions, but investors have taken a second look at Internet business strategies. Over the past year, after being the darlings of Wall Street, Amazon.com and the other e-tailers have fallen into disfavor among investors, losing substantial amounts of stock value.
Beginning around Christmas in 1999, a string of stories appeared in the press about the "burn rate" of e-tailers. Online retailers are notorious for the strategy of selling products under cost to attract business. Amazon.com, to pick an easy target, is currently losing about $300 million a quarter (yes, that's more than a billion a year) because it's expanding at a frenzied rate, buying warehouses and other companies like a homeowner stocking up on batteries the day before a big hurricane (see "
Online").
Digging for Gold or Selling Shovels?
Whether because of the publicity or because e-tailing fell out of vogue, investment in e-tailers dried up this year, causing Internet stocks to dive.
