| BUSINESSWEEK ONLINE : JULY 12, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- INT'L COVER STORY
Harvard B-School's Gompers: "The Internet Is Going to Be Everywhere" (int'l edition) Paul A. Gompers, an associate professor of finance and entrepreneurial management at Harvard Business School, has written about and worked with many Internet companies. He believes they are reshaping the way business is done. Gompers recently discussed his views with Business Week Toronto Bureau Chief Joseph Weber. Here are edited excerpts of their conversation: Q: Internet-related stocks have soared on our Business Week Global 1000 list, in many cases eclipsing more established outfits like P&G and DuPont. Does that make sense? A: It's hard to figure out for sure. But I think there are very reasonable people, and I put myself in that camp, who think I wouldn't bet against [the Net]. The Internet is going to be everywhere. It's going to change the way goods and services are delivered, entertainment. The sort of wealth of opportunity and wealth of commerce which is going to be conducted over the Internet is just huge, and it's not going to be as far off in the future as one might think. If you look at groups which are a lot more active day in and day out on the Net, people like Forrester Research and Yankee Group, many of them are predicting that by 2003 or 2002 in excess of a trillion dollars in commerce will be related to the Internet. That's something we haven't seen the likes of, that sort of explosion of industry. I think the wealth and the changes we saw created with the personal computer will actually maybe not be dwarfed, but will be smaller than the value created via the Internet. The wealth of opportunity in terms of service, in terms of products, in terms of software and hardware. You name it. There are all those opportunities on the Internet. Q: You don't think we've been seeing a new tulip mania? A: I think it's possible. If the overall economy goes into downturn and everything else, I think that it's possible that the valuations aren't justified. But at the same time...people are more willing to invest in the stock market...the equity risk premium has declined...so all stocks look very attractive. That actually makes the Internet stocks look more attractive because there's so much internal value. The second thing is if you pore over the business models of these companies...how productive they are...they are just incredibly efficient. Compare Barnes & Noble to Amazon or Dell to Compaq. Both Dell and Amazon are far more efficient than their less Internet-savvy counterpart.... Once they reach some sort of equilibrium, they'll throw off tremendous amounts of cash. They're going to be huge. That's why companies like EBay and Yahoo! and Amazon are so highly valued. We're also finding that brand on the Internet is very important and, had you asked me three years ago, I would have said the Internet is going to destroy brand. But what we're finding is that there is a race for eyeballs, and those eyeballs are being captured by brand. The new brands are the Amazons and Yahoo!s and EBays of the world. People are comfortable with those sites and those sites have learned a lot about their customers. It's not going to be a complete lock-in, but the sort of lead those firms have to relative dominance in the Internet market sort of justifies having the premium. All the major think tanks are predicting tremendous growth in E-commerce. If you track all the predictions about the Internet, every one has been wrong. And it's always been wrong on the downside. We've always exceeded how much has been predicted, how much commerce, how many people. Q: Lately, the Net stocks have corrected more than 30% or so. Is that slide likely to continue? A: If I could predict that, I would be very rich. I think they've taken a hit, and it's unlikely in my view that these stocks are going to go down another 30% to 50% or whatever. They are going to be very volatile stocks. It's a very uncertain industry. There's a lot of time to play out who will be the winners and losers. And that exactly is going to go on. It's an emerging industry, and the industry can go up by 30% to 40% and can go down by similar amounts in a very short period of time. I think perhaps the decline has been healthy, in terms of maybe taking a little bit of the speculative zeal out of the market. But I don't necessarily see those stocks as being vastly overvalued where they are today. Q: Do you believe the Net ranks up there among innovations such as the telephone, the railroads, and indoor plumbing? A: The Internet and all the innovations associated with it will have as dramatic an effect on the way we do business and live as those innovations you mentioned. Absolutely. Will the Internet change the way we do business and live as much as the telephone and railroads and indoor plumbing? I would say absolutely yes. Q: The U.S. has been the center of Net activity and innovation. Will that change? Will it go global? A: Oh absolutely. Most projections show the continued domination of the U.S. in terms of the numbers, but the rate of growth in Europe and Asia and Latin America really is just sort of exploding. Probably they will grow at faster rates because they're starting at lower penetration levels. Eventually it will be global. We had business plan competitions at HBS this year. There were over 80 plans. Many of them, some by our international students, had Internet-related ideas, whether from Europe, Latin America, or the like. Yes, it will lag. But eventually it will be just as pervasive as in the U.S. Q: So would it be smarter for investors to look at overseas Net-related companies, as undervalued? A: A lot of American venture capitalists and a lot of European venture capitalists are investing in non-U.S. Internet-related companies. We're just seeing the beginning of it. People are definitely looking abroad, whether for better value or early deployment. Q: Which kinds of companies -- telecoms, computer-makers? A: Those guys are winners. They're less risky. The next layer down are the people who do the software-type stuff on the Internet. There's a lot of money to be made there, as well. Eventually, the category-killers are really going to be the commercial aspects of the Internet. What is going to change the business of the business-to-business and to the consumer market. How will it change the way business interface with each other? All the business-to-consumer ones -- Yahoo! and Amazon -- are the ones we naturally think of. A host of business-to-business companies are coming on. The market for, say, Internet professional services is just huge. Q: Are the old industrial and consumer-products companies that now are lower on our list courting irrelevancy, at least from an investor perspective? A: Over time, many of them will get it right. I think that some of the brands we know and love will eventually be brands on the Internet. Brand on the Internet is even more important than off the Net. Those companies which invest and utilize the Internet to their advantage will win. Some of the brands we know and love are going to be depreciated by the Internet, but those who are willing to look at it as an opportunity I think can continue to create new value for their investors. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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