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TheStreet Open House

Let Us Now Praise Famous Dot-Com Skeptics

Wednesday
Adam Lashinsky on the State of the Internet
Dan Colarusso on Internet Growth Projections
Katherine Hobson on E-tailers' Push for Profitability
Catherine Valenti on Ailing Internet Funds
Jamie Heller on Using the Net to Track Net Stocks
Thursday
Tracy Byrnes on the Frenzy Next Time
George Mannes on Self-Hating Dot-Coms
K.C. Swanson on Old Economy Winners
David Gaffen on Measuring the Internet Economy
Friday
Ian McDonald on 'Butterfly' Companies
Justin Lahart on Real Net Valuations
Joe Bousquin on Building the Perfect Net Company
A Dan Gross Opinion Piece: Were the Old Guys Right?
TSC Roundtable on Predicting Six-Month Winners
Roland Jones on The Last Days of Daytrading
Eric Gillin on Working for a Dot-Com

In the past few years, most observers have uncritically asserted that the Internet would transform the way we work, manage and purchase. But not everybody believed that the neural network of routers, computers and glass fibers represented the greatest investment opportunity of all time.

Not surprisingly, those who failed to get on board were frequently consigned to irrelevance. Executives who refused to cannibalize their own businesses were relegated to the Old Economy scrapheap. Meanwhile, well-respected commentators who dared dash cold water on the new phenomenon were made to look like bitter old fuddy-duddies.

Of course, several of the most widely derided dot-com skeptics have turned out to be right. Alan Abelson, Barron's brilliant and acerbic lead columnist, first questioned Amazon.com's (AMZN) valuation in March 1998, charging -- accurately, it turned out -- that the company was "in no immediate danger (for the rest of this decade, anyway), of showing a profit."

In November 1998, he again slammed Amazon and bashed theglobe.com (TGLO), which had just gone public. He questioned the latter company's viability, saying that its results thus far "suggest that the sure way for the company to show a profit might be to shut down operations."

The proprietors of theglobe.com, whose stock now trades at 53 cents a share, would have done well to take Abelson's advice. Likewise for Amazon.com. holders. The stock today stands at roughly the same point it did at Thanksgiving 1998 and has underperformed the Nasdaq Composite Index in the past 24 months.

In the Jan. 25, 1999 issue of Barron's, Abelson further warned that "the pipeline of new offerings, chock-a-block with Web-thises and dot-com thats ( WebTrends, ZDNet, pcOrder.com, priceline.com and MiningCo.com to name only a few), could well bury the group." Right again.

James Grant, another brilliant and acerbic proprietor, this time for Grant's Interest Rate Observer, has spent much of the past three years hacking away at the pillars of the New Economy faith. (He even argued, heretically, in a September 1998 Wall Street Journal article that "Alan Greenspan Isn't God.")

By spring 1999, the self-proclaimed "world's leading authority on where the stock market is not going" was comparing the Internet stock craze to the "British railway boom of more than a century and a half ago."

Both investing enthusiasms, he correctly pointed out, were unconstrained by corporate earnings, fueled by low interest rates and revolved around a transformative new technology. Both also ended badly for the large numbers of middle-class investors they roped in.

Some well-known companies that were initially punished for resisting the Internet's allure have also come out ahead.

When Amazon.com burst onto the scene, Barnes & Noble (BKS) responded with the Riggio brothers' sharp-elbowed Brooklyn-bred style. The company plowed tens of millions of dollars into its barnesandnoble.com (BNBN) subsidiary and spun it off to the public in a May 1999 IPO. The dot-com has since lost about 84% of its value.

Borders (BGP) responded with Midwestern reserve, reasoning that it didn't make sense to fundamentally alter its successful business model. Borders opened a small online store in May 1998 but didn't spend gazillions promoting it. Angry investors beat down the stock to such a level that managers considered a leveraged buyout.

Today, Borders is still a bit player in cyberland. In its most recent quarter, Borders.com sold about $5.1 million in books online, losing $4.2 million in the process. But the company has otherwise been able to continue its strategy of rolling out new stores, including 16 in the past three months. Its stock has outperformed that of Barnes & Noble over the past year -- and over the past five years.

Or take Tiffany (TIF). The high-end retailer's stock bumped around $10 for much of 1998, as the Internet retail craze gathered strength. In September 1999, competitor Ashford.com (ASFD) went public and was quickly rewarded with a $1.5 billion market cap.

But Tiffany management was skeptical that large numbers of Net surfers were willing to plunk down $6,700 for a pair of cuff links, sight unseen. Tiffany did begin selling a limited number of items on its Tiffany.com Web site in November 1999, and last year struck a partnership with WeddingChannel.com.

As Tiffany bided its time, Ashford.com plowed through its cash. The company's cash on hand fell from $93.5 million in September 1999 to $25 million in September 2000. And it has continued to lose money on sales of $12 million in the most recent quarter. Ashford.com's stock, at about $2, is a shadow of its former self.

Tiffany doesn't break out Internet sales, but sales of the entire direct marketing channel, which includes Tiffany.com, were $30.8 million in the quarter that ended July, or 8% of overall sales. And the company's stock has more than quadrupled in the last four years.

Building businesses that succeed, and creating bodies of journalistic work that last are tests of endurance rather than speed. These endeavors are more like running a marathon than a 100-yard sprint. As will surely be the case at this Sunday's New York Marathon, those who fearlessly bolt to the front of the pack at the outset probably won't be standing on the winners' podium.

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