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The Net and the Tin Man

Spread through every joint of the economy, the Internet is the oil that breathes life into the machine.

Boy, have we ever forgotten why we got into the Net in the first place. There have been so many deals and so much money raised and so much competition coming to the Web, that it all seems a little disembodied, almost unnatural, to us all.

The consensus rap has evolved from wonder of the universe to "None of these companies is going to make a dime and it is all a bunch of hype" almost overnight. The old media guys and the old store guys and the old everybody else has discovered the treasure trove of dollars that is dot-com. And now most new Web stocks are copycats or limp shadows of the real "non-e" thing.

The bankers have created more dot-coms than we will ever know what to do with. (I know, I am now a "profiteer" too, having lost my believer status when we went public.) Ultimately, the schematic of the current market's mind reads like "I wish I had never heard of the Internet, give me some




That's why I was so thrilled to hear Howard Charney, a top


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honcho, explain the revolution of the Net in a fresh way during a talk I was lucky to attend at the

National Investor Relations Institute Annual Conference


Darn, I hated following that guy. He was so exciting, so juiced, so ready to explain what the Net has in store for us in e-commerce, e-work and e-play that I demanded


stop selling Cisco no matter where the bonds traded (he listened to me but not before lightening up at a higher level).

Out of nowhere Charney made me remember why the Net has it all for an investor. It was like Charney could bring back to life the magic of the Net before the

Michael Ovitzes

and the


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tracking stocks and the

Barnes & Nobleses

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reared their nonprofitable heads. He made me remember that the Net, when integrated with audio and visual, has the capacity to generate gains wherever it touches, provided that a company embraces it the way Cisco has embraced it. The Net to Charney, if I may be so bold as to appropriate his thoughts grafted on to my own, is like the oil can to the

Tin Man


The Wizard of Oz

. It turns the metal statues into living, breathing organisms.

What would that Tin Man pay for that oil can in the open market? What's it worth? Pretty hard to quantify. If you recognize that the oil, when spread through every joint of the economy, transforms the heap of tin, then you have understood the Cisco vision of where the Net is taking us.

But all is not well on the Net front in the stock market. We are trying to figure out now everyday, which can contains oil and which can contains water. And if we keep reaching for cans of oil and we get water, these dot-coms will paralyze our portfolios forever.

In fact, if you had to think of a way to keep the dot-com market rusted into lifelessness, you would be doing exactly what corporate America is now. You would float stock in an enterprise that deliberately seeks to lose money in order to keep more people from getting cheap access to capital on the Net. You would spin off any sort of Web enterprise to the public to keep it from hurting your own enterprise while it sates every conceivable investing dollar that might have been available for valid Net enterprises. You would be sure that

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was the last Amazon and no one would ever "Amazon" an industry again.

Here, I have to fall back on what I am most familiar with -- old and new media -- and how the old guard is now reacting to the overnight change in the landscape. (I don't go there because of



the stock; I go there because it is what I know best.)

Not coincidentally, I always figured that other media establishments DELIBERATELY kept their Web sites free in order to discourage

and others from starting up. As long as they kept their free content, who could ever develop a business while charging for content? Who would ever take that gamble except some lunatic? In fact, at one point I toyed with an antitrust suit to open the books on these guys to see if a predatory pricing case could be made against them for giving away goods that have market value in order to frustrate competition. I still think it would be a dynamite case for an aggressive prosecutor.

(In our case, what the media didn't count on is that people pay 100 times as much for wires that compete on screens against

, allowing us to undercut those traditional institutional vendors with a price point that amounted to peanuts for the individual investor. The ridiculously expensive pricing umbrella extended over this industry by the oligopoly of



Dow Jones




gave us the opportunity to ramp up in their faces. )

But now the blurring is beginning. As fast access to the Web penetrates the home, the newspapers and magazines of the world have become no-growth businesses, with all of the incremental circulation going to the Web.

Soon, the public at large will arbitrage the price difference between the fully featured, free, personalized site updated instantly and the static, bulky, ink-stained relic that appears, sometimes late, at the end of your driveway. I mean, what is the deal with the fresh free site vs. the paid stale paper? Do you pay more for day-old bread at the bakery than you do with stuff right out of the oven? I know I don't.

The last-ditch effort of the old guard is to flood the market with tracking stocks and spinoffs and oddball classes that let you share in the losses of the Net, while the old guard milks the old cash cow while it lasts. But so far the people aren't buying it. Doesn't matter; the folks doing these abominations pay full-boat fees and have a ton of clout. Their deals will get done on the backs of the investing public.

In the meantime, a tremendous amount of money has been raised for what I call the nonproprietary portion of the Net. That's the kind of shopping where I can go to a site and get the cheapest price around the globe on the latest


laptop. There have to be 10 publicly traded companies doing that kind of ordering, and I don't see a whit of value there.

Similarly, how many CD companies do we need? How many book companies do we need? How many drugstore companies do we need? And how can anybody make any money when every single one of these companies has raised $100 million to beat the brains out of the other guy.

As this Net shake-out continues, I am steering clear of a company that doesn't have multiple revenue streams and that is trying to make all of its business from advertising. I think that's a crummy model, one that is doomed to be no more lucrative than the penny-savers you can't get rid of.

I want to be invested in companies that don't have 10 other well-financed competitors doing the exact same thing. And I want to be invested in consolidators, companies that have decided to take matters into their own hands and crush competition when its cheapest and easiest: by acquisition and closure.

But the one thing I do not fear is that the companies that have never done the Net or are just getting started right now will beat already entrenched Net players. I am confident that the onslaught by the old guard will eliminate any capital left to invest in the Net, obliterate it so fast that the dot-com cycle will be through by the end of this year.

Capital will get expensive again and enterprises will burn through their money and have no place to go for more.

Then, when that window gets closed, we will look at what is left and begin to marvel anew at how much the Web can do, and how well it can do it, and how much more improved it will be when all of the new technologies I see on the horizon get integrated into our day-to-day Web use. And we will begin to make money again owning the best Web brands and those who are using the Net to oil, not water, the Tin Man.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Cisco and His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

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