In search of. . . a tech-stock upside
After the bubble burst, though, tech stocks couldn't buy a break. Now, if you were to ask the man in the street about dot-com venture capital, he would probably say, "What capital?" But there is investment money out there, though the watchwords today for any dot-com to have a prayer of getting funded are profitability and sound business planning.
Welcome to the big guys
Maybe that's unfortunate. Not only was the earlier illusion more fun, but given the continuing need for vast investment—for research, expansion, and infrastructure upgrades—well-capitalized companies must merge and consolidate to be able to meet the outlays required.
Sound familiar? That's right, a relatively small group of conglomerates will rule the Web: manufacturers, telecoms, software providers, and content creators. On the bright side, you'll access a mind-boggling array of entertainment, services, and productivity tools, delivered on dozens of devices.
Copyrighted material will largely be protected, despite leakage from illicit file-sharing services and systematic content piracy overseas. Generally, though, you'll pay for copyrighted content and services by subscription.
In fact, once the basic hardware is perfected and the necessary billions invested in high-speed links, content by subscription will be a dominant source of revenue for the tech conglomerates. We're seeing that trend already as PCs become loss leaders, paid for by after-sale services. And we may yet see the day when most PCs and wireless phones/PDAs cost nominal sums, subsidized by multiyear subscriptions.
Don't say you wouldn't pay to have an efficient, tightly integrated Internet experience tailored to your particular needs and preferences. Add in feeds of music, movies, books, and games, and you might be willing to shell out a hefty sum, especially if the hardware cost were minimal.
PCs beyond the box
In the PC industry, Compaq, IBM, and HP already employ "beyond-the-box" elements to enhance their business. They expect revenue from such back-end hardware and services to account for a growing share of their profits.
Dell and Gateway, on the other hand, have been more closely tied to the PC itself. Dell has begun to pick up PC market share with aggressive price cutting, but to compensate, the company must increase market share among businesses, especially with sales of servers and back-end services. Gateway, despite efforts to extend its relationship with customers beyond the initial sale, is more clearly tied to the PC as the core of its business. Ted Waitt's recent return as CEO suggests a possible change of emphasis, but it remains to be seen which way he'll go.
On the software side, Microsoft gains much of its revenue from its Office suites: 95, 97, 2000, and now XP. It will need a steady stream of cash from them to make the transition to subscription-based software and services. In fact, it's already taken the first step with Office XP, whose "product activation" technology is in fact locking technology that fixes the software installation to a particular hardware configuration. With that done, Microsoft can sell or rent software and upgrades with much less fear of illegal copying.
Dot-com survivors
Just as PC vendors are looking for revenue beyond the box, so the remaining dot-com players must find ways to pay as they go. The most promising options are, first, to get acquired by a larger company willing to retain the dot-com's services in a larger bundle rented to consumers or businesses, or, second, to find ways to generate revenue sufficient to meet ongoing expenses and grow incrementally.
The enduring legacy of the dot-com startups may well be not Napster, targeted by copyright holders everywhere, but eBay, which has taken the lowly swap meet online and around the globe. eBay has been profitable from the beginning, and its management is working to extend service to businesses, helping them liquidate old equipment direct to consumers.