From: CurtAdams@aol.com
Date: Tue Dec 21 1999 - 11:23:45 MST
In a message dated 12/21/99 9:43:10 AM Pacific Standard Time,
bradbury@www.aeiveos.com writes:
> On Tue, 21 Dec 1999 CurtAdams@aol.com wrote:
>
> >
> > My point was that, while our current stock market sure looks like
> > a bubble, it's still far from the most severe bubble the world has
> > seen.
> >
>
> Is it? I noticed a story yesterday, perhaps in Barron's(?), about
> the possibility that moving to eBusiness might drastically change
> the cost structure of modern businesses. If you look at most
> organizations you get something like 10-15% going into management
> overhead and another 10-30% going into sales overhead. If
> those could be substantially reduced or eliminated, then
> your profits would go up substantially meaning the P/E ratios
> would come down very rapidly. The trick is that organizations
> have to develop rolling innovation strategies.
True, but sales mostly requires personal skills, and
managments requires a combination of personal skills
and forecasting. Ebusiness isn't currently promising
to help those much; mostly it helps to reduce paperwork.
> eSales is going
> to knock the profits out of a business *unless* you are the sole
> supplier or have a "captive" market. So the companies that are
> going to do well are those who innovate and get out as soon as
> the competition catches up and cuts the profits. It looks like
> a huge speedup of old business models.
I agree; but this makes the extraordinary valuations of most dot-coms
even less plausible. You're saying that investing to capture the market
won't do you much good - but that's what the dot-coms are doing. By
the "new model" the question is "what are you making now" or "what's
your monopoly power". The dot-coms are doing poorly on either.
>You have to look at companies like IBM, HP, 3M, Lucent, Cisco, etc. that
>seem to be really really good at innovation. For those companies
>the high P/Es may be quite justified.
I suspect these tech-savvy companies have already harvested much of the
efficiency gains from e-business. They may continue to grow in revenue
although their valuations already require a substantial fraction of world GDP.
At some point people will have to accept smaller houses or less fashion to
pay for their new printers and modems. But I agree the valuations for such
companies, while high, are not ridiculous.
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