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First reader up writes: “Steve, what’s you opinion on term and short term?”

Reply: I am not a fan of Web sites that seem to want to use someone’s name to boost their profile. However, offers a fairly comprehensive site for users in spite of the gimmicky name game. Short term I see riding the hype factor but if it can produce revenues and earnings then longer term it may be more than hype to me. Until revenue reflects potential it’s on my wait and see list.

Going To A Go-Go-Go?

“I enjoy your analysis on the internet sector. What are your thoughts on GOTO.COM and the current value of their stock? Can their business model work?”

Reply: (NASDAQ:GOTO) went public last week at $15 per share, went as high as $27 per share and closed at $22.375. The aftermarket run was about where I thought it would go, especially given the huge array of Internet IPOs to choose from.

It’s really becoming a buyer’s market to me, selection! On’s business model, I like the fact they tell users who paid for what and how much. Highest buyers get highest placement in search results.

Pros: simple search for advertisers. Cons: not comprehensive up front and relevancy determined by who pays the most, not users. Brand may also be confusing with Go2Net and

Overall, ironically,’s model of just search may be attractive in a world where every other search engine became or wants to be a media company. On valuation I want to see more quarterly results to support the valuation now.

Price This Line

“The stock price for has gone down to where it started. I wanted to know what you think about its business model and its patented process.”

Reply: In my opinion (NASDAQ:PCLN) has too many shares outstanding which makes its market capitalization more than I think many investors could realize. I love the business model, a true Internet business model (giving customers power). As far as patents, I’m tired of every other Internet company filing patents on business models. If that trend continues I think it could stifle innovation as any new firm has to pay license fees for common sense models.

Just think if in 1981 IBM had patented a model that could, may, might, some day allow commerce of some sort to be conducted electronically using a computer of some sort, not to and including more than 1 buyer and seller coming together at the same time or different times in any method using a personal or mainframe computer…we’d have no Internet. should win on customer service and innovation more than patents. What’s next? ESP commerce? any time someone thinks about buying and selling pay a license fee. Enough already.


“Steve, nice idea on Merrill scooping up E*Trade. (If I were Merrill I’d have made that move yesterday…but these are completely different cultures and visions and “never the twain shall meet.” I think a far more likely scenario is Schwab making a move on E-Group, although they seem rather pre-occupied just trying to handle the hundreds of new customers each month let alone take on zillions more.”

Reply: Schwab probably thinks it has won the battle already. Merrill Lynch (NYSE:ML) may believe that since it has discovered the Internet (three weeks ago) that distribution (a key Internet trait) is enough. I believe Merrill may waste 2 or 3 years on the learning curve and lose market share to others.

With E*Trade (NASDAQ:EGRP), Merrill Lynch at least gets some instant know-how, although E*Trade has a ways to go as well. In 10 yearsthe big names on Wall Street may all be in a very different mindset, beaten by electronic upstarts.

Viral Capitalism

Steve, as perhaps the only full-time Harvard-educated Chief Economist for an Internet research, analysis, and strategic consulting firm in America, I was impressed with your short June 15 piece on Viral Capitalism and Internet economics. In my view, you correctly pegged a few of the major key issues concerning reach, productivity, costs, and how the Web future may play out in an era of rising inflation and flat GDP growth.

I thought your readers might also enjoy some real-world examples of the kinds of leveraged economies of scale you were talking about. In banking, for instance, the cost of a teller-based transaction runs about a dollar.

With a phone transaction that’s cut in half to about 50 cents and with an ATM it’s cut in half again to about 25 cents. By comparison, a Web-based bank transaction runs about a penny!

Or in stock trading, as you well know, for the same trade, full-service brokers can charge $100-200 per trade vs. about $25 at a Web discounter or as little as $7 at an online deep-discounters. And in call response systems, people-based call centers can average about $1.25 per call while Web-enabled IVR systems can reduce that to about 8 cents.”

Reply: Another fundamental economic truth of the Web (at least in my view) is that of the Web’s dynamic ability to allow entrepreneurs of all types to leverage the medium for value creation.

So in any type of economy I believe that the one medium that allows for new businesses to be started with very low overhead ought to grow even faster.

Consider productivity on a human hour basis. People from all walks of life are able to start Internet businesses and they are. That’s very different from past eras when not everyone could start an automobile manufacturing business, electricity production plant, even a PC manufacturer operation, as EASILY as they can start a Web business.

That translates into MORE human hours committed to Web business creation than any other industry in any other era. A global network that’s as easy to reach 1 as 1 million.

That’s how the Internet year is considered to be 7 years for every 1 in any other industry. I wonder if Federal Reserve chief Alan Greenspan sees these changes, how Internet productivity works. It has a bearing on stocks, especially Internet stocks. Thanks for your two cents.

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