Mar 31, 1999, 1:50pm

Hi folks.

This is a followup to my last rant. In case you forgot, I was making wild predictions about the collapse of the Internet in the next few years. You can read it here.

Since I got a comment recently that I tend to ramble on way too much and repeat stuff, I'll try to make this shorter. I'm here to please, after all. So here we go.

Collapse of the Net, Part Two

Last time around, I talked about how Internet stocks are over valued... hypervalued, to use an old economic term. I ended by saying the colapse of these hypervalued stocks will lead to the collapse of the Internet structure as we know it today. Why do I think that?

Don't be fooled: The primary driving force of net niceties and perks, such as cable modems, increased bandwidth, adsl etc is money. Money derived from Internet related stocks. These stocks can include the "ether" stocks (my term) such as Yahoo and Geocities, but also includes the stock values for more traditional companies with real products and services.

When the "ether" stocks collapse, I think (and it's just a hypothesis) that any stock remotely related to the Internet will collapse as well. What was gold will be come lead. And when they become lead, the money will dry up.

If you study the cause and effects of the '29 crash, one thing that pops up consistently is that not only did the "ether" companies of the time collapse (companies that were overvalued by 1000s of percentage points) but even solid, established companies suffered greatly. A lot of companies that were household names were either bought out by others or just died off.

I think the same thing is gonna happen to any company with any tie to the Net. Only a few lean types will possibly survive. And when they go, the network is going to suffer greatly. Companies like IBM and Microsoft will no doubt ride the collapse, but I'm betting they will be hurt, big time. Companies like MCI, UUNet, Sprint, and other bandwidth providers will also be hit hard. When those companies get hit, they will need some sort of restructuring. That restructuring might mean a big time throttling back in bandwidth (or at the very least, no more money to maintain and increase overall bandwidth).

When the money to maintain and increase bandwidth goes, the Net "slowdowns" we all get frustrated over today will increase a hundredfold or more. Using the Net, even over an analog modem connection, will be a serious experience in frustration. Entire sections of the Internet (pipelines and router hubs) could go down, or be taken down, leading to further slowdowns and frustrations. And because there is no money (and lots of bankrupt companies), the bandwidth will not be fixed or replaced.

Okay. When it comes to stocks, markets, and even Internet bandwidth issues, I'm a total layman. The only things I know about the 1929 market crash (and subsequent effects) are things I studied in my history and poli sci degrees (so I studied it from a historical, political and social aspect, not from a financial analysis background). But to summarize, I predict the following will happen:

Almost overnight, "ether" stocks, such as Yahoo, E-bay, Amazon, CD Now, Netscape, and the like will collapse when investors realize the dream is over, and these companies will never make money.
 
Almost immediately afterwards, so many investors will be burned badly that any stock even remotely related to the Internet will suffer great losses. Money will be pulled big time from any Internet related stock (Microsoft, IBM, Sun, Intel, MCI, Sprint, etc), and corralled into "traditional" stocks, or just kept as cash, when it can be pulled without heavy loses.
 
A LOT of Internet related companies will collapse or be bought out. The industry will have a huge reorganization, and money will be sucked out of the industry as a whole, like a vacumm.
 
With no new money and depleted values, the established and traditional companies will survive, but little new cash will go to maintaining and upgrading the core of the Internet: hubs, routers, switches, bandwidth.
 
The Internet will suffer greatly, and might even collapse into itself.
Okay, so I'm a layman, but I've been thinking a lot about this lately, and I think it really could happen. Humans are so stupid that we never learn from history, and everything I see in this current "Internet Stock frenzy" is a mirror of what was going on in 1928-1929 with the Stock Markets, worldwide. It's destined (doomed?) to happen again because people are blinded. Investors don't know jack shit about the Net, but they've seen the overnight gazillionaires made by Yahoo and Netscape offerings, and they want part of the pie. The problem is, the pie is about to be taken away.

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