An E-Commerce Wake-Up Call

While e-commerce is turning white hot and dot-com IPOs continue to soar out of the box, cooler heads like Yale School of Management’s Jeffrey E. Garten are taking it all in with a note of caution.

In an essay in this week’s Business Week, Garten, a former investment banker and Under Secretary of Commerce for International Trade, makes some rather sobering observations about the burgeoning New Economy.

While Garten acknowledges that the Internet is definitely the catalyst driving the New Economy, he points out that it is also the reason that many companies are being left behind.

“Painful shakeouts will continue in every industry,” he says. “Soon, any company without a Web strategy will have fallen by the wayside.”

Not Transforming Fast Enough

Garten notes that giants such as General Electric Co. and Toyota Motor Corp. — which already have aggressive Internet programs in place — fear that they might not be able to transform their companies fast enough to keep up with the warp speed of the New Economy.

Also, the shakeout may have an effect on the consumer pool. Garten contends that too much technology too quickly could cause consumers to recoil from an overwhelming myriad of products and actually spend less.

An Untested Model

Still, what troubles Garten most about the New Economy is the same thing that is bothering some other economic experts: Over valued dot-coms.

“Technology companies, now accounting for 25 percent of the Standard & Poor’s 500-stock index, are driving the stratospheric stock markets,” he warns. “But the new dot-coms in the tech sector seem to derive their validations not from an ability to generate profits in any foreseeable time frame but from intangibles like the promise of even larger networks of customers — an untested business model.”

To underscore this point, Garten points out that even a big player like Amazon.com’s revenue per customer is decreasing as its cost per customer is growing — with no profit in sight.

Enlightened Governments

Finally, Garten cautions that the continued growth of the New Economy depends much upon the global policy that governments adopt toward e-commerce growth, investment and competition. He adds that, in a presidential election year, destructive political infighting could keep complex regulatory questions from being answered.

I find these observations sobering, but certainly right on the mark. It is so easy to get caught up — as so many do — in a whirlwind of optimism, often driven by greed.

It is always a good time to pause and look at all the possibilities of the New Economy — even those that are quite negative. To do otherwise would be foolhardy, especially so close to a new decade, century, and — about a year from now — millennium.

What do you think? Let’s talk about it.