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Told You So

I scored a solid B+ on last year's predictions -- despite the AOL-Time Warner deal. This year's forecast is all gloomy, especially for George W. Bush.

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I made three predictions for the year 2000. Amazon would become the Atari of the Internet. Gore would be elected president -- with the winning issue being his offer to suspend television advertising. The old-media business would gobble up the new-media business (which, like politics, was in the process of bankrupting itself with television advertising).

This is how I rate myself on a 5.0 scale:

  • Of the Four Horsemen of the Internet -- Amazon, Yahoo, eBay, Priceline (let us not quite include AOL here) -- it was Priceline that became most Atari-like, going from a revolutionary business force to a has-been and punch line overnight (uttering the name Jay Walker gets you a reliable laugh even in gloomy gatherings of dying Internet companies).

Amazon has turned out to be more the Wang of the Web. Instead of disappearing with a puff, it began a longer process of denial, losing almost 80 percent of its value and becoming a bitter pill for the rest of the technology industry. Granted, it has been a sort of noble denial. Amazon's argument is that it's so beloved, has so many customers, and does its job so well that it merits every benefit of the doubt. In substantial ways this is true: Its problem and its fate don't have much to do with performance. Amazon is doing what it does as well as ever. It's just that its value -- its halcyon $40 billion value and its CEO Jeff Bezos's status as Time's Man of the Year, or even its current $9 billion -- depends not just on performance, but on a general willingness to see it as the last best hope for retailing (even as the rebirth of retailing).

If we begin to judge Amazon roughly, or with impatience, or begin to lump it with all other retail companies, then it is logically worth what other retail companies at its performance level would be worth, say, about $1 billion -- which means it does not have enough value to finance its projected operating and capital deficits. Unlike Wang, Amazon is not necessarily obsolete. But it is more likely to live its life as a division of a major national retailer rather than as a mighty Internet company (a prediction for 2001: Amazon gets bought for under $1 billion). If I was overly alliterative with my metaphor, I was more right than not about the outcome. I give myself a 4.5.

  • In the matter of Gore and how he might have waged the 2000 campaign, I was wishful and wrong. I figured he had the intellectual (albeit not charismatic) wherewithal to take a modern business and cultural issue -- the vast sums of money that television advertising requires, which is the root cause of the campaign-finance crisis -- and turn it into a political issue. (Quick: What's more important in your life, media or Medicare?) I was really thinking that Gore was distinguished from other politicians by his grasp of this stuff (the information superhighway is his metaphor, after all) and that his offer to suspend television advertising would have been a simple and fun way to have manhandled Bush.

But no cigar. Indeed, both Bush and Gore ran the most conventional of campaigns. And because neither found a way out of the television morass, and each had about $100 million to spend, there was some inevitability to the deadlock. Still, because no other pundits got anything right regarding the outcome of the campaign, and because Al Gore did actually win, I grade myself on a curve: 2.5.

I predict an '87-size drop. A full-scale crash. The Big One. When? Spring.

  • As for the relationship between old media and new media, and the primal struggle I saw shaping up with old media using its cash to scarf up soon-to-be-broke Internet companies, I had to do some shuffling when AOL made a deal last January to take over Time Warner. Not only did I seem wrong (although I argued, manfully, it only looked like AOL was buying Time Warner), but the deal seemed, briefly, to suggest the beginning of an entirely new alignment in media world power. Yahoo would buy Disney. CMGI (last year's biggest share-price gainer, now facing extinction) would buy News Corp. Even iVillage would buy something. But then the world changed, and suddenly the only people who seemed as prescient as me about the end of dot-com value were AOL's executives, who knew enough to use their high share price to lock in a deal.

As it happens, the as-yet-uncompleted AOL acquisition of Time Warner will be the last time a new-media company will ever find itself in such a buyer's role. Indeed, if the deal had not been agreed to with all kinds of onerous breakup provisions, instead of AOL being worth 50 percent more than Time Warner, as it was last January (or even the 8 percent more than TW it is worth now), AOL would likely have followed Yahoo's fortunes and lost 85 percent or so of its market cap, and, therefore, be worth somewhere south of a quarter of Time Warner's value.

Not only was I right that media companies with positive cash flow would be buyers of new-media businesses, the reality was even more stunning: New-media businesses would be begging old media to buy them up. Such new-media enterprises now have no possible way to exist other than with the support and sufferance of old-media companies. Of course, much of the rationale for old media to buy new media went away because the threat of new media as a more potent and efficient and competitive advertising medium went away, too. (It's unlikely that Time Warner investors would approve an AOL deal today, even at a vastly discounted price.)

At Time Warner, tethered to if not yet owned by AOL, there is a blinkered, marching-forward attitude. It is some premodern marriage agreement that cannot be undone. Ritual and propriety, and arcane dowry rules, keep it together. Bob Pittman, the lucky husband, gloats.

I award myself a bonus point: 6.0.

Year-end grade: 4.3 out of 5.0. Or as Amazon would put it: *****

But that was easy. Now we begin a year that already seems both farcelike and sinister in its uncertainties.

So follow the comedy as well as the conspiracies:

  • Let us return briefly to the fate of dot-comdom. Surely one element that is fueling the now-inevitable demise of the phenomenon is a certain pleasure the world is taking in the fall of such unappealing people.

It is a classic kind of humor. Give a man wealth beyond all imagination, watch him come to believe he is deserving of such wealth, even that he has earned it, and then take it away from him. The cruelty does not much diminish the satisfaction.

At any rate, I am confident that these will be my last dot-com predictions, that, after this, there will be no future to predict. Indeed: By the end of 2001 there will be no Internet business whatsoever. It will not even be possible to say, I'm in the Internet business. There will be no dot-com industry left. While there will be traditional businesses that use the Internet (and that have acquired relevant dot-com companies), and various literary and cottage-industry efforts (pornography, for instance), the Internet as a unique business idea is gone. The period from 1996 through 2000 was, relatively speaking, the sixties. An illusory moment that quickly passed. (But oh, what fun!) Now the dreary seventies begin. Count on the recriminations.

I predict SEC indictments of notable analysts and VCs and Internet CEOs and CFOs who marketed securities on the basis of New Economy fantasies, which, in Old Economy terms, are now more recognizable as stock swindles and fraud.

  • Technology, we will come to agree with the passing of this Panglossian era, sucks. Or there will be widespread agreement that it never worked to begin with. This is part of the subtext to the falling tech market. The growth of tech stocks was based on the promise of broadband -- which no one actually had. During the past year, enough people have gotten high-speed connections to know firsthand that you can't get it installed, or that, if you do, after Herculean efforts, it's slow. But the tech breakdown goes well beyond that. Because the whole web of technology-aided solutions and services and salvation is a disappointment. We control our deep frustration only because we've been brainwashed to believe it will soon get better. But if the stock market slows down, and tech companies go out of business, and tech support becomes even more difficult to get on the phone, we will begin to lose that blind faith. We will find that it will not get better, it will get much worse. We are all travelers; we are in the same airport; and none of us is going anywhere anytime soon.

  • Volatility rules! " . . . but then the market shifted . . ." will become the universal excuse, explaining every screwup, bad choice, inept decision.

    Then again, the market has shifted, and the sky will truly fall. I predict an '87-size drop. A full-scale crash. The Big One (although in a volatile age, the lows swing up as quickly as the highs swing down). When? Spring.

  • Such volatility and reversals create a problem not just for shareholders but for the media: A potent underlying issue of the coming era will be the media's credibility gap. You can only get it wrong so many times before people start to expect you to get it wrong -- and before you are written off as a fool. The pundit predicament in 2001 will become a doleful one. Television will become a place of apologies, contrition, and retraction.

  • AOL-Time Warner breaks up. I mean, the deal gets done. But having done the deal, for all the obvious reasons -- a dot-com penalty against the share price on top of a soft-advertising-climate penalty against all media stocks -- there will be the inevitable effort to "rationalize" the company and raise the share price. I'd guess AOL/TW will try to portray itself as some new kind of television proposition -- Pittman is a television guy and Jerry Levin still has interactive TV on the brain. The magazines will finally be allowed to go their separate way. And certainly no one is going to mourn the loss of a music company. There will be a lot of rationalizing and philosophizing and strategizing; much smoke and moving of the troops to hide behind; and, in the end, spin-off will suddenly be a sexy and brilliant solution. AT&T is just the beginning of the big-media breakups.

  • Bush loses.

Presidential campaigns, for some unlikely reason, are relatively well-tempered, fair-minded, indeed, lily-livered affairs. They are, you could say, exercises in denial. It wasn't until after the 1972 election that Watergate came out of the closet. It wasn't until after Bill Clinton became president that his various messes caught up with him.

The get-even thing doesn't really begin until you have someone to get even with.

I doubt if there can be any way the Bushes are ready for what will become the unending deconstruction of the 2000 election. Not only will we shortly get a vivid picture of the Bush machinations in Florida, but we'll get hand counts by news and academic organizations, which -- who thinks otherwise? -- Bush doesn't win.

The drunk-driving bit of malfeasance that emerged days before the election, only to be obscured by the election aftermath, is, of course, just the beginning of the personal deconstruction.

But the thing that is hardest to predict is whether people -- large numbers of normally hard-to-move people -- will really get mad about this. Whether there's enough emotional resonance in the presidency to put people over the edge.

It is just possible that politics could become very interesting again.

So here's the skinny: the vast but uncertain ramifications from the busting of the biggest speculative bubble in history will certainly bollix up the economy, casting doubt on almost every aspect of the media-technology-finance society, with no one able to say, with any reliability, who caused what to happen, and what might happen next; plus, such an unpredictable, unstable, volatile situation falls under the shadow of a stolen election; and, of course, everything is further exacerbated by the difficulties of getting an on-time flight.


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