Bricks-and-clicks firms to rule digital age

By Bob Ng

SINGAPORE: The person who popularized the terms "old economy'' and "new economy'' has done the world a great disservice. One result is the arbitrary division by all kinds of commentators, expert and otherwise, of companies into either of the two camps.

Those unfortunate enough to be identified as old fell out of favor virtually overnight among investors the world over, and their share prices went on a steep decline.

Those classified as new became hip, their shares were much sought after, and their prices went through the roof.

Of course, all that is recent history now.

Reality sank in, new-economy stocks were dumped. A reassessment of what is old and new showed that in real life, things are not always black or white.

This is not to say there are no products, services, companies or even industries which will not become irrelevant with the passage of time and technological changes.

Equally, there will always be products, services, companies and industries which will spearhead the move to more innovative and efficient ways of conducting business and performing office or leisure activities.

The past is replete with such examples. The horse-drawn carriage was superseded by the car. Few people go overseas on steamships now as planes are much the faster way to travel. The typewriter has given way to the word processor. The list goes on.

But it would be a foolhardy person who dares to predict that all established ways of doing business will go the way of the dinosaur -- and that dot.coms will sweep away the brick-and- mortar companies.

He must also be blind to what is happening currently on the World Wide Web where Internet start-ups are falling like ninepins.

The statistics speak for themselves: In the U.S. alone, at least 10 well-known websites have closed in the last two months and another 19 have laid off staff, with 654 people losing their jobs last month.

And the word is that the shake-up is only just beginning.

Researchers say that as many as half of U.S.-based e-tailing sites may be out of business by year-end.

Already, out of some 300 cosmetic and beauty products sites that were on the Web late last year, only 100 remain.

A recent Barron's study of 207 U.S. Internet companies predicted that at least 51 would have run out of cash and failed by next March.

However, it would be wrong to conclude from the high casualty rate of dot.coms and the recent downgrade of their shares, especially in Nasdaq, that such companies are on the way to oblivion.

The reality is that well-run, forward-looking, creative and aggressive companies will always survive and prosper, whether they belong to the so-called old or new economy.

Successful brick-and-mortar companies are those which don't pretend that cyberspace does not exist, and embrace e-commerce wholeheartedly as another way of selling their goods and services in addition to the traditional.

And the dot.coms which will escape the on-going carnage are those which accept the simple economic fact that the bottom line is always more important than the top line.

Meaning that no matter how enormous your revenues are, it is really your profits that matter.

It makes no commercial sense to propel your turnover, or pageviews in the jargon of Internet firms, to stratospheric levels if the cost of doing that is even higher, and red ink is the color of the P & L account.

Investors will soon enough realize that putting their hard- earned savings into these companies is like throwing good money after bad, and bail out post haste.

As one U.S. analyst said: ""We are moving into a new phase of the dot.com digital revolution. Investors are demanding that these companies come up with more coherent profit models, and I think we'll see a littering of dot.com failures, mergers and buy- outs.''

For the fittest which survive, the rewards are phenomenal. Online sales are forecast to top US$23 billion (S$40 billion) next year, and expand to US$78 billion in 2003 in the U.S., while globally, they will reach US$1.6 trillion in the same year.

Out of the shake-out and consolidation would probably emerge the business model of the digital age: Established brick-and- mortar companies buying up or forging partnerships with dot.coms or moving into e-commerce on their own, to tap the burgeoning online market.

These will be the bricks-and-clicks corporations that will dominate the future.

The writer is associate editor of The Straits Times, from which the article was taken through the Asia News Network.