An E-tailing Pep Talk

The recent collapse of stock prices has been greeted with the relief of a New Year’s reveler realizing that pink elephant in front of him really is just a Rose Bowl Parade float.

As Mindspring founder Charles Brewer told an Atlanta reporter, there has been a “spectacular unwillingness” to look at real revenues and earnings, so the bear market (always called “a pause”) is normal, natural, even healthy.

I have been saying this for years, even before the bull market that made billionaires out of people like Michael Saylor and Jerry Yang got rolling. But just as optimism can be overdone, so can pessimism. We’re about to see that.

Take a look at a recent MSNBC chart on the subject of e-tailing stocks. At $6.50 per share, for instance, the value of Egghead.Com is $247 million, less than half its trailing 12-month sales. That’s actually a lower ratio than for the Tweeter Co., a non-web retailer that owns a collection of stereo stores.

Now admittedly Egghead has problems. It has no unique selling proposition, its home page is a mess of merchandise and tabs, and its TV commercials stink (in my opinion). The company has also failed to make a profit.

Yet if you were looking for potential turn-around situations, which would you more likely investigate: an outfit with meager profits in strip malls or one with a major presence online?

Just as a motley collection of fools became billionaires on the basis of “irrational exuberance,” there’s also such a thing as irrational pessimism. Don’t expect to see Bill Gates standing by I-5 shaking a tin cup and wearing a sign reading “will dominate the world for food” any time soon.

I’m the same dude you misused on the way up, and I’ll say the same thing on the way down. The web is not about stock prices and it was never about the stock price. The web is about building value, changing how people buy and sell, and creating new methods for self-expression. The web is about linking together as people, businesses, and servers to do what anyone wants to do. The goal is to earn money for ourselves by saving money for others.

There will be a shakeout, and a lot of good companies will go by the wayside. But here’s a prediction for you. Forrester Research analyst Joe Sawyer was wrong when he wrote this week that “brick-and-mortar retailers will regain their footing,” prevailing in the end alongside a few catalog merchants and Amazon.com.

The game is not over. Retailing hasn’t really changed, because firms like CDnow and Egghead.com didn’t really change it. There is still plenty of room for start-ups to rock the world. Now may be the best time to start one.

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