It's paper fortunes mostly in e-stocks

By ROD ORAM

Between the lines


Who's making money from the internet? So far, it's people trading shares in internet companies - not the companies themselves - who are generating fortunes.

How real are the fortunes? Not very. It's paper prosperity. It only becomes real wealth if the shares are sold before they crash.

Will they crash? Probably. This week e-stocks stumbled badly. Here are three signs of a seriously fragile market bubble:

* Some US e-companies are running short of cash. Worse, they realise investors are cool to their returning for more. Instead, investors want new plays because the big gains in e-stocks are made in the first few days after flotation.

* Insiders are selling out like never before. In February, US executives sold a record $US23.4 billion of shares in their own companies, double the previous month's. A hefty proportion of sales came from e-companies.

* The e-stock boom is sustained by an increasingly small number of stocks.

So where will the real wealth come from? James Grant, a US financial iconoclast, offered this perspective: like the internet, the air-conditioner was at its launch a technological marvel. But it was the users not the makers who gained the most.

Air-conditioning of buildings and cars transformed the US South after the Second World War. Towns such as Atlanta, Houston and Dallas became huge cities, creating great wealth for land owners, construction companies and the like.

Companies such as Westinghouse and Carrier made modest profits from making air-conditioners.

For air-conditioners and Atlanta, read internet and Auckland. That's not too fanciful. Auckland is a far more pleasant place to live than Atlanta. Auckland (and the rest of New Zealand) has had no vast hinterland like Atlanta's. But the internet is changing that, tying us into the rest of the world. It is making Auckland an acceptable place to do business just as air-conditioners made Atlanta.

But how we play to that is tricky. Consider the news from FlyingPig. It is heading for a transtasman alliance to help build its e-commerce web site. It was started on a shoestring by fixing a new front end to the Whitcoulls web site. It has developed but is still behind its rivals.

And in this game the competition is increasingly global. A quick tour of flyingpig.co.nz and amazon.com shows you how wide the gap is. Even a transtasman grouping might not be enough.

Maybe FlyingPig is too generic an internet application to have a long and profitable life. In contrast, an Auckland builder of superyachts could offer, for example, internet virtual reality tours of its boats to wealthy buyers sitting up in Florida, customising the designs online.

So as venture capitalists, academics, Government officials and the rest of us go about building the knowledge economy we need to make sure we're focused on building Atlantas, not air-conditioners.

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Flying Pig