Metcalfe's column: From the ether

Only 10 weeks until November 8, 1999, the day the internet stock bubble will burst. And hurting the most will be companies that rely too much on selling internet ads.

Don't know much about the stock market, but I've been predicting this burst since April 26. (See http://www.infoworld.com/metcalfe.)Why risk such an exact prediction? Because Freeman Dyson is right: It is better to be wrong than to be vague. And this time I've not agreed to eat anything if I'm wrong.

Why November 8? Well, first of all, it's a Monday. And as if that weren't enough, third quarter earnings (if any) and fourth quarter estimates will be out, and disappointing.

Further, year-end tax-minimisation plans will be exaggerating fears about year 2000 software bugs.

And then there are the 'lock-ups', which prevent early employees and investors from selling stock in newly public internet companies. Many more lock-ups will expire before November 8, creating excess supply to fuel the big sell-off.

The Street.com has an internet stock index. It peaked at 824 during my April warnings. Last week, it was already down 33 per cent. Many recent initial public offerings (IPOs) are "below water". Their lock-ups have expired. They're trading below IPO prices. So, we're told, the internet stock bubble has already burst.

Don't be fooled. Many internet IPO prices were surreal. There is a lot more bubble bursting to do than 33 per cent. And leading the way down will be companies too reliant on the selling of internet ads.

AdForce is a hot young company that does not sell internet ads. It serves companies that do. AdForce tools and services help Web publishers and their agencies to target, schedule, submit, select, deliver, account, audit, and analyse advertising campaigns.

AdForce went public in May and reported an unprofitable second quarter with revenues of $US4.2 million, up 433 per cent from last year, after delivering 18 billion ad impressions, up 38 per cent from last quarter. A new data centre gives AdForce 450 bps of access to 10 terabytes of storage, increasing its ad selection and delivery capacity to 450 million impressions a day.

Working at IDG, a company with hundreds of millions of dollars in ad revenue, I think highly of my theory that internet ads will turn out not nearly as profitable as those in print and broadcast.

AdForce doesn't exactly agree with me. The company believes that tighter targeting of demographics and psychographics will eventually result in higher advertising prices, measured quaintly in costs per thousand impressions (CPMs).

However, AdForce concedes that internet CPMs are currently in decline. With no paper handling and bandwidth aplenty, competition for the attention of internet users is fierce. internet CPMs are now generally below $1.

Growth is masking price declines. AdForce alone is adding a billion new ad impressions a month. But by November it will be clear that you cannot give everything away for free to attract eyeballs for sale profitably to advertisers.

Business models will have to show increasing revenues from sources such as access, transport, services, subscriptions, pay per view and transactions.

Adding to the November woes of companies running rich on internet ads is that we are growing tired of banners. (See http://www.bannerssuck.com.) AdForce reports clickthrough rates at 1 per cent.

The ad community is hustling to boost clickthroughs with animations, vertical banners (whoop dee doo!), audio, and other rich media advertising (see http://www.adforce.com). So one new application of always-on internet access will be the overnight downloading of exciting ads onto our disks.

While steaming up about that, mark my words. These advertising trends and uncertainties will come to a head in the stock market on November 8. And I won't be able to resist saying I told you so.

Technology pundit Bob Metcalfe keeps his small fortune in a blind trust. He hopes its stock pickers read this column and, if they hold any internet stocks, they will dump them before November 8, 1999

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