The Goldman Gold Rush

PALM SPRINGS, CALIF. (02/10/2000) - A recent Goldman Sachs report calls eBay the pioneer of "C2C" trading. As in "consumer-to-consumer." But at the investment bank's technology conference this week, eBay CEO Meg Whitman made clear that she also wants people to associate a better-known acronym with the online auction house: "B2B," or business-to-business.

Speaking before a dinner crowd of about 800 institutional investors, portfolio managers and analysts at an elegant resort outside Palm Springs, Calif., Whitman announced that later this year eBay will roll out a site aimed at U.S. customers, over which businesses can sell equipment and other merchandise to other businesses. "B2B is a question that people ask me about all the time," Whitman said Monday night, noting that the company unveiled a site last year on eBay's German subsidiary that allows businesses to auction off surplus equipment like machine tools and pumps. "We were stunned by its success," she added in an interview after her talk. Although she had feared that B2B might not fit the eBay platform, she quickly decided that it needed to be included in the company's growing array of U.S. offerings. Whitman also said that eBay would be launching a site in Japan by March.

It certainly doesn't hurt that "B2B" is a buzzword that immediately catches the interest of Wall Street. Michael Parekh, Goldman's head of Internet research, observed that eBay's North American site already has a business-to-business dimension. He recently typed in the word "tractor," for instance, and found about 50 John Deere vehicles up for bid. "EBay's a platform," he said. "It's a little B2B with more B2C, but the B2B is a wide-open space."

The jargon can be exhausting, but don't expect it to stop. Many of the executives at the five-day Goldman event displayed a talent for incorporating the latest Net catch phrases into their talks, as they sought to cast themselves on the cutting edge of the Web. Indeed, hardly a presentation passed without some reference to the company's place among the "next generation" of Web companies. Forget about enterprise software. Instead, Oracle talked about its focus on "CRM" - customer relationship management - software. While Dell Computers has done quite well selling boxes loaded with Microsoft Windows, Dell CEO and Chairman Michael Dell devoted a big part of his Monday morning speech to the strong positions his company has in selling machines loaded with Linux, an operating system that rivals Windows. "Dell is platform-agnostic," he said.

Paul Ottelini, Intel's executive VP and general manager, sounded almost grouchy about his company's relatively moderate valuation when compared with some Net companies. In response, he declared Intel the world's most profitable "e-business."

For some investors, the verbal exercises bordered on the amusing. "It's a peculiar feature of American firms being over-promotional," remarked Plamen Monowksi, who came to the conference from the London office of Merrill Lynch Mercury Asset Management. "Every company attaches itself to a buzzword."

Still, investors said they sympathized with the frustration over valuations that was vented by Otellini and other executives from big tech companies.

"There's a lot of envy out there and mystification over it," said Storm Boswick, a portfolio manger at JW Seligman. "Dell's Internet business and Intel's Internet business are significant, and they don't get any credit for it."

For the first time in the 14-year history of Goldman's technology conference, the event was held outside New York City. While Wall Street investors were relieved to escape the Manhattan winter for La Quinta Resort and Spa, they couldn't help grumbling about the small size of the Palm Springs airport.

Meetings still started before 8 a.m., and big funds held their exclusive "one-on-one" meetings with company executives. Small clusters gathered around computer screens throughout the day to check stock tickers.

Yet the conference, which ends Friday, has been almost as much a celebration of prosperity as a business trip. The investors and money managers were greeted Monday by therapists who gave massages in special chairs during breaks. Tuesday afternoon everyone took off to play golf, go to the spa or take chartered jeep rides into the nearby mountains. After that, signs were posted around the hotel saying, "Welcome to Goldman Sachs Tuesday Night Live," an event that was scheduled to feature the comedian Dana Carvey of Saturday Night Live fame.

The message: The growth sparked by the Internet in the late 1990s is just the tip of the iceberg, and the Internet should expand vastly in the coming decade.

But it remains to be seen who the big players will be as the Net enters its next stage; the companies that dominate today may not continue to do so tomorrow.

Throughout Monday and Tuesday, investors moved from 40-minute session to 40-minute session, scoping out how different companies were positioning themselves to ride the next wave. One investor, who spoke on condition that he not be identified, said that almost all the technology companies were overpriced. "I just can't do anything with them," he said, noting that he was hoarding cash to be prepared for the time that they came down. "Everyone has bid the prices up to unsustainable levels," he insisted. Still, that voice of pessimism was unusual. "Everyone here thinks the future is limitless," remarked Walter Fiederowicz, an investor from Painter Hills Partners of Litchfield, Conn.

That point was underscored Tuesday morning, when Goldman Sachs released the results of a survey of top corporate IT managers. Three-quarters of the respondents expected to spend the same amount or more in the coming year; more than one-third said they would spend more. The survey said that enterprise servers, enterprise software and data networking would see the biggest gains.

In his remarks Monday morning, Intel's Otellini explained a key reason behind his expectations for healthy growth. Business is doubling the amount of data it collects every one-and-one-half years, he said, meaning that "96 percent of the server capacity needed for 2005 is still to be deployed."

This mix of unbridled opportunity, tempered by anxiety about the accompanying business risks, was an undercurrent in the talk given by Michael Dell. "We see ourselves as a key Internet infrastructure company," he said Monday, marking a shift from the company's past emphasis on customized personal computers. "We're building the base beyond the box." He pointed to the opportunities the Internet was opening up for server sales and for providing consulting services.

Dell's speech portrayed Dell Computers in a positive light, but several investors detected a subdued tone. "Three years ago he was a lot more confident," mused Brian Kadey, a manager at Toronto-based Yorkton Securities.

"He sees his core business slowing, sees all of these other opportunities and there's a little bit of panic."

Other investors figured Dell was lowering expectations deliberately.

"Expectations were so high it was impossible to impress investors," remarked Seligman's Boswick, noting that next week's release of Windows 2000 would undoubtedly help Dell's business. "He's setting expectations lower so he can beat them."

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