Net Prophet

SAN MATEO (04/18/2000) - If college movies have taught me anything, it's that drunken frat boys who run amok must eventually answer to the dean. The tech-industry animal house has been put on notice -- the dean is here and it's time to shape up. Microsoft Corp. may or may not be passe in the Internet age, but you can bet that the emerging movement of business-to-business digital exchanges will eventually have to face government scrutiny.

Traditionally, technology companies and government regulators have all the warm rapport of a Serengeti lion and a gazelle. But it's time for them to sit down and talk.

I'm as ambivalent about government as anybody who came of age post-Nixon. I'm not in favor of top-heavy bureaucracies that dither endlessly. But government -- and regulation -- is a fact of life. Reasonable regulation is your friend.

Reasonable regulation can make for a healthy market.

Trust is a stimulus for economic growth. If we want to prevent the information economy from becoming the disinformation economy, companies starting exchanges need to talk to regulators such as the Federal Trade Commission right now and come up with common rules and guidelines. It's too big a gamble for industries otherwise. Would you risk building a multigillion-dollar digital exchange, only to discover years later when the government catches up, whoops, it was illegal?

Look at the New York Stock Exchange or Nasdaq. How exactly have regulatory bodies impeded them? The Securities and Exchange Commission's oversight and regulation has helped the growth of the economy. People trust that the SEC is making sure everything is aboveboard.

The goal in building a digital exchange should not be to squeak by any potential antitrust scrutiny -- after all, antitrust is very fashion-conscious.

What passes muster in one decade will become a target in another. Good night, Ma Bell. Companies creating digital exchanges should also set about creating regulatory bodies equivalent to the SEC. People's trust and belief that the competition in a market is aboveboard spurs economic growth.

Blind enthusiasm for e-tailing and business-to-consumer may be fading, but the digital-exchange momentum is just starting. It's all one big beer bust. To-ga!

To-ga! To-ga!

You can't turn around without hearing about an exchange being formed because suppliers see a compelling brass ring: lowered prices. But the same systems that seek to drive down prices have the potential for price-fixing. And that means antitrust. Even now, the FTC is reportedly taking a close look at the Ford-GM-Daimler Chrysler exchange.

I'm always amazed at how useful my history degree is. (See, Mom, it wasn't the beer talking when I dropped the physics major.) American history is all about cracking monopolies.

Would the colonies have rebelled but for trade monopolies from the English Crown? It was the invention of the legal concept of a trust that spurred antitrust legislation of the 19th and early 20th centuries. The trust is a legal fiction allowing a single board of directors to control the fates of several companies. Digital exchanges do with technology what John D.

Rockefeller of Standard Oil and his attorney Samuel Dodd did with the law. In the 1960s, American Airlines (AA) faced an antitrust lawsuit over its Sabre system favoring AA in ticket purchases. The AA solution was to spin off Sabre; but the company barely silenced detractors. Proving that all life is a circle, in February, the American Society of Travel Agents (ASTA) called for the Justice Department to look into an airline ticket-buying Web site, nicknamed T2, being collectively built by 27 airlines. Are ASTA members a bunch of old-economy middlemen who can't handle being displaced? Perhaps, but that really isn't the point.

The point is that Americans distrust those who wield great power. And digital exchanges hold the potential for enormous power.

Regulatory oversight will be inevitable in the digital age; it's just a matter of creating a reasonable system. It's time for the tech-industry wild men to mellow out, sober up, and stop mooning the dean -- it only ticks him off.

Sean M. Dugan doesn't have a monopoly on ideas -- send him your thoughts at

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