Everyone it seems is searching for the promised land online. From retailing to Hollywood, from selection to election, it’s hotbed of opportunity with new Internet companies launched by the day.
But wait. Australian Money Management magazine reports on new research that beefs up claims that the current boom in Internet companies is much the same as number of boom and bust industries in the past such as the frenzy which surrounded the railroad and telegraph in the 1800s.
Stuart Engel writes that research by funds manager Frank Russell shows that the current Internet boom has many similarities with the railroad boom that revolutionised the way people lived in the 19th century, with growth and investment opportunities coming and going very quickly.
“The pattern shows that select few will get rich by investing in the initial highly risky leaps in technology, but most of the sustained wealth typically comes from broader second round impacts of technology.”
The report goes on to say that like the current dot.com frenzy, the 1840s’ railroad boom in the United Kingdom attracted investors with around $700 million invested or l0 times the country’s imports at that time.
“But by 1850 railroad shares in the United Kingdom had declined 85 percent and the total value of all railway shares was less than half the total capital expended on them.”
Engel says that like the examples of the railroad and telegraph, the Internet and other current forms of technology could also be quickly superseded by new innovations. The beneficiaries of the dot.com boom could be “bricks and mortar” companies that adapt and use the technology better than Internet companies, he says.
The major benefits of the Internet aren’t necesarily obvious, “there are other companies besides Internet and technology companies that will exploit technological changes. Second-round companies in technology cycles are typically more traditionally well established organisations — these companies often find ways to apply the technology to longer term customer needs.”
Although research firm Frank Russell says it’s likely there will be more losers than winners from the technology boom, they’re reluctant to pinpoint winners and losers in the sector, or when downturn in the Internet sector could occur.
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