Magazine article Information Today

A Superhighway or Railway Madness? Dire Predictions Are Made as to the Fate of Many Internet Companies

Magazine article Information Today

A Superhighway or Railway Madness? Dire Predictions Are Made as to the Fate of Many Internet Companies

Article excerpt

Dire predictions are made as to the fate of many Internet companies

The metaphor of the information superhighway is a striking one and has clearly captured the world's imagination. But as the exaggerated claims about what the Internet can currently deliver rub against the realities of "going online," skeptical European commentators are more inclined to liken the current Internet craze to the madness experienced by the British during the development of the railway system in the 19th century, rather than the construction of national road infrastructures in the 1950s.

Certainly today's mad scramble to buy stock in Internet-related companies is reminiscent of the peak year of Britain's so-called "railway madness." In 1845 more than 1,000 railway schemes were placed before an increasingly hysterical populace desperate to invest in the country's burgeoning railway system. In total, the schemes on offer that year sought to raise 600 million pounds--three times the country's national income. In October, however, the bubble burst, following the Bank of England's decision to raise interest rates. During the ensuing months, hapless investors discovered that a considerable number of the proposed schemes were frauds, and many went bankrupt.

Not surprisingly there are plenty of doomsayers in Europe right now claiming that we are about to witness a replay of 1845, and dire predictions are being made as to the likely fate of many of the recently established Internet companies. The explosive rise in the number of Internet Service Providers (ISPs), argue the skeptics, will inevitably lead to a slaughter of the innocents. Likewise, many of the recently established Web design companies cannot for much longer avoid the pain of inevitable market consolidation.

Moreover, add these cynics, the increasing flood of Internet-based companies going public in order to acquire funds to try to survive will entrap naive investors, who will end up losing their shirts.

Court Declares EOL Bankrupt

Even sanguine commentators agree there is cause for concern. As I write this column it has just been announced that a Luxembourg court has declared Europe's only homegrown, multilingual online service, Europe Online (EOL), bankrupt. Originally envisaged as a proprietary online system, EOL had to reinvent itself as an Internet-based service just prior to launch, when it became apparent that the explosive interest in the Internet had destroyed its original business model. The costs of doing this, coupled with the defection of several major shareholders and continuing disagreement over strategy among remaining investors--which includes U.S.-based AT&T and Meigher Communications, the U.K.'s Pearson, and German publisher Burda--proved too much. Faced with continuing difficulties and painfully aware that EOL has still only managed to recruit 25,000 subscribers across the whole of Europe, Burda (which to date has financed much of the venture) announced in July that it was withdrawing all further funding.

Burda's decision left EOL with no alternative but to seek court protection from its creditors while it sought new shareholders. Sadly, offers from U.S.-based ITT Corp. and CompuServe were deemed "completely unacceptable" by the court, which, having set an August 2 deadline for agreement, has now appointed liquidators. Expectations are that the remnants of the company will be sold off, with Deutsche Telekom tipped as the most likely purchaser. Clearly the various companies that invested in EOL were seriously wrong-footed by the unpredictable nature of the Internet.

But it is a smaller, more localized, incident that best exemplifies what one might want to call "Internet mania" Early this year, a small British-based company called Inter-Page International (IPI) set about recruiting commission-only salesmen to sell what amounted to classified advertising on the Internet. Targeted primarily at small businesses, IPI offered anything from a simple Web page to a large Web site to companies prepared to pay an annual subscription of between 95 and 2,000 pounds. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.