The Failure of Reality

Exactly one year ago, I commented on the year 2000 as one of great upheaval.  Little did I know what was in store for 2001.  No sooner did we recover from pregnant chads and the dot-com bust, than did major economic powers, among them Germany, Japan and the United States, fall into recession.  Stock markets sedately declined until September 11, which triggered a sharp drop, in turn triggering lower interest rates which, fueled by cheap oil, brought on a rally as hopes of recovery loomed.

Given the downturn, many expected online commerce to suffer a similar fate, but sales at outlets as diverse as Kmart’s BlueLight.com and L. L. Bean were substantially up.  And with fewer free shipping offers as compared with last year’s holiday season, e-tailers actually stand a chance of being profitable as well.

While profit-making ventures gained, free services, such as Napster, did not fare as well.  In July, a U.S. federal judge ordered the music-sharing service to remain closed (it had earlier stopped operations voluntarily) until it could demonstrate that it could effectively filter out copyrighted material.  Vivendi increased its world exposure through acquisitions including MP3.com, EMusic.com, Houghton Mifflin, while teaming with Yahoo and Sony on other fronts.

In other industries, the impact of September 11 amplified economic woes, most notably the airline business, where large carriers, already bleeding red, slashed staff and cut capacity by ca. 20% system-wide.  Notably, no-frills carriers such as Southwest and easyJet flourished in this environment.  Online ticket sales and e-ticketing increased in popularity, even as Delta’s Web site famously tried charging a customer US$21,469,423.27 for a return flight to Germany.

General Electric and Honeywell managers are still shaking their heads:  European regulators said “non” to their planned merger, already approved in the U.S.  Hewlett-Packard and Compaq announced plans to merge, but prospects for the successful completion of the merger are not promising, as HP chief executive Carly Fiorina failed to observe such social niceties as making certain her major shareholders, notably the Hewlett and Packard families, were in her camp.

Enron, which reshaped the markets in which natural gas and electricity are bought and sold, filed the largest corporate bankruptcy in U.S. history and blamed the company which had presented itself as its rescuer, Dynegy.  In 2000, Enron was one of the nation’s largest companies as measured by gross revenues; given the complexity of its operations and financing, which included leading global financial institutions, its wind-down will be dramatic, but hopefully not sour the momentum that it started for open interposits, a form of B2B exchange.

Microsoft: appealed Judge Thomas Penfield Jackson’s judgment to split the company in two for having been an illegal monopolist; a U.S. appeals court upheld Judge Jackson’s finding but rejected the concept of the break-up.  In an attempt to expedite matters, many states attorneys general and the U.S. Department of Justice agreed on a settlement, but nine U.S. states are still refusing to go along.  One key issue in the case has been Microsoft’s handling of its dominant Windows operating system, including the bundling of browsers and other add-on products.  In autumn, Microsoft practically self-impaled itself when it launched Windows XP, which has tighter browser integration, replete with a security hole that the company itself termed as “critical.”

Gerald Levin resigned as chief executive of AOL Time Warner.  His successor will be Richard Parsons, the company’s co-chief operating officer.  Prior to the merger, Parsons was the number two at Time Warner, while Robert Pittman, now co-chief operating officer with Parsons, was the number two at AOL, reporting to Steve Case.  Pittman will become the company’s sole COO.  The succession is notable in that, at the time of the merger announcement, Pittman was widely expected to remain the heir apparent, but the ebbing fortunes of the Internet side of the business, compared with relative strengths of the more traditional business lines, occasioned a shift in the balance of power.

The appeal of cable company-provided broadband took a big hit in November as users of Excite@Home, whose auditors had already expressed “substantial doubt” in August that the company could continue operations, started to see their service eviscerating before their very eyes.  Several million subscribers were impacted, some losing service – and access to e-mail – for upwards of several days.  Although DSL installations are predicted to outnumber cable modem hookups worldwide, cable was expected to outdistance DSL in the North American market until certain of the cable modem providers proved themselves to be unreliable.

It was an interesting year, to say the very least, and one full of surprise.  It is difficult to imagine a climate in which news of a major jetliner crash would be greeted with relief that it was merely an accident, yet such is the thinking nowadays.  Many believe the world changed on September 11, 2001.  I would be the first to disagree.  The dangers were always present; we were simply made aware of them on that date.

Now we may overreact; we have security “procedures” in place, yet these very measures secure very little while producing great anxiety to many.  Mail (of the snail variety) may be contaminated with Anthrax; e-mail may contain viruses.  If anything, information technology has more prominence than ever, since online meetings, such as the Massively Parallel Conference variety we identified earlier this year, may make some travel unnecessary.  Traditional business thinking, combined with genuine innovation, is winning out over new media fads which turned fickle.  Let’s hope this is a trend that stays.

Finally, given the tumultuous state of world markets, how is the new millennium faring?  Other than those who predicted that the world would end on 01.01.01, the thirst for the new century was so great that many celebrated the dawn of the new millennium one year early.  Today, many might have wished that the previous millennium had been extended for a while.

Jonathan B. Spira is the CEO and Chief Analyst at Basex.

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