Believe it or not, it is still less than a year since the dot.com explosion in Britain started to cross our radar screens. The main moral so far is that there is only one sure way to make money out of the internet: build the infrastructure that enables others to lose money on it by selling to the consumer.
Several important lessons stand out. First, almost none of the brash new start-ups has made any money out of selling to consumers through the internet. True, it's early days yet. But it is beginning to look as though only the fortunate few will ever make any serious money. The failure rate for web start-ups is likely to be at least as high as that for traditional small business ones. That means three quarters of them may not be with us by the end of 2002.
Second, nearly all of the start-ups are selling Old Economy goods (from airline tickets to wedding gifts) in a different way rather than selling new goods. Interestingly, because of the way they have forced prices down and introduced innovative ways of selling, they have almost certainly expanded demand for the (Old Economy) goods.
Yet, at least until the recent inevitable shake-out, their shares were being traded on the stock market at far higher multiples than Old Economy stocks. But there is no reason at all to judge internet companies by any easier criteria.
None of the new companies has yet escaped from the web start-up's paradox: that to make the customers aware that you are selling something cheaper than the shops, you have to spend so much on advertising that it completely erodes the low margins you are getting from undercutting the Old Economy prices.
And established companies don't stand still when facing oblivion. They fight back by reducing their prices to much nearer those promoted online. Companies such as car manufacturers find they can play new media to their advantage by using the web to cut out, or at least cut down, on their own intermediaries (wholesalers and retailers).
They have realised two things. First, they have what the dot.com upstarts are prepared to pay so much for - a brand image and distribution system. Second, no one can sell a car (or a book or a bottle of wine) for less than manufacturers can because they can ultimately forgo virtually all the wholesale and retail margins and still make a profit. Just as new technology failed to displace newspapers (because they were forced to adapt or die) so the internet can give a new lease of life to traditional manufacturers if they take the right steps to adjust.
We will soon enter the next stage of e-commerce when most existing start-ups will fall by the wayside or be bought by traditional companies (especially now that dot.com share prices have fallen back to earth from outer space).
This doesn't mean that there won't be a revolution. It's just that the first movers won't necessarily take the cream. They rarely do.
Small wonder that in the US, business-to-consumer start-ups are finding it very difficult to attract money from venture capitalists. Hundreds of US consumer start-ups will soon run out of cash. Analysts say a third will be taken over by bricks-and-mortar rivals, a third will go under and the rest will struggle on without making much money.
The second wave of net commerce will bring consolidation and also more "virtual" companies that exist only because of the internet's ability to sell digital products (music, text, video etc).
A recent example is flutter.com (Online, April 6) which matches punters in different parts of the country trying to find someone else prepared to bet on the outcome of the next election or a football match or whatever. Since the company will hold both bets in trust until the event has happened, it could find itself sitting on a very healthy cash flow.
Music and films are on the way to becoming fully digitised. But don't presume that means the middle person has been cut out. The final lesson of the first year is that the internet doesn't abolish the intermediary - it merely subsitutes a new kind of middle person. And not necessarily cheaper.
