First and foremost, analysts and entrepreneurs alike have finally realized that basic economic principles do indeed apply to the New Economy. Every company requires a sound business model and must eventually generate profits, or it will vanish. Investors and analysts will now be less likely to neglect this obvious truth.
There is, however, a second, equally important lesson to learn, even as reality displaces irrational exuberance. For companies committed to developing Internet-driven business strategies, opportunities are still real and plentiful. Generated by the Silicon Valleys and Alleys around the globe, technological progress has indeed revolutionized the way we communicate, shop, work and play, and will continue to do so. Certainly, these technological advances have revolutionized the way media companies conduct business.
Interestingly, Europe is considerably ahead of the United States in the penetration of wireless communications as well as the application of next-generation wireless technologies. And Europe will catch up in other areas too. In the United States, a federal policy of “universal” Internet access has been in place since 1996. European Union governments finally agreed last year on a comprehensive e-Europe Action Plan 2002 seeking to realize Europe’s full e-potential. Another step in closing the gap with the United States is the full integration and liberalization of telecommunications markets and the promotion of Internet access and multimedia resources for all EU schools. In addition to government initiatives, however, Europeans must stimulate a risk-taking spirit in the new generation of entrepreneurs.
Bertelsmann invested in emerging Internet businesses (including a strategic investment in America Online in 1994) before other media companies did so. Yet we have always carefully evaluated our portfolio, realizing exceptional earnings through divestments at the peak of stock-market valuations. Now, with strategic partners AOL and Terra Lycos, Bertelsmann’s well-established offline brands have built comprehensive identities on the Internet. Worldwide access to our digitized content–music, books, magazines, TV programs–is now ensured to more than 250 million customers. Although media are particularly well suited to the Internet, it has become increasingly clear that almost any business can integrate the Internet into its business model.
Traits once attributed only to New Economy companies–speed, flexibility, innovation and a readiness to take risks–must be adopted by traditional businesses. At Bertelsmann we have integrated these qualities through the creation of new corporate entities such as our e-commerce group, Bertelsmann Capital and Content Network. We place a premium on these qualities throughout the organization. They are the foundation upon which we build new opportunities.
And just as we have been embracing new technologies, many companies that started out in the online world have been moving more and more toward traditional business models. Consider Internet brokerage Charles Schwab, which built upon its online business model by creating a brick-and-mortar operation. Or Microsoft’s Expedia travel site, which launched print publications in order to reach offline consumers. And what better exemplifies this convergence of old and new than the merger of Time Warner and America Online?
The bottom line: understanding cutting-edge trends will continue to be central to all companies whose ideas are driven by technology–and that includes almost every company in business today. As a result of our partnership with Napster, for example, our core business will reap the benefits of file-sharing technology, a powerful tool that has given an enormous push to music distribution across the Internet and that will surely extend into books and other media.
Napster’s astounding rise–nearly 50 million users in less than a year–shows that businesses must view their products as dynamic and subject to constant change. This is good news for media companies! As delivery channels multiply to include TV, affordable mobile-phone access and PDAs, the demand for content will expand.
The past six months were sobering for dot-coms, analysts and investors in the United States and Europe alike. For entrepreneurs with sound business models and an integrated Internet presence, success will follow. Startling opportunities abound and the quest for innovation remains rewarding.
