8.1 Introduction

The large US Internet companies are overvalued by just over 30% assuming revenue grows at 65% compound, and overvalued by 55% using a 50% revenue growth projection.

Research finding by Perkins and Perkins,

The Internet Bubble (Harper and Collins, 1999)

E-business is such a wide-ranging phenomenon that there is something in it for everybody. The trouble is that it is not always obvious what's right for which company.

Willcocks and Sauer,

Moving to E-business (Random House, 2000)

In Chapter 7 we spelled out the e-opportunities and the underlying economics, while also sounding notes of caution where appropriate. In this section we put forward some ways in which the e-opportunities can be evaluated and grasped, including sustainable competitive advantage, differentiation analysis, real options and scorecard approaches. Before doing this, one issue we can deal with quickly is how to evaluate the Internet business itself.

The period 1998 2000 saw much irrational exuberance ^[1] on Internet company stock valuations. One famous example saw Priceline.com, an auction-based travel agency, with a market value of US$7.5 billion in February 2000, while making losses of over US$150 million a year. Its value was presented as higher than that of United Airlines (yearly profit US$400 million) and Continental Airlines (yearly profit US$300 million) combined. The only real way to judge such valuations is to ask whether they represent reasonable expectations about the future growth and profitability of Internet businesses. Even on optimistic estimates of performance, Perkins and Perkins ^[2] concluded that...