- guardian.co.uk, Monday 11 October 1999 09.30 BST
A leading technology analyst has warned that only a handful of online companies will survive in an industry that will be worth several trillion dollars within the next decade.
Henry Blodget, internet analyst at the US investment bank Merrill Lynch, believes three-quarters of all existing US internet companies will fail to make any money.
He expects these companies to "disappear" or be taken over in a wave of consolidation. "The spoils will go to the few and not to the many," he said, indicating that between seven and 10 companies could end up dominating all areas of internet business.
Mr Blodget warned investors to beware of highly overvalued companies being driven ever upwards by the momentum of internet excitement. "There are tons of tulip bulbs out there," he said - referring to one of the earliest and most damaging stock market crazes for Dutch flower bulbs, which left hundreds bankrupt after the price of bulbs plummeted.
However, Mr Blodget remains one of the most bullish investors in the sector. "Internet companies may be overpriced but the internet itself is still undervalued," he said.
He believes that the industry will expand from its current value of between $200bn and $250bn to several trillion dollars within a few years. He compares the impact of the internet to that of the car or personal computer, which created an industry worth $350bn within its first 10 years.
"The internet is much more profound as an engine for economic change than the PC," he said. "The magnitude of opportunity is much greater."
Mr Blodget first grabbed the attention of Wall Street last December when he forecast that the share price of the online bookseller Amazon.com would almost double shortly before it did so. At the time, several analysts, most notably his predecessor at Merrill Lynch, were forecasting a sharp drop.
Merrill Lynch clients are advised to invest up to 10% of their portfolios in internet-related shares. Among the groups that Mr Blodget believes could dominate the industry are Yahoo, which has already bought Broadcast.com and indicated a desire to expand overseas, and Amazon, which has spread into many other retail areas from its bookselling start.
Mr Blodget is bullish about companies that have eschewed the consumer market to sell online services to other businesses. But too much money may be flowing to companies with ill-thought-out strategies that are slashing online prices in an attempt to gain market share and "first mover advantage", he warned. "If there is a dark cloud, it's that."
