The whole Internet economy was cursed with this easy money over the last two years. Bad business plans won backing, and some, like Broadcast.Com, paid off, even if they created little in the way of new value. This caused laziness to set in on every hand, like the shooter at a crap table who throws a chain of 7s and thinks it was talent rather than luck. VCs failed to consider how rare great success truly is. Businesspeople grasped easy money without regard to its consequences. Workers demanded more than they were worth. Even writers got some easy column work they probably didn't deserve.

Well, it's all changing now. If you map the 1928-1932 stock market to the last year's NASDAQ you get some eerie parallels. Oil prices will continue rising as the Bush Administration retreats from Europe and puts all its eggs on the Israeli basket. (Arab states will respond by pricing oil in Euros.) An inflationary oil shock is one form of recession neither Republicans nor Democrats have ever found a painless cure for. Add to that the huge trade deficit, plus the fact that foreign investors hold no real love for the U.S. (they just fear us and like our money), and you can easily see capital disappearing faster than you can say Vice President Big Time. The result will be unemployment - something the Internet economy is finally starting to become familiar with. And as for that budget surplus candidates were arguing about all year - start worrying about the deficit again.

One big difference this time is that Moore's Law will keep having its impact on prices, setting up a deflationary spiral to match the inflationary impact of oil prices. Prices, in other words, will stay steady, even as the money flows out. The word stagflation will be used, inaccurately.

How do you make money in this environment? You need strong allies, outfits with assets and real businesses that you can make your platform. You need less investment from more patient investors - you don't want the plug pulled on your small success by people whose fear has turned to greed. You need a firm hand on costs, with no fancy ad campaigns, and few fancy designers. That means you need a mature management team, people who are familiar with recessions and how to get through them. Intel looks good because the chip sector actually went through a couple of small recessions during this latest expansion.

The big profits from the Internet economy over the next few years will come from companies that create unemployment. As machines replace market makers in both consumer and business sectors those market makers won't go into higher-value market making - they'll simply lose their jobs. (The same thing happened to middle managers during the last oil shock.) You can't worry about that -- it's not your problem. If you want to address the impact of capitalism's creative destruction on human lives get involved in politics. Just do it on your own time.

Does this all sound harsh? Does it sound depressing? Does it seem like the ravings of a liberal who can't get over Bush's November 7 sweep? Well, Gore would have faced this economy, too. He just had the brains to deal with it. President Lazy Bones has squat. You are going to miss having Bill Clinton.

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Takes on the News

Coal in the Christmas Stocking

It's beginning to look like a bad year at the Internet shopping mall.

A survey by American Express says 70% of shoppers who use the Internet for shopping only do their research there before going to real stores . The survey of 11,410 people in 10 countries found 79% worried about security and privacy concerns while 76% worried about service, especially returns.

Meanwhile, a lot of stores in this mall are already closing down. BigStar Entertainment may be de-listed by NASDAQ Michael Jordan's MVP.Com sporting goods site is in big trouble, missing a $5 million payment to CBS.Sportsline last month . (Competitors in the sporting goods sector are doing no better. Chipshot.com filed for bankruptcy, shares in Fogdog.Com are hovering around $1.50 and even Shaquille O'Neal is being sued by his Web developer for non-payment.

Peapod.Com, saved from bankruptcy six months ago, is still losing money, as competitor Webvan reports a larger-than-expected loss and sees its stock price fall below $1/share. The gloom was reflected well at Internet World, where a banker gave the keynote and no one came.

Finally, things are not about to get better. Lobbyists for stores predicted at a meeting of the Streamlined Sales Tax Project that Internet retailers could be forced to charge sales tax on all purchases within 18-24 months. Take them at their word - Texas is more dependent on sales taxes than any state.

More Trouble On Campus

The collapse of VarsityBooks , along with the closing of BigWords.Com , and (soon) Lawbooks.Com have some wondering if there's any money in selling books to students at all.

There is, but the losers didn't know where the money was. The collegiate book market may be worth $5 billion in annual sales, but most of it isn't on-campus. Most of it is at community colleges, grad schools, and among young workers getting degrees part-time.

Doug Alexander, vice president of strategic planning and development for ecampus.com (http://www.ecampus.com) of Lexington, Kentucky, said going after students on-campus puts an online store in direct competition with on-campus bookstores. He uses TV instead to find the off-campus market.

Making money on the sales also requires a sophisticated fulfillment system, Alexander insists. eCampus is a spin-off of Wallace Bookstores, an old-line campus bookseller. "We have buyers who've worked at it for years. Our managers have 200 years' experience in book distribution."

Despite the problems with Varsity and Bigwords, there is still plenty of competition. Amazon is still there, Barnes & Noble has its Textbooks.com site. There are a host of small sites like Classbooks.com, which has snapped up a number of domains. Then there are Studentmarket.Com , and Collegebooks.com  - the latter has a relationship with Barnes & Noble. Non-germane sites like Nanana also sell books

But Alexander insists the game remains simple. Make money on books first, then you can expand the niche. That may be why Varsity's turn-around strategy , announced in the summer, went nowhere.

What's most needed now is patience, Alexander feels. "We had a business plan we're continuing to execute. It's a long-term strategy."

It had better be, because right now the niche is dead money.

The Next Battle

The key Internet battle in the next Congress will be over the issue of privacy . A survey for the "Wall Street Journal" (it's a paid site so I can't link to it) showed that privacy is the biggest concern of users overall. We're especially worried about having our financial or medical records passed around without knowledge or consent.

Republicans are now lining up to support stronger laws on the subject and next year's hearings on the subject may actually get a lot of coverage.

The problem is already having an impact, because it turns out many of us deliberately lie on online forms . I know a lot of you are getting A-Clue.Com at Hotmail and Yahoo addresses specifically because you're afraid, despite my protests, that somehow your e-mail address will be shared with spammers.

The solution to this problem, however, will come from the market, not the legislature. (Republicans won't pass anything worthwhile anyway.) Give us a system that offers the benefits of giving away information without the cost of losing control over it, and millions of consumers will jump on it. But convincing us of the reality of such a scheme will be the chief hurdle for anyone bold enough to try it.

Clued-in, Clueless

Clued-in is the Australian Securities and Investment Commission for putting the Rentech "pump and dump" spammer in jail for two years .

Clueless was Primedia for buying About.Com. When a site's content is based on hosing creators it doesn't have a valid business model, and most of About.Com's "guides" are still volunteers.

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