• by Michael Kubin , Op-Ed Contributor, April 18, 2001

My friend Arthur knows money. By which I don't mean that he knows the number of ridges on the edge of a quarter, or the name of the woman who signs every dollar bill. Arthur knows money like you and I know mayonnaise. Actually, even better. He knows how to make money, how to use it, how to spread it, how to mix it with other ingredients. He knows the impact of having it, and he knows the consequences of not having it. Arthur is a money expert like no one else I know. He is also a man of few words, but he really makes those words count.

So when I asked him what caused the dot-com crash, he said this: "A few years ago there was too much money around; money was cheap by historical standards. So anyone with virtually any idea could find someone to pay for it. Then, after a while, the cost of capital reverted back to historical norms; that is, it went way up. And all those ideas financed with cheap money had to begin paying for themselves to stay alive. And those that couldn't, which apparently were a lot of them, died."

A year or so ago the industry trade publications were filled daily with announcements of multimillion-dollar financings at astronomical valuations; today the number of deals being done is tiny and valuations are generally quite low. "People have realized that the cavalry isn't coming to the rescue," Arthur says about dot-coms that get in trouble these days. "If they can't survive on their own, they're history."

Even the rare deal done at a relatively high valuation receives a raised eyebrow from Arthur: "How are those investors ever going to get their money out of that deal?" he asks. "In our lifetimes we're never going to see public markets like we saw in the past few years. Those represent a historical aberration that people will be talking about for decades. Maybe centuries."

Arthur's insights are basic, but they lead to three significant consequences for our industry:

* Since you can't control revenues, control costs. That explains the massive and ongoing amount of layoffs, and will lead to the upcoming dive in dot-com-related real estate prices.

* If you can't beat 'em, join 'em. Look for continuing consolidation as competitors acquire one another or merge to squeeze out overhead, diminish marketing costs, and increase margins.

* The bloom is off the rose. Or maybe the tulip. The aura of invincibility that surrounded this industry for the past several years is gone, and not likely to return. Probably ever.

There is good news, of course. Arthur's knowledge of money is really knowledge of cycles. And while other industries will become Wall Street's darlings, those that survive in the digital world will have a very nice sandbox to play in. But instead of the easy pots of gold they once thought it would be, it's just real companies, and real jobs, and real people. Not so bad.

- Michael Kubin is Co-CEO of Leading Web Advertisers - http://www.web-advertisers.com - one of the web's most powerful sources for online ad data. He may be reached at mkubin@web-advertisers.com