Moneyline News HourAired December 17, 1999 - 6:30 p.m. ET
At the leading edge of cyberspace, protesters say they have been disrupting the eToys Web site. Supporters of these tactics call this a virtual sit-in. But critics have a different term for it: cybersabotage.
Steve Young reports.
YOUNG (voice-over): EToys, which won a fight over its Web address, now faces a protest over the outcome from an outfit called RTMark. It's the same group that takes responsibility for hammering the World Trade Organization web site. RTMark wants its Web visitors to click on a link that swamps eToys Web servers just as Santa's helpers, otherwise known as parents, are trying to make last-minute Christmas toy purchases.
EToys says the virtual sit-in has bombed. But it was tough logging on, and once on the Web site, the system wouldn't let a purchase go through.
Meanwhile, using other toy sites was a snap.
IRA WINKLER, INTERNET SECURITY ADVISORS GROUP: Nobody was having a worse response than eToys were. So I would say yes, they were affected, unless eToys is the most popular site for actually purchasing toys, which does not seem to be the case at the moment.
YOUNG: Legal experts say it's a close call whether RTMark's tactic constitutes a legitimate protest or is illegal denial of computer services?
LARRY GREENWALD, STROOCK & STROOCK: Everybody is entitled to free speech, but the old saw goes, you can't walk into a theater and yell fire, you can't picket a store, which is a form of free speech, and yet bar people from entering the store.
YOUNG: Some of the protest supporters say they've made their point.
RICARDO DOMINGUEZ, ELECTRONIC DISTURBANCE THEATER: More people come every three seconds -- more people, more people, more people, and this creates a disturbance, and that is the idea that people are sitting on the site, in a nonviolent manner.
YOUNG: One thing's for sure, whether you call it a virtual sit- in or cybersabotage, expect more.
YOUNG: RTMark has picked its next target for early January, saying it will stage a virtual sit-in against Nestle over the company's market lock on infant formula -- Willow.
BAY: Steve Young reporting. Thank you.
Coming up, we will unmask the man behind the shadow and ask him why he's advising your boss to be a paranoid shark.
BAY: Other stocks that hit 52-week highs today: Toyota Motor, Cendant, Home Depot, CBS and Viacom.
Some advice, now, on how to succeed in business. Stanley Bing -- you may know him from his column in "Fortune" magazine. He always appears in silhouette. What you may not know is that he is an executive at a large U.S. company, but he prefers not to reveal his name or his employer. Well, in his latest book, "What Would Machiavelli Do?," he considers how 16th century Italian philosopher Niccolo Machiavelli would react to the modern corporate world. Machiavelli advised Italian princes that the ends justify the means and that it's better to be feared than loved. Does this seem like sound wisdom for corporate America?
Let's ask the man himself, Stanley Bing. Welcome.
STANLEY BING, AUTHOR, "WHAT WOULD MACHIAVELLI DO?": Hi.
BAY: "Machiavelli would move forward like a big shark," you write, "eating as he goes." That sounds about right.
BING: The essence of success in business is growth, right. I mean, you cannot stand still, even if you're doing well. So the Machiavellian leader needs to move forward through the water and kind of eating things as he or she goes.
BAY: But come one, do you really think Machiavelli would survive in today's new economy and these Internet times?
BING: Machiavelli would do great. I mean, the new economy is basically built on positioning, and basically, what Machiavelli did was he wrote the prince on how to position yourself for success and how to be tough enough to do that.
BAY: Let's go through some of Machiavelli's positionings: He would fire his own mother if he had to. But how would you do that in today's world, when in all likelihood, your mother is going to go to the press?
BING: Well, actually it's a good thing for your mother to go to the press. I mean, your mother goes to the press. You get a huge head line. People say, boy, that guy is so tough he fired mother, and they buy your stock.
BAY: So it's like a branding event.
BING: It's a big thing. In fact, I would fire my mother twice. That would be my solution to that.
BAY: Terrific. OK, how about screwing with people's weekends, wedding plans, open-heart surgery. They'd just go work for a Net start-up?
BING: No, this is the season to mess with people's holidays. I mean, how many people are sitting on the verge of a vacation thinking, I'm not going to get away, I'm not really going to get away, and chances are, the companies that call them back in are the ones that just hit their all-time highs.
BAY: OK. Would Machiavelli grant stock options?
BING: Yes, absolutely.
BING: Machiavelli would, because...
BAY: Why? Spreading the wealth? BING: Initiating greed in others I think is very important, and I think successful companies are infused with greedy people who are happy to be there.
BAY: What would his holiday bonuses look like this year?
BING: It would be juicy, because we're having a good year. And everybody should feel at one with the business enterprise. So there is no reason to be mean in that way, but when the time comes to pull the rug out, the Machiavellian doesn't have any problem doing that either.
BAY: His best piece of advice -- what do you think that is?
BING: I think it would be to always in whatever you do think about yourself first and other people next, and in doing so, you'd be joining the ranks of the really successful and powerful business leaders.
BAY: We should unleash our inner selfishness?
BING: Yes. Your inner selfishness is a beautiful thing. Let it flow.
BAY: Do we take ourselves way too seriously in the business world?
BING: Yes, I think so. I mean, I think that's what this book is all about. I mean, if you take yourself seriously enough, you will be very, very successful, and also no one will like you.
BAY: What about us journalists?
BAY: Victims to the same...
BING: Well, yes, but it's hard, because you're insecure if you're a journalist, so that gives you a sense of humor now and then, you know.
BAY: Every once in a while.
Stanley Bing, thank for.
BING: Nice to be here.
Coming up in the next half hour of MONEYLINE: It may look like a relic of the old industrial economy, but it's actually one of the nerve centers for GE's World Wide Web strategy. We'll go inside, as our special series continues.
And Stuart Varney finds out why Starbucks' own Web strategy failed to percolate with CEO Howard Schultz. Those stories and more, coming up.
BAY: Investors want to know how much higher can tech stocks go?
The Internet service has more members than its top four rivals combined. Steve Case on the America Online explosion.
And our "New Economy" series takes us from Seattle to Schenectady. Starbucks, a giant built on much more than latte, and General Electric, in a dot-com transformation.
But we begin on Wall Street with a week that was nothing short of stellar for the Nasdaq composite. Today it bounded 38 points to close at 3753, its ninth record this month out of 13 sessions. An unbeatable streak that puts the Nasdaq head and shoulders above every other index on Wall Street.
It looked like the Dow industrials would score their own record, but the rally fizzled. The blue chips rose a modest 12 points on the busiest day ever for the Big Board.
As Fred Katayama reports, investors seem to have tunnel vision -- all they see is techs.
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): The Nasdaq saw some of its heaviest trading ever in a week where investors went on a shopping binge for tech stocks.
The composite index started with a bang. It hit its 52nd record of the year on Monday, only to fly by that high on Thursday and Friday to end the week up more than 3 1/2 percent at 3753. To achieve that feat, tech stocks shrugged off a two-year high in bond yields -- no surprise to some market strategists.
JEFF DAVIS, STATE STREET GLOBAL ADVISORS: The advantage the technology companies have in general, particularly the high-end technology, is that in spite of higher interest rates I think most businesses in this country are dedicated and committed to spending money on technology regardless of how high interest rates might go.
KATAYAMA: Microsoft led the way. It surged on the completion of its long-delayed Windows 2000 operating system. The software giant also announced a strategic marketing alliance with retailer Best Buy.
Internet dynamo CMGI jumped on a smaller-than-expected quarterly loss, and a stock split. Oracle also shot up on a blow-out earnings report, as did publishing software maker Adobe. Plus, cellular standout Qualcomm continued to soar.
CHARLES CRANE, KEY ASSET MANAGEMENT: Technology stocks have been listed by tremendous fundamentals. Demand for technology products and services is far stronger than anybody anticipated going into Y2K. KATAYAMA: And while dot-coms are the rage, the big caps are the main force driving the market.
KATAYAMA: The street expects more strong financial results from the tech sector as 1999 winds down. Among the Nasdaq companies reporting next week, networking giant 3Com, and the marketer of the Linux software, Red Hat -- Willow.
BAY: Thanks, Fred. Fred Katayama reporting.
Well, the Dow's star performer today was not a tech stock, it was General Electric. GE rallied 3 1/2 to a new 52-week high after it announced a three-for-one stock split. Coming up on MONEYLINE: Why you may start to think of GE as a dot-com play as it tries to harness the power of the Internet.
A much different story for Tandy. Its stock lost more than one- fifth of its value after it said December sales at its Radio Shack stores were weaker than expected.
Greg Clarkin reports.
GREG CLARKIN, CNN CORRESPONDENT (voice-over): More was expected of Radio Shack in early December, but so far the electronics retailer has had a disappointing holiday season. Sales over the last few weeks have slightly below what parent, Tandy, had forecast.
MATTHEW FASSLER, GOLDMAN SACHS: There were really two issues that confronted Tandy. One of those was a shortfall sale of low-end PCs, partially attributable to supply constraints. And the other was a short fall in the sale of digital cellular phones, also due at least in part to supply constraints.
CLARKIN: Today's announcement was unusual, something of a midterm report, and risky since each year more shoppers are buying holiday gifts later and later. That may be part of the reason why the company is below its goals of posting 8 to 10 percent sales gains.
LEN ROBERTS, CHMN. & CEO, TANDY: There are years, of course, when retailers -- including us -- would kill for an 8 to 10 percent increase in sales. And so, we basically wanted to let everyone know that's where we were today at midterm. And obviously the reaction we got quite surprised us, quite frankly.
CLARKIN: The reaction was sharp, the stock losing almost 20 percent on the day. Analysts say the momentum players, who had driven the stock up, bailed out. Tandy still expects to deliver double-digit sales gains for the fourth quarter, and some analysts are bullish.
DON TROTT, BROWN BROTHERS HARRIMAN: The longer-term outlook for this company is, in my judgment, excellent. They're a key player in this whole digital electronics revolution. They're the leader in telecommunications in dealing with the consumer as opposed to dealing with businesses.
CLARKIN: This weekend will be critical for Tandy.
CLARKIN: The company has a number of promotions planned to draw customers into stores. It believes the demand for its products as they are, but now it needs to capitalize on that demand -- Willow.
BAY: And monetize it.
CLARKIN: As well.
BAY: Greg Clarkin, thank you.
Merrill Lynch also downgraded Tandy today, and by the closing bell its shares were down 13 at 53. The news weighed on Tandy competitors. Best Buy down more than 2 1/4, and Circuit City down more than 1 1/4.
Coming up, a milestone for the world's biggest online service provider. More than 20 million customers log in with America Online. So how does it capture the next 20 million? Chairman and CEO Steve Case explains. That's when MONEYLINE returns.
BAY: In tonight's MONEYLINE "Focus", a milestone in cyberspace. Today, America Online said its membership now exceeds 20 million, half of those members added in just the past two years. Shares of AOL have grown just as quickly as its membership. So far this year, it's up nearly 120 percent.
Earlier I spoke with AOL's chief executive, and asked Steve Case about this week's flurry of deals between the clicks and bricks.
STEVE CASE, CHMN. & CEO, AMERICA ONLINE: It's a mix of things. From a company's perspective, companies like Wal-Mart and Circuit City, they're trying to play a more active role on the Internet, and build a bigger presence for their Web sites. And I think we can be helpful in allowing them to do that.
At the same time, from our perspective, we want the broadest possible distribution for our brands, particularly our flagship AOL brand, They provide that, and more importantly, they provide a launch pad for what we call "AOL Anywhere."
BAY: Last week we heard from AT&T's Michael Armstrong that they were going to share their cable lines. In your mind, does that represent progress on the issue of open access, and do you ever think you'll be sharing those lines?
CASE: Well, I think it surely -- it represents some progress because a year ago many companies were saying it's not even technically possible to provide open access over cable, or financially it would be a disaster. Wall Street would have a conniption if they offered open access. And AT&T stepping up to the plate, and saying they are committed to offering open access, and having Wall Street cheer that, I think was important progress.
But these things -- the devil is always in the details. We need to work through the details with AT&T and other companies. But we are confident, when it's all said and done, consumers will have many broadband choices -- from cable companies, from telephone companies, from wireless companies -- and ultimately that's going to be to the benefit of those consumers, the benefit of the medium, and I think AOL will be a beneficiary eventually as well.
BAY: And you think it is likely that you will, at some point, reach some sort of deal with AT&T?
CASE: Well, we're hopeful. I am not going to predict when or exactly how we would going to work with any particular company. I think that would be somewhat presumptuous. But we have always believed that it was important from a consumer perspective to provide choices. We have always believed it was important to partner with as many companies as we possibly could. And certainly the leading communications and cable companies, of which AT&T is certainly an important one, is absolutely a company we want to work with someday somehow.
BAY: Right now there is a, I shouldn't even say spotlight, a floodlight on the Web and all its related businesses. Obviously the holiday season, and e-commerce, this flurry of deals, the stocks taking off like crazy -- but what happens come January? Should we expect a bit of a lull in the action? Or do you think it's full steam ahead?
CASE: I think it's full steam ahead because the revolution that the Internet really is starting to bring into every aspect of society, every aspect of the economy, even how governments think of themselves, is really still in a relatively early stage.
So there's all kinds of hoopla, and certainly there is some mania associated with particular companies, particular things, but if you take a step back and look at it more as a kind of an overall landscape, I think what's happening here is really quite striking. It really is going to have a very profound impact on people's lives, on whole industries, on globalization, a lot of things.
And we're relatively early in that transition. So I think this next decade is really going to be the defining decade. Indeed this next century I think is going to become known as the Internet century.
BAY: Steve Case, with 20 million subscribers you are certainly off and running into that next century. Thanks as always for joining us.
CASE: Thank you.
(END VIDEOTAPE) BAY: Next on MONEYLINE, it seems like Wall Street's favorite companies were founded five minutes ago. But at least one century-old landmark can still electrify investors. GE's secret, as our special series continues.
BAY: Our series now on the new economy: Is it a boom without end? Tonight, General Electric. Back in 1896, GE appeared on the Dow with blue chips like American Cotton Oil and National Lead. Remember them? A century later, all the originals are gone, except for GE, now on the Dow with Microsoft and Intel. If anything, GE is stronger than ever, its stock up again today after unveiling a stock split. Fueling the enthusiasm: the old-line giant is adopting online technology.
Peter Viles reports from one center of GE's Net strategy: Schenectady, New York.
VILES (voice-over): If you want to build a power plant, you'll need one of these: a turbine, an engine the size of a locomotive. General Electric makes them in this sprawling brick-and-mortar complex in upstate New York. It's a process heavy on capital and labor, the exact opposite of the first wave of Internet businesses, the sellers of books and cheap airline tickets.
(on camera): It's hard to imagine somebody logging on to the Internet and buying one of the turbines that General Electric makes in this factory. They cost as much as $35 million apiece. So what could this company possibly have to gain from the Internet?
(voice-over): In the eyes of Jack Welch, GE's near-legendary chairman, every division of GE has everything to gain and just as much to lose.
GEOFF COLVIN, "FORTUNE" MAGAZINE: Welch has also assigned every one of the GE businesses to create a team of people whose job is to build what he calls "destroyyourcompany.com," whose job is to come up with the Internet-based business that would put the GE business out of business. And they figure that if they can do that, they can either respond to it or get into it.
VILES: At GE power systems, that team includes Jose Lopez, and the fear of an unknown dot-com competitor is real.
JOSE LOPEZ, GE POWER SYSTEMS: Our thought in GE is that this is not a choice. This is an issue of first-mover advantage. If we don't do it, the technology exists that somebody else will.
VILES: So go back to the $35 million turbine. When customers buy one, they want it built to their exact specifications -- a timely process that the Internet can speed up.
JEAN-MICHAEL ARES, GE POWER SYSTEMS: Think about it this way. In the past, what used to happened was we actually worked on paper drawings and shipped the drawings back and forth globally. And if you think about the time and effort this required for doing that, we can now do that instantly using the Web.
VILES: And if the customer wants to monitor, minute to minute, the relative performance of that $35 million investment...
LOPEZ: You've got a turbine that generates x amount of power. And we have the capability, with the Internet, of showing the customer the whole fleet around the world of that particular size of turbine. They can determine where they place in terms of performance vis-a-vis the rest of the turbines.
VILES: Turbines last a long time, but the components wear out. So GE built partsedge.com, a Web site that aims to be the Amazon of power system parts. The shopping cart function is the same, the prices, however, just a bit higher.
LOPEZ: And you can see, all of a sudden, I've got a cart for $1,154,000.
VILES: For GE employees tracking those parts in the field, GE's wireless Palm Pilot application knows exactly where they are. And say an engineer inside the power plant wants Internet access while he inspects the machinery. That is not possible yet, but GE is working with IBM to develop a wearable computer. The tiny eye patch is actually a computer monitor.
None of these applications involve consumers. This is all business-to-business e-commerce, a category forecast to explode from $43 billion last year to $1.3 trillion in four years. That's the prize Jack Welch has his eye on. That's why GE power systems alone is spending $80 million to develop Internet applications.
The payoff is about $16 million in b-to-b revenue this year. But the power systems division is moving so fast, it believes it will collect $2 billion in b-to-b revenue next year.
NICK HEYMAN, PRUDENTIAL SECURITIES: I'll tell you something that's interesting about GE. Their history for 20 years under Welch has been you'll always be second to market with a new product and a new service and a new idea to reduce the risk and leverage the GE machine to catch up with the innovator with a better product. This time, Welch tore the whole script up, and he went out to be first, because he knew if he wasn't first the maximum benefit from this initiative would never be realized.
VILES (on camera): General Electric may have been cautious in the past, but GE has also been on the cutting edge of some of history's great economic revolutions. Here in Schenectady, GE commercialized electricity. Also here, GE invented the television. But the Internet is different. No one company will dominate this technology. But if GE is right, every company must learn to use it.
Peter Viles, CNN financial news, Schenectady, New York.
(END VIDEOTAPE) BAY: Next on MONEYLINE, our special series gets a caffeine boost. Stuart Varney asks the man behind Starbucks whether cappuccino demand is recession-proof.
VARNEY (voice-over): It may look like any one of the countless Starbucks that have spread across the retail landscape this decade.
But this Starbucks, in Seattle's Pike Place, holds a special place in the company's history, the first store which opened in 1971.
Still, the phenomenon we know as Starbucks didn't really get it start until this marketing whiz joined the company in the early '80s.
HOWARD SCHULTZ, CHAIRMAN & CEO, STARBUCKS: I believe that when you're to build a company that everything matters.
VARNEY: More than 2,000 stores later, Starbucks is a multibillion-dollar company, with no plans to slow down.
SCHULTZ: I can't think of a company that is moving faster than we are, opening two new stores a day somewhere in the world.
VARNEY: Starbucks is undeniably a product of the '90s boom, consumers thinking little about spending $3 for a fancy coffee. But Starbucks stock never hit the heights that Seattle upstarts enjoyed. And earlier this year, it seemed like Schultz, who is on the board of eBay and Drugstore.com, had developed a case of dot-com envy -- Starbucks detailed an Internet strategy along with an earnings warning, and the company's stock plunged. The challenge now: going truly global in the 21st century.
(on camera): When I think of Starbucks, I actually think of a new economy type of company. You have that image, and you're in Seattle. But in fact, you have absolutely nothing to do with the new economy at all. You're a very old-line company. Do you reject that?
SCHULTZ: We're probably a hybrid, in that we're selling one of the oldest commodities in the history of man, and that is coffee, the second largest commodity after oil, yet the equity of the Starbucks brand. And the personality and the image of the company, I think, is probably in the moment. What I mean by that is that we probably over the last five to 10 years have developed one of the most dynamic consumer brands in America, and now taking that image and that personality, which is very American, across the globe and really trying to build an enduring global brand.
VARNEY: How did you get pricing power? Because you somehow or other persuaded people to spend $2, $3, even $4 for a cup of coffee that was 50 cents before you got in business. How did you do that?
SCHULTZ: It was not an overnight success. In fact, when we tried to invest money -- when we tried to convince investors to invest in Starbucks, the majority of the people turned us down. When I was in Japan last year, to watch people walking down the street and having the Starbucks logo pointed out, when two years ago, consultants said people will never walk down the street with a cup of coffee in Tokyo because it's not appropriate, and now everyone is doing it, and they have that brand pointing out, because they want to display the fact that they've been at Starbucks. That's the power of the brand, and that gives us pricing power.
VARNEY: Do you think that you could sell a $3 cup of coffee in a recession?
SCHULTZ: We have proven during recession times that we have been insulated from the issue. And I think it's because people recognize that although they may cut down on something that's very expensive, a new car, a new suit, for something like a cup of coffee, which most people start your day with -- it's very, very important.
VARNEY: So what is your current Internet strategy?
SCHULTZ: Well, the one thing we've learned about the Internet strategy is that because of the power of the brand and the relevancy that we have every single day as a retail business, we do not have to rush to judgment, to move toward an Internet strategy immediately. What we have to do is continue to satisfy the demand for our product every day at retail and do something that is more evolutionary as opposed to the revolutionary-type movement that we're looking for in the third quarter, that unfortunately didn't work.
VARNEY: Long term, 20 years from now, how do you see Starbucks then? Do you have a vision in that time frame?
SCHULTZ: Well, I mean you have to dream big and believe in your dreams, and I believe that Starbucks will be an enduring global company in which the equity of the brand will be defined by our retail stores that'll be in every major city around the world. We'll have complementary channels of distribution, and probably in every grocery store in the world. And the brand and the personality, I think, hopefully, will be known for something beyond a company that just makes a profit. And what I mean by that specifically is that business in the new economy -- your first question -- needs to stand for something beyond just making a buck.
BAY: Starbucks is a regular on Fortune's best companies to work for, offering stock options and health benefits to part-time employees.
Our special series continues on Monday with a historical look on the economy, where we've been, what it says about the future. We'll look at how railroads of yesterday compare with the dot-coms of today in the eyes of the Treasury secretary. (BEGIN VIDEO CLIP)
LAWRENCE SUMMERS, TREASURY SECRETARY: In the same way information technology has the potential to very profoundly change the way every American works.
(END VIDEO CLIP)
BAY: And we'll look at the Fed's role in a new economy. Whether the current boom lasts depends on how well Greenspan and company can test the limits.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: The danger is that if the regulator is uncertain and if it ends up letting the economy go too far and move too fast, we will pay for it.
(END VIDEO CLIP)
BAY: The economic transformation of decades past and policy making in decades to come. Those stories when our special on the new economy, "A Boom Without End," continues on Monday.
Up next, "Ahead of the Curve," some of what you need to know tonight before the markets open Monday.
BAY: Next week will be a short one for investors. Both the bond and stock markets are closed on Friday, on Christmas Eve.
On Tuesday, the Federal Reserve holds its last policy meeting of the century. Economists expect no change in interest rates.
Later in the week, look for third-quarter GDP figures, personal income and spending, and durable goods orders.
And watch for earnings reports from Micron Technology, Cabletron Systems, Red Hat, Morgan Stanley Dean Witter, and 3com.
And finally a secret stock tip revealed in today's "Wall Street Journal." It's the one tucked inside Warren Buffett's old wallet, auctioned off for charity. The winning bidder offered the tip to those who donate a thousand dollars to the Omaha Group. The billionaire's pick, First Industrial Reality Trust. It rose 1 9/16 today in eight times normal value.
That is MONEYLINE for this Friday. I'm Willow Bay. Good night from New York.
"CROSSFIRE" is next.
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