Even casual observers of the capital markets will have noted that within the past year virtually any company that touches upon, relates to, or even hints at the Internet has received a valuation that is crazy by any rational, historical standard. I would suggest that this is not a new phenomenon. We have seen it before, except it has happened in other industries. In the recent past, it was biotechnology. We heard about “magic bullets” and companies with no product revenue receiving billion-dollar valuations. What has happened to those companies? Some have gone out of business and some have been sold. There are also a number of very sound biotechnology companies still in operation today. However, both they and their investors have come to realize that it is just going to take them much longer to achieve their objectives than anyone had thought. What captivated investors about biotechnology was the prospect of an entirely new industry: a new domain to be conquered. Biotechnology represented the future, just as today the Internet represents the future.

Consider another historical analogy that may be more directly comparable to the Internet. A hundred and twenty years ago, the railroads in this country represented the future. If you read the financial history of the time, it is clear that the railroads created a fundamental shift, a market discontinuity, in transportation. It was a terrific advance, not only in transportation, but in the way the country did business. Wall Street underwriters and all the financial tycoons of the day were eager to finance one railroad after another (initially, of course, with governmental incentives in the form of land grants), which resulted in much speculation in railroad securities and the occasional “panic.” After these financiers had built the major transcontinental railroads, they built the local ones. Eventually, the railroads went practically everywhere. Because railroads were so clearly superior to the existing alternative forms of transportation, they were built not just to serve existing markets; they were built to create new markets.

A market discontinuity created by a new technology, such as the railroads in the last century or the Internet today, is a permanent, fundamental change in the way people do business. The backbone of the Internet, however, is not new. It was built courtesy of the United States government so that government researchers in the defense industry could communicate large amounts of data almost instantaneously. To continue with the railroad analogy, the Internet was the equivalent of a “bullet train” between Boston and Los Angeles, combined with the convenience of a local train that goes to every single stop, in every single community in the entire country, and beyond that, to every country in the entire world.

Consider the way the Internet is changing the way people buy software. A start-up software company can market its products directly over the Internet. If you would like to purchase the product, you go to their Web site on the Internet, ask to try their product and they will “ship” the product to you over the Internet. You can then try it out for 20 minutes or so and, if you like it, you pay for it. If you do not pay for it, it self-destructs. That is a fundamental shift in the way people do business.

The effect of the Internet may in fact be comparable to that of the railroad, or the telephone, radio, television or personal computer. It is still too early to say for certain. The Internet also represents an opportunity that is going to create innumerable practical and legal issues, whether you are talking about business, finance, communications or intellectual property. Moreover, attempts to address these issues will take place, by definition, in a cross-border or borderless society. It is a society where no one goes out and gathers. You do not have to go anyplace — you stay where you are. And you touch everybody, via the Internet.