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Chapter 8. Earnings Tricks and Games: Ma... > Red Flag 7: Companies That Talk of N...

Red Flag 7: Companies That Talk of New Paradigm Measurements of Performance

We all should have learned our lesson from the Internet stocks boom and bust, but you never know. Remember, in those crazy days in 1997–2000, money was being pumped into companies that had little chance of selling much, let alone turning a real net profit. We were told that it didn’t matter and that sales were less important in the early stages of Internet growth than clicks, eyeballs, or unique visitors on or to web sites. In her book Now or Never: How Companies Must Change Today to Win the Battle for Internet Consumers (published in 2000), Mary Modahl of Forrester Research Inc. captured much of the wrongheaded thinking of that age when she told us that the Internet newcomers “change the components of revenue and cost in such a way that traditional companies find it difficult to counterattack.” She further writes that “superliquid venture funds and individual investors can bankroll years of gigantic losses in a bid to win market share from traditional companies.” Modahl cites Internet retailer Buy.com as an example of a company for which “advertising from corporate sponsors creates a revenue stream that supports lower prices.”


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