The statistics on the dramatic growth history and potential for the Internet are staggering. Every day, hundreds of thousands of new buyers and sellers enter the cyber marketplace. During 1999, more than 25 percent of all initial public offerings (IPOs) in the United States had a ".com" in their company name. But during the first quarter of this year, only 18.5 percent of IPOs had that suffix, according to the Financial Times. This decline in "dotcom" IPOs is due to the fact that share prices of U.S.-based Internet stocks have fallen by an average of 50 percent since mid-March. Dotcoms, specifically, suffered an even higher percentage of lost stock value.

The assumption that success in business today comes from the dotcom suffix is no longer prevalent. With that revelation, investors dumped Internet stocks en mass during the early spring of this year. Even with the rapid expansion of profit opportunity on the Internet, basic business fundamentals must exist for success. Investors want more than potential and forecasted profit. They want the real thing: revenue and profitability, hence the sell-off. Additionally, a few companies have dropped the dotcom from their identity.

Raghavendra Rau, an assistant professor at the Krannert School of Management at Purdue University, has studied the dotcom/IPO phenomenon with two colleagues and published their findings in a report called A rose.com by any other name (January 2000 -- See http://www.mgmt.purdue.edu/faculty/rau)

"I am interested in checking whether markets are efficient in incorporating information into [stock] prices," says Rau. "Why is this important? Market efficiency means that it is impossible to make money on the stock market -- a rather dismal view of life. If markets are not efficient, it may be possible to make money on the stock markets."

So how do he figure out whether markets are efficient or not? "I investigate the [stock] market reaction to corporate events such as mergers, acquisitions, and divestitures... both in the short- and long-run. This relates to the speed of incorporation of information into [stock] prices by the market as a whole. I believe markets are not efficient in the short-run."

Rau's analysis of the dotcom stock price phenomenon brings to light many conditions that have been with the stock market for ages. Further, current conditions, such as the growth of day-trading online and Internet chat rooms set up for the sharing of investor information may account for dips and spikes in Internet stock prices.

Rau discovered that just adding ".com" to an existing company name could produce a cumulative return of approximately 80% in a 10-day period before and after the change. It matters little whether the company is involved directly in Internet activity or not; a remote affiliation was enough to cause a rise in the stock price. The name change phenomenon appears to be solely Internet related. Rau and his colleagues discovered that historically, a company's name change did little to create large increases in a stock price, in the short- or long-term.

Inspired by press reports telling of large gains in stock prices, once the ".com" had been added to a name, Rau decided to investigate the large premiums the name change was creating.

He came upon a story in The Wall Street Journal about Computer Literacy, Inc., a company that changed its name to fatbrain.com because customers misspelled or forgot its original, computerliteracy.com. The day before the company sent out a formal advisory on the name change, the stock price rose 33 percent. News of the name change had leaked to Web chat forums.

Mistaken identity has also proven Rau's theory about name. For example, The Wall Street Journal also reported that when AppNet Systems, Inc., filed for an IPO under the ticker symbol APPN, investors, eager to get in on the Internet bonanza, began buying shares of Appian Technology, Inc., which was trading on the Nasdaq under the same symbol. Before the AppNet IPO was complete, Appian Technology's stock had increased by 142,757 percent in two days. Over 7.3 million shares were traded in this frenzy, compared to 200 shares the day before.

Investors eager to make profits with Internet stocks have no substantive data to analyze, Rau warns.

"There are no mature Internet companies," Rau says. "The industry is no more than four years old. The super growth rates that some of these companies are experiencing will not last forever. They will level off. Investors are projecting these growth rates too far into the future. You will not find a researcher or an academic who will argue against the idea that these values are the result of a bubble. The bubble will burst."

"And," he adds, "no one knows what is going to happen next!"

Isn't that exciting?