Redirector

[an error occurred while processing this directive] If pcOrder.com's Christy Jones continues apace, she might just give one of her idols, Michael Dell, a Christy complex. [an error occurred while processing this directive]

Twenty-eight-year-old Christy Jones originally code-named pcOrder.com, her second start-up and soon-to-be-IPO, Conquer. And while that combative appellation may have sprung from what she wanted her business to accomplish – configuration, quotes, orders – it's an apt handle for a company dedicated to providing computer makers like HP, IBM, and Compaq the same made-to-order delivery that has propelled Dell to such heights. "Dell has inspired a sense of urgency," Jones explains, "prompting members of the IT channel to actively implement an Internet strategy." As she and her chief exec Ross Cooley see it, pcOrder.com is that strategy.

Spun off from Trilogy Development Group, which the upbeat Jones cofounded at 19, Austin, Texas-based pcOrder.com tracks pricing, availability, and compatibility of more than 200,000 computer products from eight major distributors and over 4,000 manufacturers. On any given day, some 2,000 users (resellers, distributors, manufacturers – the "indirect channel") access pcOrder.com, generating close to US$25 billion in quotes and nearly $5 billion in sales each year. From those, pcOrder.com takes home north of $20 million. In short, the company streamlines the indirect channel Michael Dell circumvented when he began customizing PCs in his college dorm.

But does pcOrder.com really give resellers all the benefits provided by direct sellers like Dell? "To say the playing field is absolutely level is a bit much," says Maria LaTour Kadison, senior analyst at Forrester Research. "Is it getting more level? Yes."

So far, pcOrder has grown 100 percent annually for two years, and its management remains highly motivated (Cooley, a former Compaq executive, went to work for Jones on a base salary of just $1 a year). Last month, Jones announced expansion into Europe. Eventually the ambitious Stanford economics grad might move beyond computer packaging. "A natural extension of our business model," she muses, "would be office supplies or the automotive industry – any industry that has multiple levels of distribution among partners."

STRATEGY

| NEW ECONOMY

| Thriving on Chaos

More than 30 years ago, meteorologist Edward Lorenz observed that minute climatic changes at the beginning of a weather cycle can have disproportionately large outcomes. That flutter of an idea eventually launched a hurricane of texts that seek to apply complexity – aka chaos – theory to everything from Hollywood box-office receipts to medical diagnoses to business strategy. One of the newest: Visa founder and CEO emeritus Dee W. Hock's forthcoming book on the birth of the "chaotic organization."

Should we listen? Well, Benoit B. Mandelbrot, who gave chaos its most visible expression – fractals – did begin his study of dynamic systems with market numbers. And Wired contributor Thomas Bass insists he'll explain the usefulness of chaos to the professional investor in The Predictors, due out in the spring of next year. Others aren't so sure. "The best way to make money out of deterministic chaos," says one fund manager, "is to write about it."

SECURITY SOFTWARE

| NEW ECONOMY

| Crypto Finnish

Few are more keenly aware of the absurdities of US crypto export restrictions than Risto Siilasmaa. The CEO of Finnish security-software company Data Fellows is both a beneficiary and victim of the regulations.

A member of the generation of programmers who built Finland's reputation for high tech innovation, Siilasmaa was programming at 12 and founded Data Fellows in 1998 while in his third year at Helsinki's University of Technology. With American competitors at pains to market strong crypto products internationally, Siilasmaa's company has grown 80 to 120 percent annually.

Data Fellows' F-Prot and F-Secure antivirus products are used by banks, militaries, and other security-conscious institutions, and its SSH crypto protocol is being proposed as a standard by the Internet Engineering Task Force. Also, given that NASA and the US Air Force use Data Fellows' products, the USpolicy is obviously not the only reason for the company's success. About the only problem, critics note, is that Data Fellows doesn't yet support the TLS standard, something that could tip the scales in favor of rivals like California-based C2Net, which already supports the spec.

With Data Fellows' success, you might expect Siilasmaa to rub his hands in glee at the US policy. But he's downbeat. "The whole industry has suffered," he says. In a final twist, the US Congress may soon relax regulations on American encryption exports (HR 695), even while it presses the EU to restrict its own crypto sales. "So the tables may be turned," says Siilasmaa, "with American companies free to export while European companies are not allowed to."

VENTURE CAPITAL

| NEW ECONOMY

| The New Media VC

Fund manager Steve Eskenazi pitches fast and inside. Invest with him, he tells established media companies like Times Mirror, The Washington Post, New Line Cinema, and America Online, and you can get in on new media without new media losses. And in exchange for a little coaching, you can keep tabs on rookies who might complement your business – or become your rivals.

In just nine months, Eskenazi has raised US$62 million for his Walden Media and Information Technology Fund. And, at a time when VCs seem uncharacteristically shy about writing checks, he's already invested in two online ad firms, AdKnowledge and Lot21; online education company DigitalThink; ecommerce outfit Ec Cubed; and online reservation venture WorldRes. Twenty percent of the fund can also be invested in public companies, so when Acclaim's stock tanked in March, Eskenazi bought a huge chunk of it from TCI.

"They do this as a placeholder," Eskenazi says of his marquee investment partners. "Then, when there is a revenue event, they'll participate." Most Internet funds, he contends, won't invest in digital TV, distance learning, interactive training, or PlayStation games. "Our fund is where the others are not."

[an error occurred while processing this directive] For five years running, culture bonds have been a stairway to investor heaven. Suddenly, they seem a highway to hell. [an error occurred while processing this directive]

Just before close on August 23, the market for Led Zeppelin (ESX: LZEP) bonds crashed. Though there had been turbulence in the classic-rock sector before, within hours of the Led Zep dive market observers began speculating that the boom in entertainment ABSes (asset-backed securities) had finally gone bust; others, meanwhile, insisted that the song remains the same and that rock and roll will never die. Either way, it seems a good time to reflect on the market in culture bonds, which have come a long way in the five years since investment banker David Pullman orchestrated the first music-bond deal, David Bowie's notorious 1997 securitization for US$55 million.

More than a few observers claimed to have seen the physical graffiti on the wall: For weeks, rumors had circulated that Asian demand for classic rock was collapsing, but Led Zep bonds continued a sharp run-up on news that a set of 12 previously unreleased tracks had been discovered. Then, on August 23, 2002, MTVfn reported that the tracks were nothing more than outtakes from Houses of the Holy. Led Zep shares now trade at 20 percent below their face value.

While it's true that music issues are taken as a bellwether for the entertainment bond market as a whole, before you dive out the window, note that savvy investors correctly anticipated that a downturn in demand for Page and Plant might be accompanied by a dramatic upsurge in sales of 1960s Wall of Sound pop. As a result, ABSes backed by Phil Spector's library of hits, which have been languishing since reaching the market three years ago, suddenly began attracting buyers. Similarly, the SixtiesSurf bond – a unique ABS that offers a guaranteed return secured by the royalties of bands such as The Beach Boys – saw its price jump. On the Street, the surfing-safari jokes won't quit.

Instead of casting a pall over entertainment bonds, the Led Zep collapse actually reveals that the market is as robust as it was in Pullman's original vision. "It's all about intellectual property," he told Wired back in 1998. "Music, software, books: Anything that offers a steady stream of income can be securitized." In fact, the music-bond market is dwarfed by software ABSes and comes in not much bigger than publishing. Tom Clancy bonds now trade at a significant premium, and even a highbrow author like Toni Morrison has seen her ABS rise on the strength of her backlist.

The largest, most volatile ABS market, of course, remains movies. Few realize that it's also the oldest of the entertainment markets – another reason not to read too much into the Led Zep record. In 1996 Twentieth Century Fox first issued bonds secured by the future revenue of its films, raising US$1 billion. Major studios and smaller production companies soon followed.

It was inevitable, perhaps, that investors would seek to buy bonds in securities attached to individual movies, rather than to a studio's entire output, and if anything, it is these risky bonds, not classic-rock issues, that justify the anxious commentary. Single-film bonds promise high yields, making them irresistible to the more speculative minded. But there's been plenty of trouble in the movie markets – recall the SEC's investigation of Richard Gere's love life – and plenty of ink spilled by cultural critics lamenting the passing of art for art's sake.

Those who decry the equating of box-office receipts to quality may be right, but if it's the health of culture bonds you're worried about, relax. Take to heart the success of brokerage house McLean & Stevenson. Because of its excellent calls on Latin American and Asian demand for US films, it's made millions. Far from an end to culture bonds, the Led Zep crash merely proves how diverse and resilient they really are.

WIRED INDEX

| NEW ECONOMY

| Chips Down; Living in Synergy

Not so chipper: After years of seemingly unstoppable growth, global microchip sales in May 1998 came in 13 percent below those of May 1997. The Semiconductor Industry Association now predicts 1998 chip sales will finish nearly 2 percent below 1997 sales. Intel closed two factories in Oregon for eight days and cut its workforce by 3,000. Applied Materials CEO James Morgan, however, reported signs of life in Asia and expressed hope that the upturn, when it comes, will be as steep as the dropoff. Then he announced lower-than-expected third-quarter earnings. … Yet another surge in Internet stocks left us bemused. How to explain, for instance, Amazon.com? The share price more than doubled in June, giving the company, at one point, a valuation greater than Borders and Barnes & Noble combined. Clearly, many investors accept the new economic credo that demand for stock, not company earnings, best determines share price. … Not to be caught without a portal or short on intellectual capital, Disney bought 43 percent of Infoseek, and its Miramax division hired Tina Brown, former editor of The New Yorker, to create a new magazine, plus movies and multimedia. In the words of one editor, she's to become "a guinea pig for synergy."

The Wired Index tracks 40 public companies selected by editors of Wired to serve as a bellwether for the new economy. For a complete description and the latest results, see stocks.wired.com/. The Wired Index is not a traded fund or portfolio. None of the contributors to the Wired Index is a financial professional, nor should their remarks be seen as Wired's endorsement of the companies mentioned. Some of the companies in the Wired Index may have advertising or other commercial relationships with Wired. Readers who use this information for investment-related decisions do so at their own risk.

EURO AFTERMARKET

| NEW ECONOMY

| Money to Burn

With the introduction of the euro, Germany will have plenty of money to compost: Umweltschutz Nord, a large environmental clean-up and recycling company, has added worn-out deutsche marks to its fertilizer Bioferm.

Each year, explains Umweltschutz's Gustav Henke, 1,000 tons of well-traveled German banknotes are pulled from circulation, shredded, and, if not incinerated, either used to make recycled paper or deposited into landfills. "We want to go a more ecological way," says Henke, "and bring it back to nature." The rich new compost, 10 percent of it 5- to 1,000-mark notes, costs the same as conventional fertilizing stew. But don't look for money to grow on trees.

TRANSLATION SERVICES

| NEW ECONOMY

| Finally, a True Babel Fish