Robert E. Rubin, the former Treasury Secretary who is now a top official at Citigroup Inc., that established firms have a chance to maintain their dominance over Internet companies as the Web continues its breakneck global growth.
Though Internet-only firms have pioneered new business models, large incumbent firms are moving in, Mr. Rubin, chairman of Citigroup's executive committee and member of the office of the chairman, said in his keynote speech Thursday at the Internet World Fall 2000 conference in New York.
"Existing firms have the benefit of customer relationships, brand identification, scale, capital, management experience, and physical distribution centers," Mr. Rubin said. However, they also are burdened by legacy technology, conflicts with established business models, and cultural issues, he said.
Mr. Rubin credited the senior leadership of established companies with recognizing a need to change. "My impression is that many and maybe most are now making real progress," he said.
Product quality, service, effective fulfillment, capital, and strong management will help these companies, Mr. Rubin said. Though some Internet-only firms will succeed, full-faceted firms, whether new or old, "will likely occupy much of this space, though in many cases with substantially altered business models," he said.
Mr. Rubin, who was co-chairman of Goldman Sachs & Co. from 1990 to 1992, remarked on the Internet's rapid growth since that time.
"On the day I left Wall Street in December 1992 to enter public service, there were only 50 sites on the World Wide Web. Today there are an estimated 20 million," he said.
Citigroup has organized its online activities under an Internet Operating Group headed by Deryck Maughan, who is also chairman and chief executive officer of e-Citi, the bank's Internet research and development arm.
Within the next month Citigroup will unveil several Internet products that are now being tested, Mr. Rubin said. In answer to a question from the audience, he indicated that interactive TV might be among them.
"We are cognizant of interactive television," he said. "I have seen the demos, and it's one of the many things we're focusing on."
He warned that the healthy U.S. economy could foster complacency. "I believe the so-called new economy and new technologies have somehow repealed the laws of economics and human nature that govern us," he said.
The keys to sustaining the economy's success are discipline and open trading markets, Mr. Rubin said. "This rapid adoption of technology did not merely happen. It is the product of technological advances" and "fiscal discipline by the federal government, which, by reducing interest rates and increasing confidence, spurred investment."
Open trading markets pressure American industry to become more productive, he said. "What I think is America's greatest comparative economic advantage is our cultural openness to change, flexible labor markets, and ample availability of risk capital."
The economy is growing 4.4% a year on average and inflation 2.75%, he pointed out. In the last eight years unemployment has been cut nearly in half, to 4%. The record 1992 fiscal deficit of $290 billion went to a record surplus of $124 billion last year, and over the last few years average incomes have been rising at all levels.
However, by historical standards the stock markets are high even after recent adjustments, Mr. Rubin said.
"If there are excesses, then sooner or later they will have to unwind," he said. "And the landing will either be soft - which means an extended period of more moderate performance by our economy and our markets - or hard."