Many of these converts, mostly consumers and small businesses, use the service to make payments for products acquired outside of auctions. The company's management announced last July that "the opportunity for PayPal is very large" and may one day rival Ebay's primary auction business.

First Movers, Second Wave
Success stories like PayPal could fuel renewed corporate interest in E-commerce investments. Venture-capital backing for E-commerce initiatives, however, has yet to approach its once-lofty heights. It may never. At the zenith of the dot-com bubble (the first quarter of 2000), venture capitalists poured nearly $23 billion into Internet companies. By contrast, venture-capital investment in E-commerce companies in the first quarter of 2003 didn't even reach $2 billion. "The VC market needs to show that exit scenarios are achievable, [and needs] more success to build confidence, before it will invest again with robustness," says attorney Mallenbaum.

Still, Nick Vidnovic, private-equity group manager at Pittsburgh-based Mellon Financial Corp.'s Private Wealth Management Group, sees light at the end of this very long tunnel. "In general, we're seeing a lot more new companies being formed than a couple of years ago," he explains. The founders of those companies are no doubt buoyed by the recent successes of such Web upstarts as Netflix. The Los Gatos, Calif.-based company offers mail-order DVD rentals via a Web interface. Subscribers can rent an unlimited number of titles each month for a flat fee of $20. They then ship the DVDs back, free of charge.

Movie buffs have flocked to Netflix, and the company's share price has climbed from around $11 to more than $33 in the past nine months. The E-tailer's success has placed it in direct competition with Wal-Mart and Blockbuster Inc., however, as both have begun to develop in-store versions of Netflix's flat-fee subscription strategy.

That's strikingly reminiscent of the scenario that ultimately doomed many of the first movers of the old New Economy (think Etoys). But Netflix CFO Barry McCarthy is confident that by offering titles shunned by its family-friendly competitors, plus providing free home delivery, Netflix can beat back its powerful rivals. "Just as Ebay and Amazon pioneered a new frontier and dominated their categories, we do, too," he claims.

Maybe. Certainly, there's growing evidence that E-commerce is on the cusp of a new era, one of innovation tempered by experience and rational expectations. "There is no question that what was in place two or three years ago was flawed," says Vidnovic. "But there were also a number of ideas that were pretty darn good."

Jensen concurs: he believes that E-commerce's worst days are finally over. "It was awful," he recalls. "It's not awful anymore."

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