Masayoshi Son talks with Forbes Associate Editor Neil Weinberg about Web stocks.
Internet: 'The safest bet around'
By Neil Weinberg
Are Internet stocks a bubble?
Short term they will have ups and downs, but long term the Internet will expand its reach and stocks will go only one direction—up.
Look at the math. Right now the Internet industry's market cap is only 10% of the PC industry's. But when I ask audiences whether they think there's a bubble in Internet stocks, 70% say yes. If I then ask whether the Internet or the PC industry will have a bigger market cap in ten years, almost everyone says the Internet will.
Name another industry where you can close your eyes and be almost certain that in ten years it will be at least ten times larger. Autos? Will people drink ten times as much Coca-Cola or watch ten times more Disney cartoons? The Internet is the safest bet around.
Would an 80% correction in Net stocks hurt Softbank?
We have no need to panic. Our straight bond debt is only $1.3 billion (plus another $1.5 billion in loans) and our Internet holdings are worth between $15 billion and $20 billion. We expect seven [new issues] in the next three months. None of them is included in that $15 billion to $20 billion.
Instant communication has been around for decades. What makes the Internet different?
Ebay, Priceline, Buy.com and GeoCities are all models that didn't exist until the Internet came along. Yahoo is a new model too. They came about because of two fundamental factors—zero and infinite. Zero means zero variable cost, zero time lag, zero degradation of information no matter how many times it's passed along. Infinite means infinite customer reach, an infinite slice of information and infinite inventory. Zero and infinite seldom existed in the past, so Internet business models didn't exist.
In the business-to-business market, it's much more cost-efficient, quicker and more accurate to do things when there is no paper nor people involved. It's people who make mistakes.
Buy.com intentionally takes a zero margin selling goods via e-commerce. In the old world, this would have been insane, but since Buy.com charges a handling fee, its variable cost is zero. As long as it keeps employment low and earns ad revenues, it can make a great profit. E-Trade has no salespeople and no storefronts, so it's several times more efficient than traditional brokers. In the real world, consumer-to-consumer business has been limited to things like flea markets. Ebay is [worth $17 billion] because it provides a place for consumer-to-consumer trading, a totally new business.
Do you always insist on seeing both great technology and great people in a target company?
Both is best but one is better than zero. If you have one, you can make efforts to get the other. Jerry Yang and David Filo at Yahoo were very smart, had good technology and a good understanding of the Net, but they were students at the time we invested. So the company recruited a chief executive. E-Trade is a case where we valued [founder] Christos Cotsakos more than the technology. Other companies had similar systems, but we thought with Christos and our support, E-Trade could be a great success.
Is the portal game over?
There will be a bunch of new portals for specific markets like women, kids and sports. But among general portals, I think, Yahoo has the best chance, along with America Online and a few others. They are so gigantic and have so much momentum that it won't be easy for newcomers.
[In picking Net stocks], you have to understand their business models and the size of their potential markets. Then you judge how much profit they can make five or ten years down the road. Things evolve so quickly that it's almost impossible to get a clear picture. It comes down to a gut feeling, one based on an intelligent guess. If you look at [many] examples, you start to get a feeling for what will work. For every 5,000 companies we look at, we invest in 100. That means we turn down 4,900. |
