Am I really the first person around here to have read version 2.0 of the manual? Nah, not probable.
Anyhow, I've got a few comments now that I've read the new Internet section. I can't dwell on the specifics because the section of about 30 pages is packed with information. So I'll put out some broad ideas that are the strongest of my personal reactions (Note that they are personal, not necessarily objective reactions) that come off the top of my head.
1) I'm here to report that Aloha Mike has pulled a fast one on us. :) Not only am I certain that he's read the book, I think he's probably an advisor to the three authors.
He wrote: In the eWorld context might it be possible that our Gorilla Game picks, rather than consolidating from a basket of stocks in a given sector, should rather be one (or maybe 2) stocks each from competing technologies... The authors clearly took his advice. Their Rule #4 of investing in Internet stocks: Don't buy baskets.
2)The one thing I've read about the Internet in which everyone seems to agree is that it will eliminate, for the most part, the middleman. The authors don't put it in those words. Instead, they discuss that the business models that don't add value in the context of the new Internet model of doing business will be eliminated. They devote a section about that using the French Revolution as a not so cute analogy. That revolution was marked by the guillotine in which heads virtually rolled. Not pretty, but makes sense.
3) Regarding valuation (you knew I'd get to that soon, Cha2!), their premise is that the Internet as a category is tremendously undervalued. That's because the GAPs and CAPs of all Internet companies combined are far larger than in the history of commerce.
Conversely, their premise is that the specific Internet stocks are very overvalued. That's because there is a supply-and-demand imbalance that finds huge investment dollars chasing relatively few public Internet opportunities. Their contention is that as IPOs in the Internet space continue to come to market, the supply-and-demand scenario will eventually come to an equillibrium.
That speaks volumes about the SFEs of the world for me. For me, it says that I should carefully considering investing in the company that will be the solution to the imbalance rather than take the risk of trying to decide which stock will survive the imbalance.
5) The reason investors can't afford to overlook the Internet stocks is because their products are so early in the adoption product life cycle.
They lay out a nine-step staircase which Internet companies must walk as they develop their Internet business model. At the time of writing the new chapter, the products in step #1 were "arguably on Main Street." Step #2 was in the tornado. Steps #3 - #5 were in the bowling alley. The products in the remaining four steps had not yet crossed the chasm.
6) The authors lay out 10 Internet business models including well-recognized models such as subscription-based models, sticky-site models, reseller models, etc. They contend that the companies which incorporate the most number of those models in their business plan have the best chance of succeeding. Ironically, success comes from a type of diversification instead of consolidation.
7) Folks, we're gonna have to sing a Requiem for Cha2. He's gonna die when he sees how the authors apply quantitative methods resulting in an Internet scorecard for each company.
There are seven different components of an Internet company's competitive advantage. Then they assign quantitative ratings based on the extent to which each component contributes to the GAP and the CAP. The result is that each component is weighted.
Then, and only then, do they apply those weighted ratings to an Internet company being considered for investment. The same seven components are scored according to two more categories -- the degree to which the company is focused and the success it has had in that category.
The scores (degree plus success) of each component is added and is then multiplied by the weight factor determined above. Then the weigthed scores of all seven categories is added, resulting in a total score.
Blech! Too much even for me. I really feel sorry for Cha2! :)
Lastly, for the readers of this new folder who haven't grasped the additional risk of investing in potential godzillas, heed the authors' Rule #1 for Internet investing:
Don't confuse the godzilla game with the gorilla game. It is much riskier.
Enjoy reading it when you get it!
--Mike Buckley |
