When dots become circles........
Imagine a sheet of white paper with hundreds of small black dots on it. White is still the dominant color. Now imagine all those dots expanding into circles. With their diameter increasing, they start to touch each other and then overlapping. Now what you see is a paper almost black.
The dots represent current revenue of dot.com companies. The circles represent their marketcap, or expected future earnings.
Most dot coms have just a couple of million dollars of revenue, but carry a marketcap of a few billion. Investors multiply last quarters revenue growth into the future and then the valuation seems to make sense. But the internet is still growing "on white paper" fueled by millions of new users each month. Soon the space will be covered and competition will become very strong. And competition will come from many angles.
Compare the situation of digital cameras. Here we find not only the traditional manufacturers like Canon, Nikon and Olympus, but the space has become crowded with consumer electronics companies like Sony, printer companies like Epson and even Intel is moving into this space.
We don't have all the answers yet, but one day before earnings release, I would like to start a brainstorm to define some of the questions which lie in GNET's future.
The internet:
- has a tremendous potential for economics of scale, leading to lower prices
- makes information easily available for all
- makes price comparison very easy, eliminating premium pricing
The portals seem to have won the first games. It is too soon to claim victory for the whole match. Users seem to go through a learning curve, where in the first year they use the portals, then find a group of destination websites which cover their needs.
Some destination sites will improve their brand. Like weather.com or games.com so people will go straight there, without passing through the portal.
Traditional large companies are only recently coming online, but they have massive resources, both in terms of money as well as content, to create incredible sites.
Competition is heating up. SI growth is slowing down. People have hundreds of sites to go for financial information.
The Hasbro deal is indeed a new market, where GNET has some distinct qualities. Here it becomes a supplier of technology to the games.com site.
I see Hypermart as the largest development area for GNET. It has the intention to create an integral offering for businesses on line, however this is exactly the same objective as Oracle or SAP and many others. Take the netcommerce offering of IBM. It defines the same functionality as Hypermart is proposing. IBM offers this suite to all ISP's worldwide. I doubt if GNET has the power to develop a better solution than IBM, or Pandesic (joint venture of INTEL and SAP).
Hypermart, Virtualave and Freeyellow have 750.000 users. But I am sure 80% have almost no visitors and won't generate much revenue. The 20% which run well will be able to spend more than USD 100 per year for a high quality hosting company. The best sites will leave Hypermart, as the service offerings are average.
We will see some quarters with nice growth of revenue and earnings. But this itself will be not enough to justify a market cap of 2, 4, 6 or 10 billion. And that's where the longs want to see it grow.
Webmarket has tried to do it on its own, but three months ago it agreed with Inktomi to use its shopping engine. Now it has no difference at all compared to other sites using this engine. The brand could be a differentiator, but Gnet has not the same resources as AMEX, which is using the same shopping engine.
Many infosources on the Go2net portal come from Infospace.
It's my view that GNET faces some very tough decisions over the coming months. Like all of you I like Russ and John, but I think they prefer a type of thinktank here on the thread and not only cheerleaders.
Maybe they should adopt a model of a big three car company. Focusing on design and fast integration and leave most of commodity-activities to application or information suppliers. Maybe they should work with Exodus or Verio as a host and IBM or Pandesic for the integrated solution.
Maybe you have some other thoughts.....
Regards,
Pareto
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