There is room for success for many in this huge sector, but there will only be one Gorilla.
One of the co-authors of the book says this on August 4th when asked:
Internetstocks.com: In sum, to keep the discussion in the Gorilla Game context, are we entering the broadband “tornado” – the phase of massive adoption of a new platform?
Johnson: We believe the tornado is right before us, so people should not be waiting but should be actively investing. Winners and losers generally emerge in this phase. It will not be dissimilar to the tornado that Cisco addressed and emerged from as the leader, yet it is likely that this much larger technology transition will create more than one Cisco.
A few other tidbits from that interview:
Internetstocks.com: From your quantitative research, how do you gauge the scale of the opportunity? More concretely, what kind of revenue growth are you seeing in this take-off phase?
Johnson: We see the market opportunity at a trillion dollars over 20 years. Obviously that’s a very rough estimate. It’s probably measured today at $10 billion to $15 billion, on its way to $100 billion annually a decade from now. The enterprise market that created Cisco is a $20-billion opportunity at its peak. So the revenue potential is as big as the personal computer industry, for comparison, and we believe it will be dominated by new companies. In the here and now, second-quarter revenue for the group we identify as Next Generation grew 198% year over year.
Internetstocks.com: Where does Cisco stand in this high-stakes game? It remains at the center of the Internet buildout, it still enjoys fabulous growth and portfolio managers love it. But there’s a growing sense that Cisco is embattled, facing new competition and straddling the past and the future. Is the Cisco story changing?
Johnson: I still struggle with this and put more time into this issue than my wife is happy with. I believe Cisco’s core market—enterprises—will increasingly show slowing growth. The growth really has to come from the carriers. I believe that the opportunity is so large that anyone who addresses it successfully will have great financial performance, but it’s possible that Cisco will lose share in these markets. We don’t think it will put Cisco out of business but it might challenge its market share. The company’s economic power is derived from the core router business and we think it always will be. We believe switching costs are high enough to protect the franchise, but it is still losing market share to Juniper. Our estimate for Juniper’s calendar 2001 revenue approaches $1 billion, and it is stealing this from only one vendor.
Internetstocks.com: Does Juniper’s opportunity appear comparable to the one Cisco has leveraged for a decade? That anticipation has to be part of what’s driving its $40 billion-plus market cap.
Johnson: Yes. In “The Gorilla Game,” we talk about buying portfolios of Gorilla candidates and diversifying among these potentially dominant companies. In our opinion, Juniper is absolutely the leading Gorilla candidate in Next Generation Networks. We also say don’t get too worried about valuations because a Gorilla will always outdo your expectations for how valuable it can become. And it is demonstrating this with 77% sequential revenue growth in the most recent quarter, for instance.
Believe me, I have never sold a single share of my Cisco and I am not planning on doing that. Nor do I own as much of Juniper as my Cisco shares in the NGN router game. The valuation concerns for both Juniper and Cisco are certainly valid - as well as many favorites on the board like Network Appliance, Brocade, EMC, Intel, JDS Uniphase, Sun Microsystems, etc... .
Earlier today, I simply gathered some interesting information and thoughts that I have run across which I thought were interesting. Likewise, I find the above comments of Johnson 'interesting'. I'm not saying any of the thoughts are 'correct or right'. However, I am fascinated with the core, edge, data/storage, fiber, optical and software/services that make up and build the IP/Broadband technology adoption life cycle. I think there are some real gorilla games as well as many royalty games going on in the space.
When I read the words "There is room for success for many in this huge sector, but there will only be one Gorilla", I have to question if that is true. I think the technology adoption life cycle of IP/Broadband will spur quite a few interesting stories that might result in a different conclusion as we move through the tornado of the cycle.
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