I don't read Harmon much so I don't know if he is an astute observer of the tech scene or not but the article linked below (may expire Dec 11) provides his take on the investing landscape, the internet mania, network effects, Yahoo!, and the advantages of "digital" v. "non-digital". The interesting part for this thread I believe starts about half-way down near the table labelled "Digital Divide".
Finding firm investing ground after the tech quake
siliconinvestor.com
An excerpt:
Pure digital companies -- and we don't have to look at just "Internet" firms to get them -- provide a prototype for the
economics that create hyper profits and not just hyper revenue. The new hurdle for all digital companies is creating hyper
revenue and hyper profits.
It's not all Internet. The Net is a part of the larger "digital" industry.
Microsoft (MSFT) is a digital company founded 23 years ago. All software. Soft goods. Digital. Bill Gates and company
develop software code, one master file and then copy it 100 million times or whatever and distribute it.
In the pre-Internet days, the boxing and traditional shipping of software on floppy disk and CD jewel cases did compromise
the net margin and it still makes up part of the distribution today. But the reason Microsoft has had 42-percent NET MARGIN
is owed in large part to it being digital.
In the table above I cite Microsoft and Microsoft.NET. To me, the latter -- Microsoft.NET -- describes Microsoft's moves to
migrate the distribution chain from offline to online, as software becomes the invisible service and the functionality of the
software takes precedence over the packaging of it. Consider that Yahoo is powered largely by software, yet we don't call
Yahoo a "software" company. It's a media company, a digital media company. In the old days, Yahoo would have had to put
its software on a disk and sell it to you at a PC store, the way old-fashioned online services ran. The Web replaced that
distribution system for good.
That's why I think Microsoft.NET could replace the old Microsoft: it has to. Microsoft is becoming a commerce and
communications service company. Its software, which we see today, is being moved into the background, back to the servers
at Microsoft. In fact, where software is stored will become unimportant. Is the software that powers the broadcast industry
in your TV or at the broadcast network operation center? Does it matter? The TV has a lot of chips and logic in it, but to
users the point is moot. I like MSFT at these levels. Bill Gates stepped aside (put aside some ego), changed course for the ship
in full public view, admitted that the company nearly missed the Internet, and came out with .NET, a strategy that may
ultimately eat Windows. |
