I'm Buying Tech Stocks
Peter Huber, Forbes Magazine, 04.16.01
I signed up for MCI Mail in the mid-1980s, soon after it was rolled out. For us pioneers, MCI offered to print out our e-mails near their destination, and hand them off to the post office for final delivery to the unwired masses. Today, of course, e-mail is a ubiquitous, must-have application, that sells countless billions of dollars worth of PCs, Web appliances and handhelds.
Most of the growth in digital markets has come in sudden, convulsive spasms, with periods of relative calm in between. Each successive stage of eye-popping growth requires years of incubation, during which hardware and software accumulate and networks form. Then some critical mass is finally reached, a chain reaction begins, and the product or service makes an abrupt transition from techno-curiosity to mass-market necessity. Wall Street overreacts to the quiet interludes just as much as it overreacts to the crescendos. While the technologists calmly play their way through the never-ending symphony, the momentum traders swing from euphoria to despair, and then—count on it—back to euphoria once again.
Microprocessors good enough to power PCs emerged in the 1970s. Wall Street hardly noticed until enough hardware and software had trickled into the market to attract the attention of IBM. Then, in short order, every office worker with a desk needed a machine to run the spreadsheet or word processor, and there followed the industry's first great boom. The PC conquered the desktop. Microprocessors got cheap, and spread into microwave ovens and the dashboards of cars. PC-grade technology was now commonplace and boring. By the early 1990s, serious observers were declaring that the PC market was "saturated." We'd bought all the digital desktop we could use.
But not all the digital network. The early PCs were built to stand alone; indeed, their main claim to fame was what they didn't need, connection to an obsolete mainframe somewhere behind the wall. In my MCI Mail days, I wasted endless, frustrating hours tweaking modems to set up even the simplest machine-to-machine connections. But by the mid-1990s, the hardware and software of the PC had finally advanced enough, and PCs themselves had become abundant enough, for the next tsunami to form. It swept us to where we are now—blasé users of a huge infrastructure of Web servers, linked via a relatively low-speed network that's good enough for e-mail and graphical pages. The technology is now spilling out of the PC into cheap digital appliances. The Web business looks saturated, its technology now looks dull. We've bought all we can use.
Nonsense. The next great surge in the market will be propelled by streaming audio, followed quickly by streaming video. These services are now at the MCI Mail stage of things. But the Napster generation is already addicted to them, and the rest of us will follow soon enough. Everything we currently call radio and television is going to migrate to the Web's digital platform, because that platform offers far richer capabilities and far more choice.
Nothing much will happen until some critical mass of users assembles. Then everything will happen fast. We can track the new crowd as it forms. Streaming audio and video require broadband connections to the Web. About 6 million Americans have such connections today, and their ranks are growing fast. Judging from past experience with PCs, cell phones, e-mail and today's graphical Web, it takes about 20 million to reach the tipping point, setting off a shoulder-to-shoulder stampede of consumers and investors. The critical mass of broadband subscribers will be in place some time before the end of 2003. The transition from 20 million to 100 million will then occur before 2010.
Which means the industry will sell more hardware and service in the next 10 years than it sold in the last 30—more microprocessors, audio cards, graphics chips, disk drives, flat-panel screens, digital radios, broadband hardware and fiber-optic glass; more browsers, viewers and players; more subscriptions to online audio books, music, movies, soap operas, college lectures.
Picking individual winners off the ticker is harder than describing broad trends. Suffice it to say that I'm buying.
Peter Huber, a Manhattan Institute senior fellow, is the author of Hard Green: Saving the Environment from the Environmentalists and the Digital Power Report. Find past columns at www.forbes.com/huber.
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