Amigos y amigas
interesting synopsis of the Gorilla game book. Part one
For an enhanced HTML version of the Money Daily,
visit moneydaily.com.
Thursday, June 11, 1998
The rules of the gorilla game
Money's Duff McDonald interviews Tom Kippola, co-
author of a new high-tech investing handbook
If you read the business section of any major
newspaper, it seems like the only news that matters
these days is what is happening to Intel, Microsoft or
Dell Computer. It's no surprise: big money is on the
line, for the corporations and their investors.
MONEY writer Duff McDonald sat down with high-tech
market strategist Tom Kippola, co-author of The
Gorilla Game: An Investor's Guide to Picking Winners
in High Technology, to find out what makes a
"gorilla," Kippola's term for a winning technology
company.
MONEY.COM: This was a team effort. Who wrote The
Gorilla Game?
KIPPOLA: There are three authors. Geoff Moore and
myself are partners of the Chasm Group, which is a
Silicon Valley based high-tech market strategy firm
that offers strategy consulting services to primarily
computing and communications companies. Our third
author is Paul Johnson, who is the network analyst at
BankAmerica Robertson Stevens.
MONEY.COM: One of the interesting things about this
book, obviously, is the terminology you guys used --
including the title. What is the Gorilla Game?
KIPPOLA: The Gorilla Game is a type of growth
investing that's focused very narrowly in the high-
tech markets and on very specific kinds of technology
companies. We look for companies involved in spaces
that have not undergone hyper-growth but will undergo
hyper-growth. And when they do, they will play out so
that there will be a dominant player in that space,
which we call the gorilla. And the gorilla,
generally, gains its dominance because it has a
proprietary architecture with high switching costs.
MONEY.COM: Now, in terms of the development of these
markets, I guess you've developed your model because
we've seen this type of growth before?
KIPPOLA: That's right. The model that we've been
using is the technology adoption life-cycle model,
which says that when revolutionary new technologies
are thrown out to a marketplace, there's a set of
early adopters and then there's a lull or a chasm
between the early adopters and the mainstream market.
And then there are various stages of adopters in the
mainstream market. There are a lot of technologies, of
course, that do very well in a early market but die
off in a chasm and never make it to the mainstream.
MONEY.COM: And, just for an example, is Intel
(OTC:INTC) a gorilla?
KIPPOLA: Intel is a gorilla, Microsoft's (OTC:MSFT) a
gorilla, Cisco's (OTC: CSCO) a gorilla. I think those
three companies are probably the most dominant
gorillas in the computing space today. But there are a
lot of other gorillas that are not in enabling
technologies like those three are, but are in software
application areas. SAP (OTC:SAPE), which owns about
35% of the back-office software market, is a gorilla.
MONEY.COM: Some of the other terms that you use in
the book: companies can be chimps, they can be kings,
they can be monkeys. It strikes me that chimps,
monkeys and gorillas are pretty similar: What are the
subtle differences between them in terms of the
companies?
KIPPOLA: Well, first of all, chimps are companies
that play in the same arena as gorillas but did not
get picked to be a gorilla. Monkeys tend to come in
later in a market and they clone a gorilla's
architecture. So, for instance, AMD (NYSE: AMD) and
Cyrix (NYSE: NSM) in microprocessors have really
cloned the Intel microprocessor and, therefore, they
are monkeys. Whereas Motorola has a completely
different architecture and we refer to them as a
chimp.
What distinguishes gorilla/chimp/monkey markets, from
what we call king/prince/serf markets is in
king/prince/serf markets, no one owns the
architecture. So, for instance, in the modem
marketplace, nobody owns the architecture for modem
protocols; that's set by industry standards. And,
therefore, nobody can gain the strength that a gorilla
gains in its marketplace because they don't have
proprietary architectures with high switching costs.
The PC marketplace is a marketplace that is panning
out to be a king/prince/serf marketplace, where we
have market leaders, like Compaq, which we would call
kings, but they don't have near the market share that
a gorilla has in its marketplace.
MONEY.COM: Okay. And talking high switching costs, I
guess that would be a real key in establishing
yourself as a gorilla. It costs too much for people
to switch from your products once they've already got
them? Is that the idea?
KIPPOLA: That's correct. So, for instance, we've a
lot of Fortune Global 1000 companies installing SAP
today and in the last few years. Installing SAP is a
long process, can take many years for some companies.
And not only does it take a long time, but it takes a
lot of money to implement it. To rip SAP out and put a
competing vendor's product in is just too prohibitive.
So most companies won't even think of doing it, even
if they don't like the vendor's software that they've
installed.
MONEY.COM: And Intel, then, would be something like
the high cost of coming up with a product that's
better than theirs?
KIPPOLA: Well, Intel fits the model, yes. But
because they have monkeys in their marketplace, those
monkeys -- AMD and Cyrix -- can get your business the
next time you jump to a new PC. However, it's unlikely
that if you already have a Windows-based machine that
you're going to jump to a Motorola-based machine or
some other microprocessor that's incompatible with the
one you already have, because you already have too
much sunk costs in the applications, in the data, and
your current machine.
Tomorrow: How to make the most of the gorilla game in
your investing.
ht
david |
