The Zero-Gravity Theory...
Here's an article on which I base my new thinking about DRIV's price move. Its from the Internet Report by Steve Harmon, over on Yahoo Finance:
Welcome To Zero Gravity:
The E-commerce Model Of The Future
John Glenn prepares to blast off into space again some 25 years or
so after he first experienced weightlessness when he crossed the
heavenly divide, between the Earth's constant tug and the less than
feather feel of space. Coincidentally, some 25 years after the
Internet first launched a new era it experiences something I have
come to call "zero gravity." It may very well be the future of e-
commerce.
In a few words, what is "zero gravity?" I define it as a purely
digital way of doing business, without the encumberment of moving
real goods and services over land, sea and air.
The key slots for capitalizing on this concept lay at the "zero G"
stage of (forgive me for another new term here, "Webline," the Web
as continuum, like time or space).
For example, the browser itself, chatting, e-mail, Web page
communities and such, all represent the tools that enable zero G
(which is another way of saying the best spot for e-commerce to
happen, scale, and leverage a global information network). A basic
sketch of how firms stack up in a zero G environment, with a
constant pull, one way or another:
See table "Steve Harmon's Zero Gravity E-commerce Model" at:
internetnews.com
As soon as you introduce gravity, literally with buildings,
warehouses, shipping by petro-based vehicles, into any e-commerce
scenario, it costs net income margin and tilts the scale toward
losses or high costs of doing business.
For example, if we take Barnes & Noble (NYSE:BKS), the land-based
chain of stores, they are heavy G, bricks and mortar, lease
obligations, tens of thousands of sales clerks, logistical shipping
problems, and a lot of elbow grease at the buying and selling
point, where a customer plops the book on the counter and the sales
associate rings it up, wraps it in paper or plastic and repeats the
process.
At every point in the overall scenario (which is much more
complicated than I outline), real Earth gravity takes its toll: net
income margin. Pay for fuel, shipping, buildings, people, lights,
flooring, painting, maintenance, and more, all to get to one
moment: the buyer buying a book.
To be fair, advantages exist in having gravity at times, one reason
why Barnes generates billions in revenue annually. The "experience"
has a tangible value, being in a book store, having a coffee,
undergoing a "social" moment with a "community" of like-minded book
worms.
That level of human interaction will not be replaced with a few
icons on a Web page.
What could likely occur if the theory of zero G proves true is that
digital enterprises, I believe, have the ability to scale to levels
never before seen in the gravity-bound environment of buildings,
cars, stores, freeways and parking spots.
A Disney, for example, makes plans to open only a limited number of
Disney stores (or ESPN sports stores). Times Square in New York
City or London. Gravity takes its' cut of the effort immediately:
the mall or storefront space must be leased, merchandise ordered,
stocked, sales associates trained, managers to oversee each store.
The store may do phenomenally well when evaluated against peers in
the same street or mall.
Meanwhile, in zero G, a Disney store is as endless as the company
wants it to be, and 24/7/365.25 (open always). Everything Disney
makes or sells or wants to sell can be stocked. It may require
about as many people to operate this zero G store as it does to
operate five heavy G stores. But sales for the zero G store could
surpass the entire land-based Disney store chain.
The purely Web-based enterprises in all areas know or are coming to
realize the benefits of not being land-based. That's e-commerce
today. But that's like a kid jumping up and for a few seconds
imagining he or she is Buck Rogers.
Inklings of more zero G-like e-commerce emerge but that doesn't
mean they are developed or successful--yet. Looking at the Wright
Brothers fumbling with a bi-plane in corn fields, you would never
imagine walking on the moon. But truly one led to the other while
everyone else in the "transportation" business was betting on
railroads.
Pure zero G requires purely digital products. Our showing
Priceline.com, for example, isn't an endorsement of it. You can be
free floating and think you're doing it, like astronauts going on
the Shuttle just for the view. In zero G, things must be set up
properly also in order for mission accomplishment. In this case
that means profits.
The challenge is to create a value chain so that these as-yet
undetermined products and services generate profits for those who
do them (otherwise it won't support itself).
That explains why most things on the Internet today are free. Not
because they lack value but because the value of them is difficult
to determine. The Wright Brothers didn't invent the airline
ticketing industry directly or the abominable food airlines serve.
These services and value systems emerged after the industry got
wings.
Similarly, content of every flavor, services of every nature,
haven't been able to price themselves for any long-term haul when
there are so few passengers today for e-commerce.
The music industry, for example, struggles with college kids who
are copying CDs and distributing them all over the Internet for
free. Copyrights, pirating and other terms describe this unlawful
behavior.
Take something like ICQ, on the other hand, the instant chat and
message software. AOL paid more than $287 million with another $120
million based on performance over the next 3 years for ICQ-
Mirabilis. That's $407 million valuation.
AOL based that on the ability or promise of ICQ to be a channel to
reach people to sell them things or sell those people to marketers
who want to reach them.
October 28, AOL reported ICQ registrations surpassed 20 million, up
nearly double vs. when it was acquired in June, because people are
encouraged to pass it around.
Similarly, what the music industry doesn't understand is that its
business model is out of step with a digital era. The music
industry doesn't realize that it's in the community industry and
that artists represent community leaders or distribution enablers.
You can pay $15 and listen to Sting or The London Philharmonic on
something called a "CD" as many times as you wish.
To "zero G " the music industry, you could sell concerts,
merchandising, memberships to users to join the artists' community,
which includes chat, custom e-mail services, personal Web-based
calendaring featuring the artist/band, audio birthday greetings,
etc. And sell the whole community to marketers and manufacturers
from whom they may wish to buy from.
>From an investment perspective I encourage you to use this metric,
hold it up against any Internet stock and ask yourself how much
gravity they have sucking away net margin.
Several Internet firms that we all know and love are close to zero
G and moving that way. But old-world business models zap their
thinking because those are the models most familiar. Gravity.
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