The Epicenter – 8 April 1999
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3. Commerce. Companies that sell merchandise, or facilitate the matching of
buyers and sellers. The typical business model resembles that of a catalog
retailer or auctioneer, although as the industry develops it will likely begin to
encompass advertising as well. Commerce companies operate in three arenas:
consumer-to-consumer (C2C), business-to-consumer (B2C), and business-to-business
(B2B).
4. Software. Companies that sell software that facilitates inter- or intra-enterprise
communication and commerce. The typical business model is
composed of software license fees, software maintenance fees, consulting
services and, increasingly, software hosting and operation services.
5. Services. Companies that provide a wide variety of services necessary in the
online ecosystem, including hosting, application rental, transaction
processing, information databasing, consulting, design and implementation.
The typical business model is based on either “per-click” transaction fees,
time-and-materials fees, or subscription fees.
n Overview of Our Internet/e-Commerce Investment Philosophy
We view the growth of the internet and e-commerce as a global mega-trend,
along the lines of the printing press, the telephone, the computer, and electricity.
We believe it will affect dozens of industry sectors in the world economy over the
next decade. Unlike a mere technology trend, which renders prevailing
technologies obsolete and, in so doing, creates an opportunity for vendors of new
technologies to quickly build large businesses, the internet is changing the way
people and companies communicate, research, buy, sell, and distribute goods and
services, and spend leisure time. As a result, the internet is not only creating the
opportunity for new businesses to get big fast, but introducing change and
competition into a wide range of mature industries, including media, retailing,
technology, telecommunications, financial services, transportation, healthcare, and
energy. Despite the enormous hype that has surrounded the sector over the last
few years, we believe we are still in the early stages of this trend.
We believe that the internet will continue to cause the creation and/or
redistribution of hundreds of billions of stock market capitalization over the
next decade. Investment capital—and, with it, market value—migrates toward
growth and away from stagnation and risk. The internet is creating both amazing
growth and significant risk—a phenomenon that in our opinion is evident in the
microcosm of one small sub-sector of the economy: bookselling. Amazon.com,
one of the fastest-growing companies in history, has grown from nothing to a
$1 billion run-rate only four years after opening its virtual doors; Borders,
meanwhile, just missed its Q4 numbers (did the snowstorms discourage people
from going to stores—or make them see the convenience of shopping from
home?). We believe that the dynamics of the internet's impact on the bookselling
market may well be played out in other sectors and sub-sectors of the economy: a
nimble internet start-up gets shot out a cannon and grabs the first-mover
advantage; some existing sector leaders react late but effectively; other players
miss the boat. The end-result of the internet on the stock market, in our opinion,
will be a significant re-distribution of market value (compare charts of AMZN,
BKS, and BGP). Based on the speed with which the medium is developing,
moreover, we believe this redistribution may happen sooner than people think.
We recommend that investors think about, industry by industry, the internet's
likely effect on the economy and develop a comprehensive strategy for investing
around it, whether direct or indirect, offensive or defensive. The broad-based
internet stock phenomenon clearly looks like a bubble, and although we still like
the leading stocks, we can certainly understand the hesitancy on the part of
investors to jump directly into the fray. The good news is that there are many
different ways to play this trend—and not all of them include chasing YHOO out
The early stages of a far-reaching
trend.
Growth attracts capital. |
