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Technology Stocks : USWeb (USWB) -- Ignore unavailable to you. Want to Upgrade?

To: ayahuasca who wrote (828)	4/30/1999 4:58:00 PM
From: Rick	Respond to of 1188

Yes it is internet related. And that's what get's people excited. Yet many people don't understand that the business model of renting technical labor to build internet sites bears little resemblance to the business model of using the internet site to sell a good or service. The latter is a leveraged model with extraordinary potential to reach new customers without incurring lots of new costs. The former is an unleveraged model which requires incurring great costs: bidding in the marketplace to recruit and secure the technical labor (competing not only with traditional competitors, but also with your customers which employ technical labor), and then training, managing, and renting the labor to customers. This model severely constrains opportunities for profit. 1) The reason that Shaw stated that "..in the summer business will only be limited by the companies ability to attract labor" clearly demonstrates the problem with this model. It's akin to Intel saying "business would be great but we can't find any silicon". This also demonstrates the problem with the model: 1) Stock price is very high with great expectations for growth 2) Growth is limited by the customer demand side (very strong right now) AND the labor supply side (very tight right now). 3) In order to acheive growth targets organically, you go into the labor market and bid for talent. It's a competitive market, so you have pay up - either in salary or stock options. Either way you pay up it's bad for stockholders - they either suffer dilution from the options or excessive costs for salaries. 4) In order to achieve growth targets inorganically, you go out and buy companies by issuing new shares - stockholders suffer dilution. Bottom line is that you can make money, but will never make the kind of money required to support "INTERNET" type valuations. Most products (software, books, tangibles) have inherent value into perpetuity once the costs of development are incurred. But the services model product, human labor, has rental value only as long as it is willing to be rented. If it decides to leave, your back on the treadmill to replenish your product. This business is a treadmill; It's extraordinarily difficult to manage your labor costs; It's extraordinarily difficult to keep the best talent without paying a ransome out of your shareholders pockets. But, one of the worst things that is happening (from an investors perspective) is that even though the business model has severe upside constraints, the employees from Shaw on down through the organization are being granted excessive stock options, because that's the state of competition for good talent. This situation is much worse in a human labor rental model than a leveraged model. As a long term investor, even if the company does great, your returns are limited by the future dilution. Nobody complains about this when things are cranking, but if your a long term investor this is extremely important. Bottom Line: Trade It. Don't Invest In It. Rick.