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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end? -- Ignore unavailable to you. Want to Upgrade?

To: Siva Uppalapati who wrote (1439)	5/1/1999 11:07:00 PM
From: Dave Mansfield	Respond to of 3543

I am trying to understand what would be barriers these companies are building like AOL/AMZN/YHOO. I am starting to beleive that branding and awareness about them would be a great strength for them and would effectively build a moat around them. The distribution network they are building is going to be a great barrier for the new comers. Let me take a stab at this. When you think about the barriers to entry that let's say the competitors of AOL or MSFT has I think you will see what we're talking about. First, AOL. When deciding which ISP to use, typically most people choose one or two. AOL is obviously the largest, maybe not the best, but the largest. There's the name recognition thing going for them. Also, if many of your friends are there, you've got the buddy list feature. You also have the greatest access to personal profiles if you're into such things. And if you're only going to pick one or two ISP's, this provides AOL a competitive advantage which sticks no matter how bad their service. MSFT. Basically, we're talking about a monopoly here. Of course there is Apple with it's MAC. But anybody not into graphics or advertising almost has to go with Windows. I have a computer at home and one at work. I'm in insurance so we have Windows at work. There's no way I'm going to have an O/S that's incompatible with what I have at work. And there's no way that my work will have an O/S incompatible with 80% of other businesses. This rationale also applies to supporting software (Microsoft Office, etc.) My company wants to have software compatible with our customers/clients and I want to have the same at home. And when developing new software for an upgraded O/S guess who will have a head start on the competition. This is part of the reason MSFT finds themselves in court right now. Now let's go to Yahoo. How much does Yahoo and other internet services cost you? Nothing, right? So how many can you choose to use? As many as you want. The same does not apply when picking an ISP or O/S or software to run on that O/S does it? There's no way you'll have more than 2 and probably one of either. But you can use and will use just as many internet sites (portals) as you wish. Perhaps dozens. Some people have compared the portals with the TV networks. An investment in one of them at the beginning of TV would have done spectacularly well. But remember, significant barriers to entry existed then. First, there were only so many frequencies to use. Second, there were huge capital expenditures to deal with in the way of infrastructure, transmission facilities, program content. This is not an easy or cheap industry to enter. Ask UPN and Warner Brothers. And portals. What does it take to enter that arena? A few million dollars, some bright, motivated programers and your initial investment of a few million is now worth $30+ billion. I believe some of the smart money is waiting in the wings. Yeah, these new companies have some incredible valuations which others would love to attain, but they are not making any money. At least not enough to get the juggernauts into the arena. If Yahoo, Amazon, ebay, etc. show an ability to really make money, those with hundreds of times of resources and capital will flood the market. IF. And if they don't make a reasonable amount of money, they will tank.

To: Siva Uppalapati who wrote (1439)	5/2/1999 9:04:00 AM
From: Mad2	Read Replies (3) \| Respond to of 3543

Siva Your moat analogy is appropiate. But is it a deterant to others? Coke is a good example, however in addition to our awareness from ads we see their physical pressence (on shelves, vending machines etc.....). They use their size and distribution system to their advantage, developing a low cost position that allows them to offer good product, well known brand, at a competitive product and make money. In the case of AMZN they have been building a brand, however they haven't anything profitable to do with it. PCLN and EBAY are interesting concepts, but barriers??? AOL currently has the strongest position IMO, however who knows what the landscape will be in 2-5 years. Mad2