To round out Countryboy's excellent SmartCard post from RB, following is DooWopGuy's subsequent RB post adding to the subject:
ragingbull.com
* * * * * * * * * *
By: DooWopGuy
Reply To: 40219 by Countryboy
Monday, 31 May 1999 at 8:02 AM EDT
Post # 40230 of 40238
Countryboy [re: SmartCards],
You've put together a very persuasive argument, and I think you're right on target.
SmartCards are already very big in Europe and the dumb versions are bigger here than people realize. (At least I believe that most people don't think of the telephone calling cards as SmartCards.) A while ago, I posted this excerpt from an article by Michale Nadeau in Information Security Magazine
infosecuritymag.com
"Some 1.6 billion smart cards were issued in 1998, according to the Smart Card Industry Association. That number is expected to nearly double by 2000 to 2.8 billion cards. The most common application is the phone card, a smart card that stores a set value for use in public pay phones. By 2000, the second most common use of smart cards will be for identity/access applications, a projection that reflects the growing confidence security suppliers and their customers have in the technology."
Nadeau goes on to point out that the biggest drag on SmartCard growth in the US is that retailers need to purchase a separate reader. He suggests that it's a chicken-egg problem: retailers will wait for critical mass among consumers using SmartCards; consumers will adopt them when they can be used in a larger number of stores. Moreover, the problem of growth is exacerbated by the banks themselves; "...cash-storing cards compete directly with credit cards. With a credit card, the issuing bank collects transaction fees for those credit authorizations. But smart cards eliminate the need for centralized credit authorizations, which could reduce the revenue from transaction fees by up to 80 percent, according to a report by the analysis firm Mainspring Communications."
The good news for banks is something we've discussed before: "... smart cards can significantly reduce fraud, something that every bank values. Market researcher Jerome Svigals Inc. estimates that smart cards containing a consumer's credit information and control values could, for the average transaction, cut fraud losses by 78 percent. But for most banks and credit card companies, the fear of losing revenue is stronger than the lure of reduced fraud."
Also in the article was the mention of a SmartCard application that is exactly what George Gilder wrote about a couple of years ago. "When Gary Ryan, a physician in El Paso, Texas, saw how the German government used smart cards to help manage its socialized health care program, he had a brainstorm for improving the quality of care U.S. doctors could provide.
"The concept is essentially a supercharged version of the Med-Alert bracelet. Dr. Ryan hired a programmer to write an application that could record a patient's medical history on a smart card. His product, the Health Smart Card, would allow care-givers to quickly access accurate information about that patient.
"Dr. Ryan markets the cards to people in the El Paso area, selling them for $39 or $69 (including free upgrades). Hospitals, medical practices and pharmacies can buy the readers at cost—$150—and receive the software free. 'It's like giving away the cell phone and making money on time,' says Dr. Ryan." Interesting model, eh?
This is a long-winded response to your very fine post, but I believe very strongly that the announcements made earlier in May are, as you say, "huge" and have not been assimilated by the market. ActionTec will have us in modem cards and home networks (which will take off when consumers begin to realize that they offer an improvement in managing junk phone calls that is an order of magnitude better than Caller ID.) Atmel will have us in SmarCards with the Java interface. Sarnoff and inTelecast will have us squarely in the middle of the DTV revolution. Both SmartCards and Digital TV are snowballs that will probably be at the top of a mountain within a year or so. Alan Chaplin is probably opening doors with content providers as fast as his speed dial can go. And, while the world waits for Embassy chips to show up in their PC's, STB's, and/or wallets, theglobe.com will tease them with a taste of what's on the horizon.
At the risk of being accused of pumping, let me suggest the following. Between SmartCard applications, entertainment (including TV, games, movie rentals, and music), and general information (published content like magazine articles, and research data), it will be very easy for the average Embassy holder to spend $20 a month on digital purchases. That's the equivalent (or less) of a couple of trips to Blockbuster and the purchase of a single CD or a new video game. Let's round that down to $200 a year. The revenue models we've seen suggest that 25% of that, $50/year, would go to Wave. Let's round that down to $40/year. At that rate, 25 million Embassy holders would generate $1 billion a year in gross revenues for Wave.
Does anyone think we won't have 25 million Embassy holders by the end of Y2K? (Well, anyone other than shortwavx?) That seems like a big number when we're looking today at a handful of HAUP boards, but 25 million is a very small percentage of all devices that will be capable of housing an Embassy chip by the end of next year. It's roughly in the rounding error category.
And that doesn't include revenues from inTelecast, VPN's, Jaguars, and other security applications.
By the end of this year, if not the end of this summer, institutional research analysts are going to figure out what we already know. The arithmetic they'll do will be something like this. At $1 billion a year in gross revenues, Wave will generate about $400 million (41-43% net margin, according to the slide show) in net earnings. Factoring in conversion of options and warrants, let's say there will be about 40 million shares outstanding (about 25% more than today). That yields $10 EPS. How will that $10 per share be valued? It will probably be multiplied by the expected growth rate of the company. How fast will we grow? 10% a year? 30%? 50%? Well, you can pick a number and multiply - when I do it, I get very large numbers and some folks would suggest that I'm just feeding the frenzy. All I know for sure is that I'm not selling a single share for a long time.
One other thing. At a run rate of $1 billion, Wave will be throwing off $400 million a year in CASH. In one of my first posts, I said that if Wave succeeds, they will own a printing press. I think I can see Mr. Gutenberg on the horizon. After living on a shoestring for ten years, what do you think the Spragues will do with that kind of cash flow?
I bet they'll be pretty creative.
JMO. DooWop
* * * * * * * * * *
At the risk of being repetitive, it should be obvious that WAVE/EMBASSY adds a dimension to Smart Cards that they otherwise would not have.
Further, the combination of Smart Card and EMBASSY provides a framework for solving the considerations of "multiple users at one computer" and "multiple computers for one Wave account holder".
The integration of the two technologies also clearly addresses the point made by Steven Sprague in one of his on-net audio interviews (I hope someone can remember which one, which I cannot) in which he stated something to the effect that with proliferation of smart cards, one doesn't want to be running around carrying a bunch of smart cards and have to fumble around with them all to figure out which one to use for a particular application. Integration of the Smart Card with WAVE/EMBASSY provides a framework for controlling the secure, accurate and flexible concentration of multiple purpose Smart Card data into one smart supercard.
For those interested in seeing some unique and non-traditional (a strange word to be using for such cutting edge technology) applications of Smart Card technology, a review of the i-button website of Dallas Semiconductor could be an interesting and eye-widening experience. The site contains many unique world-wide applications and is at:
ibutton.com
For those that are new to Wave and are on their personal DD quest, in addition to reviewing SI and the WAVE site, it is suggested that it would be highly useful to review in detail key RB posts. Certainly everything posted by both Countryboy and DooWopGuy on RB falls into such category.
Have a great holiday.
Steve
|
