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The Future is Free
The Internet is Dead
Saying it's not a good investment would be like dumping Ford once the Model-T came out- "oh look, problem solved, we figured out automobiles, the exciting part is over."
You can profitably offer digital products and services online if your users are willing to pay a modest amount for them. But the venture-funded businesses with a lot of capital can often afford to make the same product or service free, in the hopes that when they get enough users, they can profit from advertising. That's a less viable model for the rest of us.
there are so many ways to monetize using freemium it hurts my blessed heart. this next generation internet that is upon us will blow open an internet revolution where anyone with a good brain and computer can figure out how to participate in the internet economy.
THE INTERNET IS NOT DEAD. WE ARE IN THE INTERNET AGE.
The Internet is Dead, Long Live the Internet.
I celebrate the new internet and grieve for the death of its older counterparts. The article shows a good point, he doesn't know, and he wants to invest in infrastructure as a result. Similarly- we don't know, because it does change, and there will be many spoilers. There will be money- but he has the right to be nervous. I'm not,because as much as I want to learn about all these technologies, I am not totally attached to all of them either, I welcome the change.
The Internet is Dead, Long Live the Internet (aka the King is Dead, Long Live the King)
now it just becomes a matter of what can be done with those speeds (there is so much wonderful hardware for the future in my brain), especially as smart mobile devices pick up power and become affordable enough for everyone.
hope the answer was a we bit better :)
To make your point you should specify how many of those hundred companies went bust, and how many were acquired.
The point was that right now, we're using Model-T computers on dirt road internet. We're printing in black-and-white, and hand-binding the books. At least, that's how it feels from the inside.
Also: I call cheap-shot on "only one left" - the *American* auto industry consolidated and was stifled by problems internal to us, the rest of the world has had dozens of other companies rise and fall, as others have pointed out.
The big challenge, as I understand it, is going to be at POS. Once we can start to move transactions off of crippled card-readers and onto connected mobile devices (all maintained by cost-concentrating retailers), solutions will be plenty.
Or maybe someone could do something like http://payperk.com/ does, and find a way to incent more retailers (financially) to do something electronic. But my guess is that it'll take an outsider to crack it in a big way, though, and likely by opening up a new payment channel.
I talked to them to see if they have an API (which they did not) for developers to write plugins. What I found out is they take a software approach, they can patch the POS systems and require users to signup upfront on their website. When the user actually makes the purchase they do transmit the receipt data to their systems. They seem to be popping up in universities and stadiums but not yet in big retail chains.
think the tack would be adding a ton of value to the retailers (get in
sideways, somehow help with cost-saving... inventory? analytics?), and
then see if you can monetize later on the flip-side.
cool idea!
Actually, I worked on a "digital receipt" seed-startup early this year, as Lead Technologist to produce a prototype for the founder. I believe the founder is currently starting fundraising.
I can't give much more info due to confidentiality, but I'd happy arrange an introduction/conversation.
The public markets are a little more unforgiving, (Google aside), the ability for the average investor to make money on a pure Internet play (especially one that hasn't made any money or a strong business model) has become a little difficult as of late. The lack of a strong IPO market impact this as well. No Internet IPO's fewer opportunities for the avg investor to invest. I think Twitter maybe a perfect example of this. I suspect Twitter will exit to an existing business. Great investment for the VC community, no opportunity for the average investor.
Yes there is money to be made in the Internet and there are and will continue to be more opportunities. The breadth of opportunities and the potential returns however vary depending on who you are an where you sit. And I think currently they are very different.
I think where Fred prevails over James is in his apt description of the internet being a true "game changer." James still sees these internet as a place to merely waste time. And I see where he's coming from, as I realize his perspective is strictly from an investment-point-of-view. And quite frankly, those internets that have turned a significant profit are few and far between.
Despite the low number of "successful" internet companies, the internet exists as a business platform that emerges VERY VERY rarely. To deny it as a viable investment opportunity seems rather nearsighted. As many commenters have said before me, the internet is still in its infancy. Calling the internet dead (as an investment or not) seems like more of an attention-grabbing headline than anything else.
Come back to the pro-internet side, James...it's not just for iTunes downloads, and you know that.
Nobody can deny how traditional media (tv, news, entertainment) has been turned upside-down due to a few internet-based businesses. When I see this, it's hard for me to deny such a disruptive platform. I think it's also important to point out that we are entering a completely new era of business. The days of big corporate offices with hundreds of employees will become more and more rare in the future. Small, agile startups have shown just how much muscle they can impose on competition with the use of little resources. This is directly related to the power of the internet, a platform that enables this sort of activity to exist.
I would never discourage anybody in becoming an engineer, especially those in the computer science field. If the future of business clearly resides on the internet, mastering a skill within that discipline seems pretty reasonable to me.
JA's article considers the universe of publicly traded web companies. It's hard to stay innovative with a headcount of 10,000 and a 9-figure budget.
But Fred has the luxury of being able to invest in small groups of hackers with big ideas - and there's way more opportunity for disruption there.
Meanwhile, with one trillion in stimulus dollars about to rain down on infrastructure companies, there's plenty of sectors and stocks with better risk-reward. I love the internet (I'm an investor in and on the board of bit.ly, for instance) but its hard to find the initial dream of amazing margins and growth in any of the stocks out there at the moment.
I listed a bunch of stocks in my post. A few are private but most are public. Investing in internet stocks in the late 90s was hard. Its easier now. There are some great companies out there with very strong franchises. I would buy most, if not all, of the names I listed
What are your favorite infrastructure stocks now?
Also, when's the next time you'll be having "office hours" at your friend's burger place in Manhattan?
Out of fairness to your readers, you purchased Google stock on February 28, 2008 (it closed at $475.39). Well after it had formed a clear top. And you purchased more on September 29, 2008 at $400.02. You continued to purchase more until the stock hit bottom.
http://twitter.com/fredwilson/status/755882012
http://twitter.com/fredwilson/status/939569504
http://twitter.com/fredwilson/statuses/954477935
http://twitter.com/fredwilson/status/999162556
http://twitter.com/fredwilson/status/1015196118
You may have well made some money, but promoting a $130 gain on the lowest trade is misleading. All of your purchases were made when the technicals were against you. More importantly, while you were sitting under wate, there were opportunities to make money on the short side and with more strategic longs.
Easy money doesn't sit under water.
You are right. I was just trying to make a point
http://www.google.com/finance?chdnp=1&chdd=1&ch...
Just what the world needs, another Cramer protégé LOL
http://www.thedailyshow.com/watch/tue-july-14-2...
The barrier to entry is sweat equity, and the challenge to grow beyond that is developing early revenue models and pitching a viable and rational long term business plan.
But big investers can't easily spend the time necessary to read, follow, and engage the barrage of new businesses. How can they possibly make informed investment decisions? Maybe the Internet is inaccessible to investors who don't live an breathe it daily.
Excellent insight, I am part of a venture going live in 2 weeks using Yahoo and sveral others as our partners to create shopping components for these portals. we are all still sweating knowing though the size and scale of these search engines are hughe it aint going to happen overnight. We will work it slow and easy , manage it and operate it like any other start up.
Regards,
Ed Aster
New Zealand
I still am dedicated to search and it's potentially disruptive changes when incorporating user semantic data, as well as semantic algorithms running on all rss info.
I'm curious what your venture is building. You can contact me on friendfeed (messel, or Twitter at victusfate)
But as someone working in finance, I would advise James Altucher to stay clear of investments in the Internet, you should only invest in things you can understand...
There are Internet companies out there which are going to be big in the future and they come with stronger business models due to the scarcity of available money. You 'just' have to find them. I'm saying that and I'm thinking http://www.spotify.com/ for example...
Investing to take advantage of the government's desire to inject money back into the system is dangerous. You don't control your own destiny if you are sucking from the tit of obama and friends
I prefer playing on long term trends that are undeniable and totally sustainable
The media business is in a massive state of flux and if you're looking for predictable money, then move along, online or off. In the meantime, there are loads of online service- and e-commerce-based companies that are ripe for investment.
These factors (and others) will be combined. Opportunity will be dreamed. Success will be had in the right proportion.
To outright deny the potential is wrong. Just ask Apple, Google and all the others with dreams that became realities.
This doesn't mean that the Internet doesn't have the same disruptive power in media. I agree with you that it is laughable to think of Facebook as anything but a huge potential profit machine, but what intimidates many investors is the concern that, to generate returns in the current climate, you have to be draconian about controlling the size of the team or you have to be a top-100 media site. You of course have been able to pull off both, sometimes in one company.
My main point is just this: I agree with you that the Internet changes everything, so long as our definition of everything isn't just the New York Times and People Magazine.
Those industries will shift radically and become much more higher end and service oriented. The bookstore will become a meeting ground of booklovers. You'll get more than just word processing and spell-checking in an easy to use layout out of Word. You'll pay the premium, and you'll be informed by the Internets.
Internet might be resting for the next 3 months or it might be growing like crazy but we will only see it retroactively. It is dead as far as a fund manager is concerned.
So, rather than VC as an investment, simply buy SPY with 250% leverage.
Pros:
- your money is 100% liquid. You can get it back anytime you want. VC investments are totally illiquid until the exit.
- less fees. You pay minimal fees in the ETF as opposed to the 2 and 20 a VC firm will charge.
- similar returns. When the market begins to rally, the returns you'll experience will rival that of the best VC firms.
Cons:
- You are forced to "mark to market" if you are invested in SPY vs a VC firm, so your mental notion of your net worth will be much more volatile.
- You lose the potential to dream. It would be great to be invested in Fred's firm (thanks to his investments in Twitter and Etsy) and no other firm. But not everyone has the chance to be invested in his firm. Most VC firms will not wake up after this downturn with as good a portfolio as Fred's.
PS Your VC versus Spy comparison is apples to oranges as the base capital requirement is a barrier anyway, regardless if you can get on Fred's bandwagon.
But VC post 2000 market break has earned something like 6-8pcnt per year. The S&P is down over the same period.
Buying the S&P with leverage from 2000 to today would have been disastrous
I don't like leverage and will not short or buy on margin. I buy stocks when they are down and sell them when everyone wants to own them. I like to buy things before they are well understood and sell them when people know about them
That's the safest way to invest in my opinion
And old school, traditional VC, is a good way to make money. Its too bad not many VCs practice it anymore
I believe internet is still in its infancy and needs some time to mature before investors like James Altucher who think AOL/Time Warner and Newscorp represent today's internet businesses can get a grasp on what's really happening. In the meantime he should continue investing in highway repair companies and stop labeling Twitter as failure before it even attempted to apply a revenue model.
There are different phases; 1.0, 2.0, 3.0 whatever and every phase applies the learnings of the previous phase to conduct better business. It has a lot to do with understanding human psyche and how they interact with the web. We probably used the first 10 years understanding how that worked. At the moment we are in a much better place in terms of understanding the consumer and how to interact with them and we will be in an even better place 5 years from now.
If something is dead today, it is the business of finance with their vaporware investment instruments. You see more and more people getting laid off and starting their own businesses now. People started investing in themselves. Entrepreneurship is on the rise and so is innovation. As a result of this we will see a surge of new generation internet companies bringing new game to the table.
Maybe this business as an investment is risky because of all the unknowns and its experimental state. So maybe you should recommend the conservative investor to shy away and invest in traditional, positive cash-flow from day one (like you mentioned elsewhere) types of businesses. But then again like you said it is about risk versus reward. Conservative risk = conservative reward. When I'm saying fund managers can't comprehend what's going on I don't mean this as an insult. In order to come close to comprehending the current innovations in internet space you guys need to sit down and study things like semantic web, cloud computing, non-relational databases, neuromarketing, the true inner workings of social web etc. etc. And not just Gartner research reports but the nitty gritty. Investors who study the nitty gritty, such as the owner of this blog, have positioned themselves for high rewards. AOL doesn't even have a pawn in the game. AOL is a digital mullet.
Internet business as an investment or otherwise is not dead. Far from it. It's never been more alive.
@iboy
3 years ago we made a radical change by moving to a 100% web-based sales and customer service model. It was a risk to make such a radical change in our old-time industry, but it’s paying off big time. The market share we’re gaining now could never have been achieved without the Internet.
Internet technologies are most valuable to Main Street businesses like ours when they improve the efficiency and effectiveness of our businesses. Keep developing great technologies like Twitter, Disqus, Tumblr, etc. and find a way to monetize them. There’s a tremendous amount of wealth in our Main Street businesses. You’re creating value for us and we’re willing to pay you for it. So long as those two points are true, the Internet will remain alive and well (as an investment), but you have to figure out a way to bill us.
To me the great strength of the internet (certainly I'm not the first person to make this point) is disintermediation -- it removes inefficient intermediaries between people and the stuff they want. This has already happened or is happening with things like e-commerce and online news and media more generally, but there are plenty of areas with inefficient intermediaries just waiting to get popped out, for whom it's going to take longer, but who have it coming nonetheless -- education (as you've written many times), healthcare, literature (a personal interest of mine)...
Your point about the internet revolution being just like the industrial revolution is dead right. The consumer internet's been around for 15 years -- a drop of water in the ocean of human history. Its disruption has only begun.
This reminds me also of something I read when I worked in business development for a financial Internet start-up. My company was one of a handful that sought to leverage the cost savings of the web to profitably provide recordkeeping services to small 401(k) plans. The idea was that there was this vast market out there that wasn't cost effective for the big players to consider. Then one day someone in an industry newsletter made an interesting analogy: the small 401(k) plan market was like the China market. The writer dug up quotes from American companies in the 19th century, talking about the huge potential China's enormous market represented for the matchbooks or whatever they were selling.
Consider the humble bicycle or, more recently, the skateboard. These are very simple objects when compared to the internet. Yet at least in the case of the bicycle it's much older than the internet and youth of today are dreaming up and executing bicycle tricks that people of a certain age never conceived of, and probably would have written off as impossible had anyone suggested them. (Go check out Danny MacAskill at http://bit.ly/19kgMc if you don't know the kind of thing I'm referring to.)
Now ask yourself: if young people are coming up with mind-blowing new stuff to do on an object as mundane as a bicycle 100 years after its invention, how can we possibly be so arrogant(?), presumptuous(?) as to imagine we've even begun to see what uses something as rich and new as the internet is going to be put to over the next decades or century? To even think you have an inkling of the future of the internet is very likely complete self delusion. And to write off all possible revenue as well.... :-)
So, with respect, I don't buy the argument at all. The fact that James and the boring behemoth companies mentioned can't see how to make money is, I'm sure, more a reflection on them (us?) than a fundamental / inherent characteristic of the internet and its potential for revenue generation.
BTW, I wrote more along these lines at http://bit.ly/mnN5N
Are there a lot of opportunities to make money investing in bicycles and skateboards? Are these examples of wildly popular inventions where the bulk of the rewards didn't flow to the inventors or initial investors?
I don't know the answers to those questions. (I would *guess* the answer to the second question is yes.)
My point was that if the future uses of the internet are far beyond what we can currently imagine, then it seems premature to conclude, after merely ~25 years, that there will be no future investment-worthy opportunities. The bicycle example was given to illustrate that even with something so simple, so much older, and still pretty much in its basic form, formerly unthinkable new things are still being cooked up *and* implemented. That, to my mind, is an unarguable (though feel free to try :-)) case for the same thing being true of the internet.
I understand your point, but see my comment above about how macro trends don't always represent investable opportunities. You're absolutely right that, like bicycles, we'll probably be using the Internet in the future in ways we can't imagine today. But James's point was about whether there are investment opportunities in this. The examples of skateboards and bikes don't seem to be promising ones, since, as you agree, it appears that the bulk of the benefits of these inventions didn't accrue to their initial inventors and investors.
It's also worth bearing in mind the difference between (to use his example) electricity companies and companies that make use of electricity. Sure, no-one is going to invest in a basket of utility companies and probably not in an internet company in that utility sense. The sooner the internet becomes a boring utility/commodity, the better (partly because that - e.g., things like ubiquitous broadband - provides a stable basis for other exciting and money-making internet ventures).
But companies that do things with electricity and with the internet are an entirely different category, a much more interesting one, and I think this is the sense in which people are reacting to James' article. Those companies are going to do unpredictable things - including, perhaps, making buckets of money. Maybe not. We just don't know. Concluding that they will/can not on the basis of what we see today is wrong.
OK, I guess I've said the same thing 3 times now :-)
At a birthday dinner this Spring for Tim Sykes (a mutual friend), James and I both announced our intentions to launch Twitter dating sites; James launched 140love and I launched DateTwit.com
Believing the internet is vast and there's room for many winners, I wish James nothing but the best of luck with his site but honestly I've not heard anything about it for some time now, while DateTwit.com crossed 10,000 registered members only a few days ago and just this morning crossed 11,000 members.
I believe James was involved with stockpickr and I don't know what happened with that, again hopefully good things for James, but I can confidently report that Covestor is a mere 3 days away from announcing the most revolutionary innovation for managing/trading stocks online since the internet began. This Wednesday Covestor is launching a total game-changer that I'm certain will have Rikki's phone turning red from heating up with interest/offers.
I have small investments in a few other internet ventures: StockTwits is an absolute juggernaut. I hear TicketFly is doing incredibly well.
As far as I'm concerned, investing in the internet is the greatest thing since (please feel free to insert something more clever than sliced bread...) and my only wish is for more hours in the day so I could do more of it.
That said, it would be nice to see some big IPO's come out of the end of this recession (Twitter, Facebook, others?), as some like to see the public markets validation.
A big heading like that written in a big pub like the WSJ will get the scrutiny that we're giving it. Today's social media and real-time commentsphere offer an instant push-back to traditional media when they deserve it.
Warren
Free is the elephant in the room. All he's basically saying is "why should I invest in a sector that's seems hell-bent on giving away its services?" It's not a bad question, but I don't want to re-open the free debate.
As Jason Fried (37Signals) recently said, "I think the future of web apps is more about business models than it is about technology or design." Personally, I think it's all three, but the message is clear: the web needs to get better at making money.
at the top of its game facebook is 'ebitda positive'. that's all you got wilson?
it's all downhill from here (ask myspace). the problem is you can't eat ebitda (unless you're russian with special needs).
what's really pathetic is 'the stars' twitter and facebook have been pumped by their vc's (andreessen and wilson) with all they got, on all channels, to the network formed during the years, and this way they managed to get off the ground. 'get long and get loud'. but unable to make a buck so far. 'we're focusing on growth for now'. uh, oh.
a true investor would face the reality. facebook and twitter are not and will not be game changers, and the interwebs would be good investments when they start paying dividends.
methinks it helps to start your vc fund in the 80s and ride on the back of S&P for 25 years. again altucher was spot on the correlation here.
now waiting on the simpletons to unleash the love for their leader...
1. Electronic Arts had $2m in VC capital
2. Amazon had $8m
3. Google had $20m
Facebook has had over $500m
Twitter has had $50m
There's a big difference here. Facebook to be home run has to get to cash flow positive and profitable and never take a dime more. If it can't do that then it's going to be something else. Twitter has a few more years to figure things out - they shouldn't need anymore money.
IMO it's all about measurable, sustainable, profitable revenue from volume. The first three on the list have it - the last two don't - yet. Time will tell if they can really execute and turn it into a cash cow. (Remember what I said before - think it up, scale it, milk it, think it up). Facebook and Twitter are both scaling it up. They have yet to milk it.
Google and others are in the "think it up" phase - only this time it's really hard. There is so much noise out there even if the "perfect opportunity" presented itself how would you know it?
Personally I think it will be in mobile - and it will be a disruption that causes it.
Outside of advertising, lots of companies are succeeding with freemium business models. I mean, *lots* of businesses. And if somebody pays me enough money, I'll advise them how to build a business using this model.
Internet-based technology is a game changer. And apparently only people with sufficient technical knowledge can leverage its power. James Altucher is out of his element and should not be writing about things he is ignorant about.
has developed a new type of Investor , I am not sure too many fund managers are Tech Savvy-I love his comment on Google I bet he still uses a Quill Pen-I like when they knock Twitter which monetized or not has spread like wildfire-In Michigan every segment of the old media has a twitter account , this is some indication of futures-we might say he doth protest to much-or say nothing-
I think you actually make his point by listing the "tried and true" internet examples. If you have to include Google, EBay, Amazon and Craigslist as shining examples, doesnt it show how few recent winners there have been ? Each of those examples have become monoliths, effectively blocking out competition from all but only the most random of entrants. They are this decade's Time Warner. Working to protect their turf and furiously searching for the next big thing. Hoping that they can monetize to the extent you suggest w out negatively impacting their incumbent businesses.
Given the current stability of the net for apps like facebook and twitter, shouldnt there be far more than 2 dozen worldwide investments ? Should a vibrant platform only create hundreds of vibrant businesses over the course of decades ?
In 1999, you ran out of breath before you went through the list of ideas and opportunities you saw on the net that had potential. Then reality set in.
THe internet today is no different than the PC Software business of the 1980s and 90s. PCs were profilerating at work and the home, and prices were falling every day. Every developer saw their goldmine. Except that most never reached it.
The same with IPhone apps. While the successes are nice, the revenueless far out number them and the ability to differentiate with an app is difficult at best.
Then of course there is internet video. How many have tried and died ? Even most to experience some level of success have fallen off the map and have not been able to replenish their business with successful offerings.
In 2009, the number of failures roll of your tongue in a much longer list than recent successes.
Can money be made off the internet ? of course it can. Just as money will be made by some writing enterprise software, gaming software, cloud apps, iphone apps, or applications that are able to be run reliably on any stable platform. There is always room for the anecdotal great idea and execution that turns into a business.
But most people dont have the deal flow that Fred Wilson has and fewer still can surviving batting 20pct and make the return that VCs make. Typical investors usually get one or two cracks at the apple. The internet is probably one of the worst possible places to look for those investments. If only because its still where everyone is still looking.
I would rather see Rearden Steel than another social network. Unfortunately more people think they can make money with a derivative of facebook or twitter
THe suggestion that the Internet is where dreams come true should be dead. Its misleading to most except those
Only when this fails (as it will for the majority) will the market will be receptive to new business models. From the ashes of the current model, new ones will emerge.
People learn from their mistakes. They evolve.
I'd be curious to hear your opinion of this microcap: Alloy Steel (AYSI.OB). The CEO might not be Hank Reardon, but he seems to have created a sort of better mousetrap: a new process for making the wear plates that protect mining and infrastructure equipment. Sales have declined from last year to break even over the last couple of quarters, but I'll be interested to see if the company has started earning money again next time it reports.
I know of a half dozen quality internet companies with significant revenues and cash flows that are preparing to go public this year or early next year
This decade has been a washout for internet IPOs. But I think we are going to see them come back soon
I see it coming back also but more because companies are realizing that the buyout opportunities are shrinking and there are not many other opportunities for exit strategies (also more founders seem to want to maintain control of 'their' companies), so they'll bite the bullet regarding Sarbox and IPO. I've always felt that fewer IPOs was the result of the anti-Sarbox crowd pushing to delay and stop IPOs so that they could force the government to change the law.
1. economic crisis is just getting started. as this worsens, count on many internet companies refusing to adapt (because they don't know how but more importantly because they are psychologically unwilling to adapt) and thus failing
2. economic crisis is just getting started. count on public markets continuing to be a dangerous place for investors. with regards to public markets, short-term trading is where it's at. save maybe the green sector, although i think even that is for the unjustifiably optimistic. for the buy and hold investors, there's always gold! like any old school capitalist, i love selling gold. anyone wants some, just let me know.
as the big systems of yesteryear continue to collapse, the opportunity is for the underdogs who bring a guerrila warfare style. think of how the colonies beat the redcoats in 1776, how terrorist organizations like the CIA can beat big armies, how independent publishers are disrupting monolithic media, etc. fred and his peeps know this and invest accordingly (tumblr, meetup, twitter, etc), what i wonder about though is that many of these VC-backed companies are building themselves up to be just like the monolithic counterparts they are trying to disrupt, which i don't think will work, because the trajectory for growing in such a fashion is being disrupted (i.e. capital markets are broken). new capital markets, as well as new organizational structures that pay respect to the internet's ability to revolutionize production paradigms (i.e. crowdsourcing), are needed, and i think far more development in that area is needed if we are to unlock the value and profits that us internet evangelists know is our destiny.
i've been anticipating and hoping for this wave of scepticism for a while.....a pile of questionable/copy-cat investments has led to a lot of very incremental stuff.....innovation requires lots of misses to generate hits but the pendulum swung pretty far over the past 5 years......some burnt fingers will head to the sidelines.......the noise will settle down.......and the next seeds will germinate....
as long as the web remains a truly open platform.....the opportunities have only begun
Google business model was luck- "Attributing much of Google's success to luck," says Brin-
http://itc.conversationsnetwork.org/shows/detai...
Here is the problem for 90% of Web 2.0 companies- they are trying to copy some one else luck, which is hard. Few of them may succeed- Facebook, Twitter because of the mass adoption. But not everyone with eyeballs/ad model.
Amazon & eBay had a revenue model from Day-1. It's the same with LinkedIn. I don't buy into the concept of let's figure out the revenue model later...
Finally, I completely agree with you that "The Internet Is Alive And Well". It's just that a subset has revenue problem.
A great sensationalist headline maybe, but a totally flawed argument nevertheless. It isn't the internet as an investment that is dead, more a coming to terms with the fact that millions of eyeballs doesn't, on current business models, equate to big returns and that those properties have been wearing the emporer's new clothes for far too long.
The smart money will however recognise that consumer loyalty is increasingly moving online and so far the big brand advertisers haven't really found a new home yet so they can follow suit. Opportunity abounds for investors in platforms which offer that new home as they will be the delivery mechanism for all media in the future. So far on an 80/20 rule, all the big online names have built businesses which don't and won't accomodate the rich 20% because of their format. (Look at the quality of advertising as a percentage on any of the above sites.)
Some of us feel there is a chunk of money in that 20% slice which has not yet been claimed and it has ours and our investors name on it.
Jan Simmonds - Founder/ CEO at famebook
Although, I am looking forward to a time when "monetize" isn't just a euphemism for "sell advertising". I believe the general consumer needs to catch up the idea that some experiences on the net are worth paying for, after which the right products and services will survive. If someone said in the 60's that people would pay $100+/month for cable in the future, you'd think they were insane.
The next bubbles will most probably occur into other sectors. But, the fact that the Internet has become boring from an investing point of view doesn't necessarily means we won't make any more business here, and BTW a 13x valuation is not that bad after all...
He also makes another very good point: there's almost no monopoly or patent protection in the Internet sector. Fact is that after more than a decade we now have only one "Internet giant" or a blue chip if you will, which is a monopolist in fact... How many other companies can achieve that? FB? Twitter? I don't think so...
That's for sure! I think they still are, they just haven't (ever) accepted it.
Was it worth it? Not for me, nor was the one that sanctimoniously damned the Internet as an investment.
There are far too many visionaries out there for me to digest.
Many things have rewired humanity. Particularly plumbing. But it doesn't mean I'm going to invest in Chemed (CHE), which has a 90% market share in the US on plumbing services (via roto-rooter, founded in the middle of the great depression in 1935). Actually, come to think of it, CHE might be a better investment than GOOG right here.
Don't get me wrong. I love the internet. I invest in it. I've started Internet-based companies and advised other companies on their internet strategies. But don't smoke too much crack or you become an addict.
However I'm with James on the investibility of the internet. The very openness and lack of barriers to entry, the ease of viral marketing all decrease the need for capital. When there is a low need for capital the value an investor has to pay to own part of a company is higher, diminishing returns. Hence there may be exceptionally good businesses to be had out there, but the likelihood for an investor without sterling seed-stage connections to outperform the market is minimal at best. If you aren't investing in an internet company before its cosmic inflationary stage, you're out of luck. Facebook and Twitter might have a good ROI one day but its the very early stage investors who will get any meaningful return from it. Meanwhile, how's that investment in Slide at 500m pre coming along?
This includes, by the way, the large scale publicly traded internet companies (that instead of buying their own stock) are making acquisitions of later stage companies that either have been a general drag on their finances (YouTube) or outright failures (Skype.) That some of these acquisitions are overpaid by the acquirers for "strategic reasons" shows the peril to long term value of even powerful current franchises.
Put another way, how many publicly traded internet companies have outperformed the market (or their previous growth trajectories) after making an acquisition over $250 million? I would be very wary as an Amazon shareholder if minimally profitable companies like Zappos have to be regularly taken over at huge premiums to inoculate against competitive risk.
I think youtube and skype are great assets but maybe in the wrong hands (ebay) or undermonetized (because google can get away with that)
I am very late to the party. But, I had helped Bill Burham get together some data on Internet Companies a couple of years ago.
Its available here -
http://spreadsheets.google.com/ccc?key=pu2Ecwd5...
I took a preliminary glance at the companies and quite a few of them are profitable and growing companies. Perhaps, the internet sector has more companies as a % of total companies that are growing/profitable than most other sectors.
I read James article and I was a little confused by his central argument. I am not sure if his argument that
1) Public Internet Companies are generally profitable (The data from Bill's spreadsheets dont seem to suggest that)
OR
2) The multiples doesn't justify the potential growth (which maybe a valid point).
If his point is the 2nd, then he should have perhaps gone with a less sensational headline such as "The Public Internet companies don't justify the multiples"
The Internet never was and never will be an investment. You cannot buy stock in the Internet. You never will be able to buy stock in the Internet. Of course, you can buy stocks in companies that operate on, provide services for, provide equipment for, will use the Internet integrally in their business model, etc. And this is where the rub comes. Few companies have been able to make money recently on the Internet because it is basically a communication channel. Perhaps, the most sophisticated communications channel we have ever observed or imagined, let alone ubiquitously implemented, but still a communications channel. It's a wide pipe that you can shove stuff down back and forth, like encyclopedias, like networks of friends, etc.
I would agree that the transmission hardware and software of the Internet appears to be a mature market. So are nearly all things related to Web 1. Like shrink wrapped software (look at Microsoft's unappreciated stock price for the past five years), and investments in Internet transmission hardware and software would not appear to be big gainers anytime soon due to maturity of market, if not post maturity. On the other hand, business models that rely pragmatically upon Web 2.0 and that can create communities around their product or sell related products into existing communities would appear to be reasonable investments to consider. Unless the product is revolutionary in some way like the Internet was during its embryonic period, such investments are unlikely to grow as rapidly as Amazon, Google, and even Yahoo did during their heyday.