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Tech Reality Check: Time to Get Back to Fundamentals

Is the internet bubble and the lofty share prices (often without lofty earnings) handicapping down to earth businesses and pressuring otherwise solid companies into making short term decisions in an attempt to chase the internet companies?

The internet has potential.

That doesn't mean any single company will necessarily dominate the internet.

Microsoft was partly luck, at the right moment in history their time was there. There were no competitors. It was a new thing and they were the first to go hard.

The internet is different. It has itself made things different. There are fewer secrets and knowledge is everywhere, collaboration is everywhere, real time communication is almost ubiquitous.

None of these things were true when the personal computer and it's consumer operating system arrived.

Shareholders are wildly optimistic in the value they place in the tech 'giants'. Competitors are everywhere. Consumers are becoming more fickle everyday.

A lot of it is still new. Consumers put up with a lot for 'newness'. Only until it becomes old hat. It is already for the young. Consumers will become more particular, markets will segment, small will become bigger and there will be no global domination by one technology provider. Moores law sees companies like Goo and Yoo on a continuous race to install newer better hardware and keep ahead of the emerging competition. Sure they can aquire their competitors while they're small but it has to end somewhere.

A new search engine could emerge tomorrow. A new add blocker or browser could pull a Netscape. Microsoft probably didn't think I'd be seeing almost half the hits on my website coming from Firefox. In my experience people only use IE if they have to, at work.

Things change.

The browser is becoming the ubiquitos application. I could easily see Firefox becoming ubiquitous - or could I really. No, of course not. There are some bright guys out there making a better one now.

Same with search engines.

There are some great new search engines out there. Search engines, not advertising and behavioural analysis systems.

Try CUIL for instance. They don't track you. They're very different and this link is to their privacy statement. It's early days for CUIL but there will be a lot of people who love it, and a lot of people who will use it sometimes because it's different. There is even CUIL search for Firefox. They're my kind of people.

There's Wikia, and many others that you already know about and even more that you don't.

My point is that just like fashion, there will be lots of different strokes for different folks and search or software is no different.

Look at the Iphone. Up in a blaze of glory and super cool, and then the next model is so bad that it would be embarrassing to own one. It's not only not cool, it just doesn't work, at least not the things that matter. What's next please. There will be something from someone.

That's why I don't think the new kids on the block are the end game and I see it as folly to believe that they are.

I also think that P/E's of 30 plus are just plain wild speculation. I'm not saying Goo weren't a great buy at $100 especially if you sold them at $700, but optimism, behavioural analysis and advertising can only carry it so far. Baadvertising. Goo used to be cool. Things change. It's hard to be all things to all people.

Microsoft has a unique position. It won't last. It's lofty share price didn't. It's P/E is hard pressed but it should be higher than an average business because of it's position and penetration. There are a lot of people without computers, and a lot of them won't ever get one in the traditional sense - the mobile will be their computer. Microsoft is on the same playing field as everyone else with mobile, albeit with more cash. They'll still be strong over the long term but more likely at a PE of 10-12.

Institutional investors are doing themselves a disservice by supporting ridiculous share prices. It puts undue pressure on the real businesses and they in turn are forced to try less than ideal strategies for short term gains. There's a lot more to keeping economies going than the internet, although not if you believe the hype.

It's time to see it for what it is.

Communication.

Everything and nothing. Not substance. The substance is the people and the businesses who use it. Sure there are many ways it can help, but it isn't the be all and end all. It's time for a reality check.

It's porn, hate, another means of oppression, it's ID theft, it's fraud, it's malware, it's unsafe.

Time to get back to fundamentals.

There used to be an ad "I can't live without my mum". What can't you live without?

The steelmaker, the car maker, the train maker, the food maker, the energy maker? You can live without a particular search engine, you can live without Microsoft, people do. If we want the real world to be better, and it needs some attention, we have to invest in it.

I see vast amounts of money going into tech giants who then invest in solar or some other thing that isn't their business. Since when did these guys become the investment experts?

It's not time for a tech crash it's time for a reality check and time for the institutional investors to get off the highly speculative and onto the highly productive. There are other ways to add value to society and make money. Real business. It's been turned into the poor relation. If we don't have a reality check we'll have a tech crash. We don't need any crashes, we just need fundamentals. Businesses need investment and the amount tied up in the tech giants isn't justified and we're doing ourselves a disservice by by ignoring it in the vain hope of a pot of gold.

It's time make some adjustments.

 

 

This post-my-blog article in the NY Times supports the suggestion.

Could a readjstment of few tech stock P/E ratios help turn a bear into a bull sooner?

 

 

 

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Comments: (1)

A Finextra member
A Finextra member 06 September, 2008, 09:22Be the first to give this comment the thumbs up 0 likes

They say the secret is in the numbers.

In this case the number of searches per hour might be distorted by the fact that many users are unknowingly searching from the address bar in their browser, they already know where they want to go but the data is sent to google's or MS's search engine first.

I'll let you make up your mind how many of those unintentional searches might be performed, but my guess is that it's quite a lot.

I wouldn't be surprised if those numbers would confuse shareholders a little bit. Simply there's search and there's search.

Google’s age: 10
Microsoft’s age: 33

Microsoft’s revenue at age 10: $140 million
($279 million in today’s dollars)

Microsoft’s revenue in the last 4 quarters: $60.4 billion
Google’s revenue in the last 4 quarters: $19.6 billion

Microsoft’s revenue per hour in the last 4 quarters: $6.9 million
Google’s revenue per hour in the last 4 quarters: $2.2 million

Microsoft’s net income in the last 4 quarters: $17.6 billion
Google net income in the last 4 quarters: $4.85 billion

Google employees, as of June 30th: 19,604
Microsoft employees, as of May 31st: 89,809

Google’s revenue per employee: $1 million
Microsoft revenue per employee: $672,000

Market value of Google: $139 billion
Market value of Microsoft: $235 billion

Number of tech companies with a market value larger than Google’s: 3 (Microsoft, I.B.M. and Apple, in that order)

*Worldwide searches on Google in July: 48.7 billion
*Worldwide searches on Microsoft in July: 2.3 billion

*Worldwide searches per hour on Google in July: 65 million
*Worldwide searches per hour on Microsoft in July: 3.1 million

Food for thought.

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