Follow the Money
Life as publisher of a technology business magazine may seem glamorous, but it sure doesn't line the old jeans pockets with cash. That's why I felt a new kind of rush when the editors of Wired slipped me a virtual million to start The Wired Interactive Technology Fund (TWIT$) with the instructions that it better give an average return on investment of 20 percent or I'd be out of a job - or at least out of a column. No problem, I thought. I'll spend my days talking to all the big dogs in technology. Just squeeze 'em that extra little bit, get some hot stock picks, and green bills will start sprinkling down from heaven.
All successful mutual fund managers have, of course, "an investment philosophy." So it seemed imperative to develop one that at least rang well before I started barking "buy," "sell," and "short." Having taken neither a philosophy lesson nor an investment class, I turned instantly to His Holiness, Roger McNamee of Integral Capital Partners, the pope of technology investment. "At the moment," said McNamee, "we are focusing on three themes: interactivity, mobility, and interconnectivity. It's very simple, really, because everything electronic is getting more interactive, more mobile, and is getting connected to everything in sight!"
OK - interactivity. First, let's put to rest my least favorite current myths. No, the entertainment and education markets will not somehow magically divide into two separate industries dominated by separate players. A guiding investment principal for the new fund will be to bet only on companies that are here and now. For this month, Electronic Arts is a solid bet; its enormous distribution muscle makes it the most stable franchise in the business. For the same reasons, I am excited about Brøderbund.
On the distribution side, it's becoming obvious that the CD-ROM and game-cartridge media are merely the training wheels for online delivery. Although America Online is often trashed within these pages, I spent a lot of time talking about digital information distribution strategies with AOL chief Steve Case on a recent junket in Barcelona. I remain a true believer in his consumer-marketing background and competitive nature. AOL's recent acquisition of Redgate, the Florida-based, bleeding-edge, interactive-marketing firm, offers just one more hint of Case's strategic vision. Redgate co-founder and CEO Ted Leonsis recently confided to me, "When Steve Case and I began talking, we saw how we could create a new medium that combines the traditional online service with interactive advertising and transaction processing."
Our short sell for the month is 3DO. Since writing my first draft of this article, 3DO has dropped, and I expect it to continue to drop. While Trip Hawkins is finding marginal success selling porn titles in Japan, he still needs a solid Christmas in the United States for investors to make a good return. We don't think this will happen, and 3DO will subsequently run out of cash with no place to turn.
TWIT$ would be remiss in not placing bets on a few top multimedia tool vendors. After months of talking to interactive content developers from Hollywood to Paris, it's clear that Silicon Graphics is the box of choice, and software tools produced by Alias and Wavefront are gaining an entrenched loyalty. C-Cube, the rapidly expanding producer of compression chips for multimedia systems that went public last April, is also an attractive buy.
On the mobility front, there are three safe bets: Motorola, Mobile Telecom (Mtel), and Compaq. Mtel and Motorola are locked in a sweaty battle to dominate the emerging two-way messaging-service business. "Mtel has a proven record with its very successful SkyTel pager service and should be the first to market with a two-way product," says Judy Owen, CEO of Wireless Access. I believe her, but there's enough room in the sky for both Mtel and Motorola to win. In the mobile-computer-device area, my heart's favorite is Apple, but with a Windows platform and commitment to wireless communications, Compaq is best positioned to be the market leader.
The current VC buzz concerns opportunities in funding Internetworking start-ups that are pioneering Ethernet switching and Asynchronous Transfer Mode (ATM) technologies. Bob Metcalfe, the inventor of Ethernet, founder of 3COM, and executive correspondent of InfoWorld, concurs with the VCs, but warned me that "It's still very, very early in the game." TWIT$ will therefore stick to the "here and now" perspective, and bet on switching and routing companies like Cisco Systems, Alantec, and 3COM. Doug Leone from Sequoia Capital, the VC firm that made a bundle as the sole pre-public investor in Cisco, bolstered my confidence by projecting that "the switching business should grow from US$50 million in 1994 to more than a $1 billion market by 2000."
There you have it. The first stock picks for The Wired Interactive Technology Fund. I'll be back next month to examine the fund's progress and provide a new round of insights into where the money is flowing in technology.
Company Symbol Action Price Dec 1 Shares Invested Interactivity Electronic Arts ERTS buy 19.19 3200 $61,400.00 Brøderbund BROD buy 34.75 1100 $38,225.00 America Online AMER buy 41.50 2800 $116,200.00 The 3DO Company THDO short 12.75 3000 $38,250.00 Multimedia Tools Silicon Graphics SGI buy 29.75 2700 $80,325.00 Alias Research ADDDF buy 23.25 3300 $76,725.00 Wavefront Technologies WAVE buy 11.50 5200 $59,800.00 C-Cube Systems Cube buy 18.50 2500 $46,250.00 Mobile Computing Mobile Telecom MTEL buy 16.38 3300 $54,037.50 Motorola MOT buy 56.13 1600 $89,800.00 Compaq CPQ buy 38.25 2000 $76,500.00 Interconnectivity 3COM COMS buy 43.25 1800 $77,850.00 Cisco Systems CSCO buy 32.25 2500 $80,625.00 Alantec ALTC buy 20.00 5200 $104,000.00 Anthony B. Perkins (kids@netcom.com) is publisher and editor in chief of The Red Herring*, a monthly investment magazine published in San Francisco.*
