Follow the Money
Taking Stock of the Web
To anticipate the future, I look to the private companies that are attracting venture capitalists and investment bankers. I find these promising start-ups at high tech investing conferences organized around hot companies or hot issues like digital media or Internet commerce. I especially like Dick Shaffer's Technologic Partners series because – unlike brokerage firm conferences – his events are open to any investor with US$1,400.
Some of these start-ups will make it to an initial public offering, others will merge, many will die. Experienced management, deep-pocket venture funding, and products that customers really want are good indicators of potential success, but nothing is certain until the revenues start rolling in. At a recent Technologic Partners Internet Outlook conference, several themes emerged.
Take the IP road
Specialized services based on Internet Protocol will continue to proliferate. By using IP instead of a proprietary protocol, vendors leverage the widespread acceptance of the open Internet standard. NetXchange and NetCentric, for example, are developing fax-over-Internet services, and Voxware provides the technology for voice over Internet. Unwired Planet is developing wireless Web access using HDML (handheld device markup language), a complement to HTML. Keep your eyes on these four private companies; in the meantime, I recommend stock in Cirrus Logic (CRUS), which owns a piece of Unwired Planet.
Mind the Web store
A spate of Web-based companies are taking advantage of the network's wide reach and low distribution costs. Bargain America provides Japanese consumers with direct access to American vendors as well as information on merchandising and direct mail. Multex Systems Inc. has built a successful business based on repackaging information – I use its service to access Wall Street analyst reports.
Another successful company is Onsale, a retailer of PCs and consumer electronics. While the typical Web transaction amounts to only a few clicks, Onsale thinks users prefer a more social format. The company holds auctions in which consumers can browse the products and watch the action without obligation. As bidding progresses over days, the Web page is updated with new bids, sales, and inventory changes.
This model is paying off, with annual revenues of $50 million and growing. Onsale represents some of the most innovative thinking I've seen on how to adapt familiar forms of communal activity to the Web, and I'm looking forward to its public offering in 1997.
Remember – the majority of Americans don't find the Web worth visiting, so more efforts to adapt the Web to them, rather than the other way around, should significantly broaden the pool of Net users.
Another bleeding-edge company is BroadVision (BVSN), whose one-to-one marketing software holds customer profiles and creates a personalized Web page each time a user visits a site. The company went public in June, opening below its expected price and fluctuating from there. Though I want to see a few more quarters of earnings data before I recommend this stock, I'm watching it closely.
Construction sites
The final theme to emerge from the Technologic conference was the importance of webware – the software tools needed to build and maintain Web sites. In the early days, sites were little more than brochureware, displaying static information one or two layers deep and changing only sporadically, like editions of a book. Now sites have more stylistic, complex designs with rich links, and content is refreshed frequently. The metaphor's changed from creating a book to publishing a magazine or even broadcasting a TV channel. Netscape's Marc Andreessen recently alluded to shifting the browser design from a "page" to a "channel."
Even the idea of a page fully under the control of the webmaster is starting to break down, as vendors find ways to keep their information on your screen while you move to the next site. For example, the E*Trade (EGRP) personalized stock ticker follows you from site to site, providing continuous stock information.
High-end sites engage the visitor, provide extensive information, and frequently initiate or complete a transaction. They incorporate sound, graphics, and animation. Many also are linked to object databases. These sites require powerful, flexible tools. Macromedia (MACR) is a clear leader in this market – its Shockwave plug-ins, which enable animated sites, could be on 60 million computers by the end of 1997. I buy the stock whenever it dips under $17.
As the Web metaphor has shifted, the industry has developed the tools needed to easily update a site. New software treats each page, link, or other component as a discrete object in an object database – any change can be made instantly without affecting the other elements.
In addition to the large corporate and media businesses – which maintain Web sites with rich content and complicated pathways – there are many companies that simply want a Web presence. These 600,000 small businesses need different tools with strong support for page layout, site organization, and overall site management so they can quickly design and post. My favorite company in this segment is DeltaPoint (DTPT), which publishes QuickSite and WebAnimator. I'm buying while the stock's under $10.
TWIT$
TWIT$ is fully invested for the predictable early '97 rally.
The Wired Interactive Technology Fund
|
Company | Primary | Symbol | Shares | Price Oct 1 | Since Sept 3 | Action
LSI Logic Corporation | Semiconductors | LSI | 7,800 | 22 3/4 | + 1 1/8 | hold
Applied Materials Inc. | Semiconductor equip. | AMAT | 4,000 | 26 3/4 | + 1 3/4 | hold
The Walt Disney Company | Entertainment | DIS | <1,500 | 62 1/2
Apple Computer Company | Hw/sw | AAPL | 4,800 | 24 3/8 | + 1/2 | hold
Tele-Communications Inc. | Cable television | TCOMA | 4,800 | 14 1/2 | – 1/2 | hold
Intel Corporation | Microchips | INTC | 3,000 | 95 3/4 | + 14 1/8 | hold
Adobe Systems Inc. | Software | ADBE | 5,000 | 37 1/2 | + 2 1/4 | hold
| Mattson Technology| Semiconductor equip. | MTSN | 30,000 | 10 3/4 | + 2 1/4 | hold
| Euphonix| Audio sw | EUPH | 17,000 | 6 1/4 | + 1 1/8 | hold
| Diamond Multimedia| Multimedia hw | DIMD | 7,000 | 13 9/16 | + 4 13/16 | hold
Seagate Technology Drives | Disk Drives | SEG | 300 | 54 | + 8 | hold
Portfolio Value | $1,582,093.75 | (+ 58.21% overall) | +14.50%
The TWIT$ fund is a model established by Wired, not an official traded portfolio. Wired readers who use this information for investment decisions do so at their own risk.
Michael Murphy is a money magager who publishes the California Technology Stock Letter in Half Moon Bay, California.
