
The Internet Is Dead (As An Investment) - talison
http://online.wsj.com/article/SB124784696163158721.html
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eserorg
To paraphrase Clayton Christensen's "The law of conservation of attractive
profits":

"When attractive profits disappear at one stage in the value chain because a
product becomes modular and commoditized, the opportunity to earn attractive
profits with proprietary products will usually emerge at an adjacent stage.
That is, the location in the value chain where attractive profits can be
earned shifts in a predictable way over time."

Companies make attractive money when they solve the hardest problems.

Read his book, "Seeing What's Next"

Also: [http://eser.org/oil-and-
gas/The_law_of_conservation_of_attra...](http://eser.org/oil-and-
gas/The_law_of_conservation_of_attractive_profits)

Just because it's true that many internet businesses have become modular,
commoditized, and marginally profitable, does not mean that there is a
shortage of difficult and highly valuable problems to solve.

The companies the author listed are "component manufacturers". Future profits
will be created by combining those components in creative ways to solve new
problems.

Quoting Economist Paul Romer: “Economic growth occurs whenever people take
resources and rearrange them in ways that are more valuable." see:
[http://eser.org/oil-and-
gas/Eser_Corporation%27s_Business_Ph...](http://eser.org/oil-and-
gas/Eser_Corporation%27s_Business_Philosophy)

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extension
Does this still apply if the attractive profits were never there to begin
with?

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eru
Some companies have made a lot of money on the internet.

~~~
extension
A small handful have made a fortune by monopolizing key markets but web sites
in general are not profitable and profit never seems to be much of a concern
for those investing in the internet.

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fallentimes
I expected better from the WSJ. Even if what the author says is true, he
supports his assertion with blanket statements and anecdotes.

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pavs
Why did you expect better from WSJ? Most of the time they are horrible.

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fallentimes
Really? I've found them to be better than the vast majority of publications.
But, I guess you could argue that's being the best of the worst.

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invisible
Some problems with his argument: Time Warner may own AOL, but it also costs
them heavily. Most of their network is Roadrunner/Earthlink before AOL as an
ISP.

Microsoft is spending tons of money on online marketing to ensure that they're
not a moot point. They are trying to make "Bing" valuable and thus their ad
market valuable.

Myspace was pretty much doomed from the start. The underlying software was
pretty shitty.

Cisco - what? +/- 10% is STEADY in this market. The market crashed and cisco
went down. Duh?

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ojbyrne
I thought that after a bunch of stuff about investing in boring, conservative
investments, the last line was hilarious:

"Next article: my favorite biotech plays."

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Tichy
Felt the same, like it's the most cliched investment ever.

------
Everest
Fred's response example of Google Maps really bothered me. I hate when
Internet companies say "but if we wanted to make money we could advertise"
Google Maps is not a recent product. Why aren't they advertising if its so
easy for them to do? Wouldn't it be illogical for them to pass up revenue? the
answer is that Google worries sticking ads throughout Google Maps may diminish
the user experience -- which is why they can't decide to monetize on a whim.

I would expect VCs hear pitches all the time where entrepreneurs say that they
haven't tried monetizing but easily can. And I imagine most of the time those
pitches go in the garbage. So its interesting that Fred uses Google Maps as an
example of how Internet companies can make money.

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vaksel
That's just stupid, internet startup costs are peanuts compared to any other
market.

The problem, is that investors are used to investing huge amounts. So they end
up investing millions into an idea that could have gotten off the ground with
a few hundred K.

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pchristensen
He's talking about "the internet" as the companies that built the physical
infrastructure of the internet. That is largely in place now and is a steady,
mature business, not a high flying investment opportunity.

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Tichy
Instead he suggests highway building companies. Several car manufacturers just
went broke. I suspect highways are not the hottest thing on the planet
anymore.

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eru
If prices reflect this already --- or especially if they have over-reacted, it
might a good opportunity to buy anyway.

~~~
Tichy
Couldn't you say that about anything?

~~~
eru
Of course. I just wanted to point out, that it's not only the state of an
industry that determines if it's investment-worthy. But also the price of
assets.

