The Internet Is Dead (As An Investment)

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...

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...

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

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?

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."

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.

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.

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.

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