To anticipate the future, I look to the private companies that are attracting venture capitalists and investment bankers. 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
Specialised 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 new 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 merchandise and importing information. Multex Systems 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 US$50 million and growing. Onsale represents some of the most innovative thinking I have seen on how to adapt familiar forms of communal activity to the Web, and I am looking forward to its public offering in 1997.
Another bleeding-edge company is Broadvision (BVSN), whose one-to-one marketing software holds customer profiles and creates a personalised Web page each time a user visits a site. It went public in June, opening below its expected price and falling from there. Although I want to see a few more quarters of earnings data before I recommend this stock, I am 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. Web sites now have stylistic, complex designs with rich links, and content is refreshed frequently. The metaphor has changed from creating a book to publishing a magazine, or even broadcasting a TV 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 go to another site. For example, the E*Trade (EGRP) personalised 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.
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 organisation, and overall site management so they can quickly design and post. My favourite company in this segment is DeltaPoint (DTPT), which publishes QuickSite and WebAnimator. I am currently buying the stock under $10.
TWIT$
TWIT$ is fully invested for the predictable early '97 rally.
The Wired Interactive Technology Fund (TWIT$)
Company Primary Business 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 + 5 1/2 hold Apple Computer Company Hw/sw AAPL 4,800 24 5/8 + 1/2 hold Tele-Communications Inc. Cable television TCOMA 4,800 14 1/2 - 1/2 hold Intel Corporation Microprocessors INTC 3,000 95 3/4 + 14 2/8 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 Inc. Disk drives SEG 300 54 + 8 hold
Portfolio Value $1,582,093.75 (+ 58.21% overall) +14.50%
Pound sterling on Oct 1 was $1.56
Portfolio Value (£) £1, 010,957.91
The Wired Interactive Technology Fund is a portfolio of share recommendations, which began investing a virtual stake of US$1 million on December 1st 1994. Wired UK follows its fortunes monthly.
TWIT$ is a model established by Wired, not an officially traded portfolio. Michael Murphy is a professional money manager who may have a personal interest in stocks listed in TWIT$ or mentioned in this column. Wired readers who use this information for investment decisions do so at their own risk.
Michael Murphy is a money manager who publishes the California Technology Stock Letter.