Month: July 2011

“We have many large computers and some of them are the same color as your jacket…”

$GOOG

There’s been a bunch of recent criticism of new web businesses focusing on low barriers to entry.

The arguments go that if others are able to easily enter the same busniess and if the business is not protected by intellectual property, then it is flawed, unworthy of a high valuation and will ultimately fail.

The complaint with Groupon ($GRPN) is that anyone including Google ($GOOG) or Amazon ($AMZN) can enter the space, deploy quickly with scale and drive competition up and margins down. In fact, there are already a ton of new entrants in the crowdsourced coupon space and no end of competition.  This means little.  All that matters is if Groupon can continue to execute and advance product in new and delightful ways.

Critics are writing similar things about Pandora ($P).  And the same applies there too. Pandora will survive and thrive if they keep innovating and giving users reasons to be happy to pay. Pretty simple.

I remember similar low barriers to entry criticism aimed at Amazon after Wal-Mart ($WMT) launched its online store.  “Wal-Mart is already huge, wildly profitable and controls wholesalers due to their massive order size. They will squash Amazon or whatever.” Meanwhile, all Bezos and company did was keep there head down, evolve their singular vision and make it ever easier and cheaper for people to buy books and then anything online.

Shorts have been saying the same thing about Netflix ($NFLX) for more than 100 points in the stock. That game is over.  Even if $NFLX continues to fall after Tuesday’s earnings miss, it doesnt matter.  The argument was made, $AMZN will crush them, $AAPL will crush them, $GOOG will crush them, it doesn’t matter.  The bet is over, the shorts from 100 or 200 already got creamed.

At the end of the day, the only barrier to entry is execution.  If you are a young company, smaller but out in front, and all you do is improve everyday, make the product better and work smarter, you have a great opportunity no matter who can or does come after your business

On the other hand, if you slip up, get lazy or dumb, you will get beat, even if you began small and nimble and even if you created the space.

The risk to Pandora, Groupon, LinkedIn ($LNKD) and the rest of them is execution risk and the low barrier to entry argument is a just a red herring.

One last point to add here – even if your business is protected to some degree by intellectual property, barriers to entry are low if you are not executing.  Someone will eventually come along and apply a totally novel and better way of doing something that is not protected and they will snack on your sandwich.

After the last time we had a 2% down day in the $SPY, I asked readers which way they thought the market was headed and the majority said higher.

I was not so surprised, because my observation was that there was not the usual negative reaction to the move.  For the record, the next move after that day was lower.

So what do you all think this time?

Update: For the record, as of the open on 07/28, the poll was slightly bullish (52-48) with about 70 votes.

Back in  November, after Cisco Systems ($CSCO) reported an ugly quarter, I warned that weakness in the name was not $CSCO specific.

I took flack for that message from those who were bullish tech in general and companies like $JNPR specifically who appeared to be executing better.

Granted, $JNPR went on to make higher highs into March and it did appear that perhaps the poor performance was $CSCO specific. This was a head fake in my opinion compounded by the fact that $CSCO had been sprawling themselves too thin and stumbling in non core areas including consumer products.

Things are much more obvious now.

The $JNPR numbers and guidance from last night are telling you something about the networking equipment space as a whole as $CSCO’s numbers did in November.

Tempered IT spending within an uncertain economic environment and increased competition continues to weigh on these names.

I love it when the crowd gets it right.

The StockTwits community has been wildly bullish on $AAPL for at least 200 points as evidenced by the jubilant stream, bullish setups posted to Chartly, the victory laps and the sheer volume of messages in the name.

Conventional wisdom suggests that when the vast majority shares a strong positive sentiment, everyone is already long and the asset will soon falter as there is no one left to buy.

Sure this is sometimes the case but not as often as said wisdom implies.

Here’s why this is faulty thinking.

We tend to remember instances that are the most emotionally salient.  Kahneman and Tversky called this tendency the availability heuristic 37 years ago and they nailed it.  Previous instances that are the most easily recalled (or are available to memory) obscure objective recollection of the total set of previous instances.

So we neglect memories in which the crowd gets it right because they are not as striking to us.

Just because everyone appears bullish or an asset makes the cover of Time, as has been the case with $AAPL, does not necessarily infer the end of the trend.

We just remember it that way.

There’s an addiction myth that goes something like this, “the addict needs to hit rock bottom before he can heal.”

(photo courtesy of bradadozier via flickr)

It has only been a short while since Google was dubbed evil and only six months since it demoted its adult CEO.

You would think from the antitrust coverage that $GOOG had become the very thing they have despised and gunned for – the new $MSFT incarnate.

But a funny thing happened after the Schmidt can… Sergey and Larry have woken up reenergized and begun testing the limits of what is possible again.

Its not just Google+ and its not just that thousands of Googlers are engaging the new social product or that Larry Page live +’ed this week’s earnings call…

In the past week, they have also introduced badges for news and a second try at Answers.

Armchair quarterbacks have belittle Google+.  Ha, they say, these guys are just creating one more lame effort, snickering, and don’t forget Orkut, Buzz and Wave.

These critics miss the point profoundly.  Instead, they ought to be saying, man, Google has missed the mark multiple times on social and yet here they come back a fourth time giving it everything and totally willing to fail again.

What a freaking awesome mindset!

Lindzon uses the phrase “too small too fail” to describe how companies or people must act in this post credit crisis world.  I never took it literally but more as a mindset, a willingness to experiment nimbly, take losses quickly, be smarter than the herd and to try try again even as the conventional wisdom promotes risk avoidance…

Despite the 200b market cap, Google is behaving too small too fail in many critical ways and it is good.

I love Joe.  He works harder than anyone I know, never takes himself too seriously and is flirting with genius at what he does.

Still, Drudge is the master.  Plain and simple…