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*                         CYBERSPACE                         * 
*         A biweekly column on net culture appearing         * 
*                in the Toronto Sunday Sun                   * 
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* Copyright 1999 Karl Mamer                                  * 
* Free for online distribution                               * 
* All Rights Reserved                                        * 
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Profit? It's the software, stupid

It seems incredible but AOL bought Time-Warner at the beginning 
of the year. Think about it. A few short years ago AOL was a 
crappy bulletin board system with a few hundred thousand men 
all asking each other "are you a cute girl?"

Today it controls everything from CNN to a catalog of 
photographs that define generations and stopped wars.

On paper, AOL was worth several billion dollars more than Time-
Warner. Think about this a second. Time-Warner owns TV cameras, 
movie studios, printing presses, and some trucks. AOL owns a 
room full of modems.

Something doesn't seem right about that. Why would ostensibly 
smart, and wealthy, investors put their money in a company  
that essentially amounts to nothing more than a method for 
millions of men to ask each other "are you a cute girl?"

It took me a while to think this one through but I eventually 
realized it made perfect sense. It all came to me in a downtown 
night club. 

Over some loud music, I was talking with a guy, a lucky guy, 
who bought about $80,000 worth of stock in a friend's software 
company. Like so many small, clever Canadian software 
companies, it got bought out by a big American dot.com. The 
dot.com did a crazy thing after buying the little Canadian 
company. It sort of cornered the market on the emerging world 
of beaming sports scores and other nonsense into cell phones.  
This is going to be big. And it got there before Microsoft. In 
fact, it sort of shut out Microsoft.

His $80,000 worth of stock is now worth $5 million. Five 
million American dollars.

Anyway, he sort of had the nerve to claim dot.com companies 
needed to start showing a profit. One can only see a company's 
share price double every three months before you decide enough 
is enough and you demand a 2 cent per share dividend.

A man who just saw $80,000 magically turned into  $5 million 
was silly enough to quibble about a crazy little thing like 
profit.

Boeing sold $58 billion worth of planes, made a profit of $2 
billion dollars, and has a market cap of about $40 billion.  By 
contrast Amazon.com is worth half as much as Boeing but had 
sales of about a billion dollar and lost nearly half a billion 
dollars.

It's a typical story for dot.coms. There are dozens of dot.coms 
with small or non-existent profits but have market caps that 
match or exceed "real" companies that make real stuff you can 
pick up and drop and break. 

In the world of the Internet and software, it's no longer about 
profit. It's about control. 

If Amazon.com puts traditional book sellers out of business, 
controlling Amazon.com controls the books people read. If you 
control AOL or Yahoo, you control what people access on the 
net. If you control Microsoft, you have a presence in every 
work place and home. 

How much would you pay to control what people read, what food 
they eat, what movies they rent, who they date, what music they 
listen to? Playing god is surely worth more than a 4% return on 
your money.

Companies that make the real stuff, like consumer electronics, 
have never forgotten the lessons learned by Sony and its 
Betamax VCR system. Remember Beta? Beta was, in every way, 
superior to VHS. The tapes were smaller and the picture quality 
was better. But Sony lost out to the VHS format because movie 
studios were reticent to support two VCR formats and went with 
VHS.

Sony discovered in the early '80s what Apple learned in the 
early '90s. It's the software stupid. People don't want the 
best. They want what they can use. Sony soon went about 
acquiring movie studios and music labels to ensure whatever 
future technology it wanted to deliver, there would always be 
the software to support it.

The dot.com buying mania is much the same. The Big Boys want to 
control the infrastructure. If your 18-wheelers can't access 
the 401, you can't sell product. If AOL puts your product at 
the end of a search with 2085 matches, you're SOL.

    Source: geocities.com/lapetitelesson/cs/text

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