Cover image for The gorilla game : picking winners in high technology
Title:
The gorilla game : picking winners in high technology
Author:
Moore, Geoffrey A., 1946-
Personal Author:
Edition:
Revised edition.
Publication Information:
New York : HarperBusiness, [1999]

©1999
Physical Description:
xxv, 358 pages : illustrations ; 24 cm
General Note:
Includes index.
Language:
English
ISBN:
9780887309571
Format :
Book

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Summary

Summary

The Possibilities Are Staggering:

Had you invested $10,000 in Cisco Systems back in early 1990, your investment would now be worth $3,650,000 Similarly, a $10,000 investment made in Microsoft in 1986 would be valued at more than $4,721,000 today $10,000 invested in Yahoo! in 1996 would today be worth $317,000

How do you get in on those deals--especially if you're not a Silicon Valley insider? How do you buy the high-tech win-ners and avoid the losers? How do you find the Yahoo!s, Microsofts, and Ciscos of tomorrow?

The answers are here, in this newly revised edition of the national bestseller The Gorilla Game. The book reveals the dynamics driving the market for high-tech stocks and out-lines the forces that catapult a select number of compa-nies to "gorilla" status--dominating the markets they serve in the way that Yahoo! dominates internet portals, Microsoft dominates software operating systems, and Cisco dominates hardware for data networks.

Follow the rules of The Gorilla Game and you will learn how to identify and invest in the "gorilla candidates" early on--while they are still fighting for dominance, and while their stocks are still cheap. When the dust clears and one company clearly attains leadership in its market, you'll reap the enormous returns that foresighted investors in high-tech companies deserve.

This new edition of The Gorilla Game has been updated and revised throughout, with new focus and new insights into choosing the internet gorillas--the companies that are destined to dominate internet commerce.

Bestselling author Geoffrey A. Moore is one of the world's leading consultants in high-tech marketing strategy. Here you'll find his groundbreaking ideas about tech-nology markets that made his previous books bestsellers, combined with the work of Paul Johnson, a top Wall Street technology analyst, and Tom Kippola, a high-tech consul-tant and highly successful private investor. Together they have discovered and played the gorilla game and now give readers the real rules for winning in the world of high-tech investing.

Step by step you'll learn how to spot a high-tech market that is about to undergo rapid growth and development, how to identify and spread investments across the potential gorillas within the market, and how to narrow your investments to the single, emerging leader--the gorilla--as the market matures.

High-tech investing can be extremely risky, but investors who learn to play the gorilla game can avoid many of the traps and pitfalls and instead start capitalizing on untold profits. Personal wealth is only a gorilla game away.


Author Notes

Paul Johnson lives in London.


Reviews 1

Booklist Review

Federal Reserve chairman Alan Greenspan recently voiced concern over "asset price bubbles" caused by an inflated stock market. Anthony and Michael Perkins, authors of the second book cited above, are also concerned. They founded Red Herring, which, along with Wired and Upside, two other brash new magazines, covers Silicon Valley and the business of high technology. It is no longer news that stock in companies whose business involves the Internet is wildly overpriced. Stock offerings even for companies that have yet to take in any earnings are caught up in bidding frenzies that make them worth billions on paper. The authors do not claim to be investment experts but offer instead their observations as reporters. They profile Kleiner Perkins Caulfield & Byers, a powerhouse venture capital firm, and argue that those behind the stock offerings are using other people's money to reap windfalls and that when the bubble does burst, it will be the small investor who is left holding worthless stock certificates. Major Internet players are portrayed, and the authors compare the biotechnology bust of the late 1980s with their predicted collapse of Internet stocks. They also suggest ways to invest safely in this "overheated market environment." Moore, too, offers investment tips, but he is not as ready to write off the Internet. He does, however, acknowledge the volatility and high investment risk of Internet stocks. This is a revised update of The Gorilla Game, which was Amazon.com's best-selling investment book last year. Moore is an ex-English teacher with a knack for colorful analogy. He advises investors how to choose among gorillas, chimps, and just plain monkeys. Gorillas are those companies that dominate their industry segments, and Moore identifies their attributes. The defining characteristic that separates Moore's apes is based on how and when and to what degree each company has adopted various stages of technology. He has updated each chapter of his analysis to account for the dramatic changes wrought by Internet investment mania, and in a new chapter he likens the Internet to Godzilla. --David Rouse


Excerpts

Excerpts

Why Is High Tech Different? First of all, it is not the bits and bytes that make high tech so special, so you don't have to be technical to understand what is going on. Instead, as we will explain in detail in the next chapter, it is the discontinuous innovations that make the difference. Innovation is a concept we are all familiar with-new stuff makes us happy, we buy it, sellers sell it, it's called an economy. Discontinuity is the new idea. It means not compatible with the existing systems. Electric cars, video telephones, and Web TV, for example, all make exciting promises, but none of them can be used without much of the world changing the way they do business. Prospective customers are attracted to the compelling new benefits, but to get them, a whole lot of existing systems will have to change. That creates a battle in the marketplace whose outcome is uncertain. Sometimes the battle is lost, and the proposed discontinuous innovation simply disappears. The technology lives on, to be sure, finding its way into other products in a later decade, but the products themselves go to that same burial ground wherein lie the eight-track tapes, laser disc stereos, videophones, and pen-based laptops of yesteryear. Other times the battle is won, but only inside a few niche markets. The established vendors retreat grudgingly, giving up to the new paradigm a defined space, but no more. This is how IBM dealt with Apple's Macintosh's innovations in graphics, how Sun treated Silicon Graphics' work in 3D imaging, and how Digital Equipment Corporation responded to Tandem's nonstop fault-tolerant computing. If these niche markets are as far as the innovations get, if the traditional technologies can hold the line, the establishment breathes a sigh of relief. No new market, no major shift in power, just more business as usual. For the establishment, this is good. But at other times, the technology leaps out of its niche markets and into the mainstream. It becomes a mass market phenomenon the way PCs, local area networks, laser printers, relational databases, cell phones, voice mail, and electronic mail all have since 1985. When this occurs, a massive shift in spending accompanies it, with a whole new set of vendors coming out of nowhere to produce stunning economic returns. That is, it is not just a new market coming into existence but also a whole new system of commerce to support that market. Business schools call these systems value chains or supply chains-an interdependent collection of companies working together to assemble the various product and service offerings needed by the new market. It is a revolution, and typically it does not favor the establishment, which historically has tried to resist rather than coopt new technologies. Instead, it throws into prominence a whole raft of new companies that suddenly appear on investment analyst charts because they have begun dramatically outperforming the rest of the stock market. So that is how a high-tech boom gets going. But why a boom? Why not just a modest growth gradually displacing the old with the new over time? The answer has to do with the dynamics of change, specifically the dynamics of the Technology Adoption Life Cycle, and more generally the dynamics of evolution and the idea of punctuated equilibrium. In dynamic systems-a term that describes both ecologies and marketplaces-change does not happen linearly. Instead, systems plateau and resist change until enough stress builds up to break the old system and bring in the new. The actual changeover happens in very short order as the systems race to a new plateau where they can again stabilize and start the cycle all over again. This period of rapid change is called hypergrowth, and it happens only once in the history of any particular species or market. From an economic point of view, when hypergrowth hits, the market simply explodes. Companies in hypergrowth markets experience revenue and earnings growth that goes through the roof-30% to 40% quarter-over-quarter growth is not untypical. Stock prices catapult as the market tries to catch up to what is a seemingly never-ending sequence of upside surprises. This catapult effect is the basic attraction of investing in high tech and the beginning of anyone's interest in the gorilla game. Not Smooth Sailing The problem for investors, of course, is that this period of change is chaotic-literally. Chaos, as it has come to be defined, is a property of dynamic systems. Its central principle is that essentially insignificant differences at the outset create hugely different consequences later on, and there is no way to rationally predict outcomes based on inputs. Why did IBM mainframes win and not Burroughs, or Univac, or NCR, or Control Data, or Honeywell? Why is Microsoft Windows on our desktops and not Unix or Macintosh or OS/2? These are not academic questions. As the tables shown earlier in this chapter indicate, you can easily lose the bulk of your capital by investing in the losers in these competitions. Indeed, the volatility of high-tech stocks is so dramatic that, in the absence of a framework such as the one this book provides, private investors have typically, and we would argue rightly, shunned the sector. What else can you do in markets where, when a company misses its revenue projections by a few percentage points, it is routine for their stocks to lose 30% or 40% of their value in a single day? So, once again now, why is it Intel's microprocessors instead of Motorola's or National Semiconductor's or MIPS' or Sun's SPARC or HP's PA RISC? Why is it Oracle and not Ingres or Sybase or Informix? At one level, there is no good answer to these questions. If there were, we could predict the winners from the outset, and instead of writing this book, the three of us might be sipping Chateau Margaux atop a penthouse on the Via Tornabuoni in Florence, contemplating which continent we should cruise to next. The fact that we are not shows that we have no way of knowing the winner at the outset. But just as the TV news networks covering national elections can declare the winners long before the last votes are in, so there are ways of predicting the outcome of hypergrowth market competitions early in the game. This we believe we do know how to do, and we will share this knowledge in detail in the chapters to come. (Continues...) Excerpted from The Gorilla Game by Geoffrey A. Moore Copyright © 2003 by Geoffrey A. Moore Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.

Table of Contents

Acknowledgmentsp. ix
Introductionp. xv
Part 1 Setting the Context
1 The Private Investor and the High-Tech Sectorp. 3
2 How High-Tech Markets Developp. 21
3 Understanding Gorilla Power: The Nature of Competitive Advantagep. 47
4 Understanding the Stock Market: The Valuation of Competitive Advantagep. 87
Part 2 The Rules of the Game
5 Mapping the Terrain: The Selection Process Beginsp. 131
6 Stalking the Gorilla: In Search of Hypergrowth Marketsp. 149
7 Capturing the Gorilla: The Buying and Selling of High-Tech Stocksp. 166
Part 3 Case Studies
8 Case Study 1: Oracle and the Relational Database Tornadop. 197
9 Case Study 2: Cisco and the Network Hardware Tornadop. 217
10 Case Study 3: Customer Relationship Management (CRM) Softwarep. 253
Part 4 Passing the Baton
11 Tools and Processes for the Gorilla-Game Investorp. 283
12 Investing in the Internet--Playing the Godzilla Gamep. 309
Epiloguep. 345
Indexp. 349