Wednesday, October 2, 2013

The Next Most Valuable Website on Earth?

What makes the most valuable website on Earth the most valuable website on Earth? (And which one of the over 650 million sites holds that distinction?) Currently, I think a strong case can be made for either the social networking one or the search one (you can probably guess who I have in mind!) But I think the NEXT big thing is going to be someone or some company that can integrate the complexity of health exchanges; and looking beyond that, a personalized roadmap of tailored DNA-specific medical coverage. 

Both of the two website examples above (social networking and search) are instantly recognizable by their functionality, yet both make their revenue on advertising. Interesting, yes? Which leads us to today’s blog thoughts, identifying the next big website.

Just because we Invest Like A Farmer doesn’t mean we don’t get off the financial farm once in a while and do a little surfing! In our quest to find promising seedlings to plan in our farm it has proven extremely profitable to pick some website-based companies, and also extremely painful to pick others. Why don’t I name names? Well, for one this blog is dedicated to looking at macro (large) investing principles and hoping to catch the swell before it builds and crests; rather than name names, I’d prefer to focus on the specific DNA that seems time and again to succeed. If you connect the dots you’ll soon see some very specific options emerge that follow the general template listed today.

This actually leads us to two discussions; the public company method of purchasing a piece of web property (i.e. you purchase publicly traded common stock in a major corporation whose major business is run through the website) and/or the alternative investment method of purchasing your own claim.

In regards to the latter, for those of you who missed the past two decades starting with the fixed monopoly of Network Solutions owning the sole right to register “.com”, “.net”, and “.org” to today’s widely dispersed method of registration (well somewhat widely, as a handful of registrars still control the bulk of website registration) this has been a proverbial "land rush."

A significant reason why you see so many neologisms is that many (some would say all) of the standard words are gone, registered long, long ago. So now you see three consonants in a row followed by five vowels, or some fashion of its anagram. All the boring, grammatically correct words are gone. Boring? We like boring don’t we? If you didn’t catch it the first time, here is Invest Like A Farmer’s first general guideline:

  1. Boring is undervalued. Look for companies with established brands. If they are exclusive, finite, hard-to-get, vital, addictive, and/or monopolistic, so much the better.

Hmmm...substitute out “companies” for “words” and I think we have a match! An EXACT match, meaning having boring regular word domains can be lucrative, especially considering the relevance placed by the the search engines on word selection.

Will Rodgers once said in regards to land “they ain’t making any more of it.” Although, they (there are AT LEAST 10 organizations “administrating” the internet) are adding different extensions seemingly by the year, I argue that “.com” extension will always carry a premium and have intrinsic value simply because of their very foundation in the internet. Plus, in terms of uniqueness, there really is only one “.com” per word in existence.

What does this have anything at all to do with being a financial farmer? The financial farmer is always looking for potential investments to help compliment his or her equity holdings. And to me it seems prudent that a basket of common word “.com” domain names hooked up to some type of advertising platform might well produce a steadily increasing source of revenue as the both the underlying physical population and the corresponding population of internet users grows. That’s a bag of seeds most financial famers wouldn’t mind having!

But if we want to look at the MOST valuable website on earth, rather than an exact word match, it is vital to focus on utility and mass appeal. To become the most valuable website on earth you need both; utility and mass appeal. A simple recipe for success.

Look across the web and I think you’ll find the most successful websites fulfill a basic utility perfectly and offer mass appeal. Let me write that again, a basic utility is fulfilled (networking, a payment, search, a retail purchase) and it is done seamlessly which leads to mass appeal. When you use the site you never ask yourself why, it is apparent by the very fact you are there; from a mass appeal standpoint, the website does what its utility intended as perfectly as possible. There usually is tremendous vertical integration as well to fulfill the utility and mass appeal. Nothing is left to chance and nothing should interfere with the utility. Everyone loves a winner, and everyone loves a website that accomplishes what he or she wants effectively without any problems.

So we mentioned social networking earlier, there are a couple companies doing that right now. Let’s brainstorm for some others; retail, check; wholesale, check; medical, hmmm?

That’s where I think the greatest opportunity to create the next big thing is; health exchanges. Keep an eye out for early movers and also established companies as they might move to lock up the social utility of health exchanges. Going forward, however, I think the implications to medicine, specifically a DNA-based solution to health care, has real promise. Along with that comes infrastructure build-outs like bandwidth, processing power, security is a big concern, and the health care providers themselves from the HMOs, drug companies, device companies, and even the various payment processors. 

But enough about my speculation, what is important is the framework to predict where we’re going from where we are; a pragmatic farmer needs to keep an eye out on the world as well as the fields to determine where the various seeds of wealth can be purchased, at what price, and ultimately their true potential. Focusing on utility and mass appeal are great starting points.