The Cloud, Big Data, Data bases, Analytics-

Part of the reason we are all here is because we see the long term potential in the current technology trends. I see a lot of discussion on this board regarding who has the best technology. Because I am a retired IT professional I find the discussion interesting. Nothing like really knowing the companies you have put your hard earned money into.

I suggest that getting to deep into the weeds may impair your investing returns. I have found that who is taking market share is more important than who makes the best mouse trap. The company that best manages margins usually beats the company that has the sweetest code.

Pay attention to both sides of the equation. In a famous Silicon Valley meeting between Gates and Jobs where the two were discussing dominance in the PC market Jobs blurted out that his technology was better than Gates’s. To which Gates responded, “It doesn’t matter”.

44 Likes

Pay attention to both sides of the equation. In a famous Silicon Valley meeting between Gates and Jobs where the two were discussing dominance in the PC market Jobs blurted out that his technology was better than Gates’s. To which Gates responded, “It doesn’t matter”.

Hyde:

Great quote and so very true with numerous examples throughout history like QWERTY keyboard dominance, VHS over Betamax, gasoline vs battery automobiles, etc.

This has traditionally been explained through the S curve of technology adoption as explained by Foster back in the 1980’s and Everet Rogers who coined the term early adopters and paved the way for the classic Moore’s chasm. Rogers believed the better technology would always win…plain and simple.

But all that was turned on its head with the work of Daniel Kahneman’s Prospect Theory for which he was awarded the nobel prize in 2002. His theory goes that adoption is more dependent on a consumers fear of losses than that of potential gains. Hence a better technology’s prospects are always stacked against its adoption.

Simply put…customers will resist giving up old benefits and incurring new costs.

In that context, investors in new technology companies should ask how/why potential customers would be willing to give up old benefits and accept new costs. Just because a new company can build a better mousetrap does not mean it ultimately wins or that investors will win…unless the consumer clearly sees a value proposition.

That is a really HIGH bar to hurdle…with companies approaching the problem in different ways, one being the “fremium model” that many of the companies discussed here employ. Look at MDB for example…how does its better technology unseat the slow and expensive ORCL relational databases many which do not need such tight relational controls. In short, Mongo will NOT likely unseat the trodden legacy databases anytime soon because these ORCL based companies have greater fear of loss than of potential opportunity. Until such time that they MUST replace their database architecture…they simply won’t…fremium or not…….and Mongo has admitted this on several occasions.

Therefore Mongo is rightly focused on other growth niches (cloud based massive data troves from sensors, IOT, etc.) that fortunately for its technology, the legacy ORCL cannot possible address. This is a classic example of two very different adoption curves (even with 4.0 coming out in 1-2 weeks)…….legacy adoption slower…….cloud adoption faster.

But suffice to say that, better is not always successful…and the technology investor will be well advised to keep that in proper context with every investment opportunity.

32 Likes

I suggest that getting to deep into the weeds may impair your investing returns. I have found that who is taking market share is more important than who makes the best mouse trap. The company that best manages margins usually beats the company that has the sweetest code.

Hi Hydemarsh, that’s exactly what I’ve said repeatedly in a different way. I’ve said that I’m not a techie, and often don’t even understand what they are talking about, but I follow the numbers!
It works just fine.

Saul

23 Likes

The company that best manages margins usually beats the company that has the sweetest code.

I think your original comment was right - so you mean sales, NOT margins, right? I mean, a software company like CHKP is a virtual bank (12b enterprise value with over a 1b in TTM free cash flow) but nobody cares one iota cause they are seen as losing share to Palo Alto and only doing single digit sales growth; in this market, in this space, traditional below the sales line analysis will actively hurt your returns. In no other industry - albeit in my personal experience - does this dynamic exist, but it is clearly true in tech.

so…when you said, “I have found that who is taking market share is more important than who makes the best mouse trap.” that seems exactly right.

4 Likes

I’ve said that I’m not a techie, and often don’t even understand what they are talking about, but I follow the numbers!

have to chuckle at this comment - i follow numbers too, but I don’t get your results! You add a layer of insight which is beyond unique, and your aggressiveness is very educational.

5 Likes

Saul is a stock whisperer

3 Likes

Saul has a time machine.

I am sure of it.

Cheers
Qazulight

2 Likes

"I suggest that getting to deep into the weeds may impair your investing returns. I have found that who is taking market share is more important than who makes the best mouse trap. The company that best manages margins usually beats the company that has the sweetest code. "

I think having a better mouse trap can give you an advantage but just having a better one many not necessarily translate in more maret share or business. There is a lot of space in between to do much more than just having a better mouse trap.

It is always good to have a better mouse trap. If you don’t, doesn’t mean you cannot beat it business wise unless we are talking about a real technological supremacy which does not occur that often after all in the commercial world.

tj

1 Like

Hi Saul, I agree your comments "
Hi Hydemarsh, that’s exactly what I’ve said repeatedly in a different way. I’ve said that I’m not a techie, and often don’t even understand what they are talking about, but I follow the numbers!
It works just fine." have been said many times. I found your advice very meaningful.

Some of the discussions were getting “weedy” so I thought it might be useful to make sure we remind ourselves to not take our eye off the investing ball.

Early in my career, when I was very deep into the science of networking, I made some of my dumbest investing decisions.

1 Like

I am, or was a techie. When I was a full time IT guy, KUTD was a constant battle. There was a lot of new technologies emerging at an accelerating rate. I imagine that this situation has only become more so. New technologies emerge, older technologies evolve and there’s always a disrupter around the bend that will do something nobody ever thought of before.

Even though all the “data talk” was pretty much my domain of expertise, to be honest, eight years past retirement having made zero effort to stay on top of it all I find myself sometimes wondering what the vocabulary means. Exactly what is a “data fabric?” I can’t picture it. I can’t define it. I can’t explain it. And, I’m too lazy or maybe have burnout retention or whatever. I’m not going to dive in and find out. Ultimately, I don’t care.

Here’s my observation about deep dives into these technologies. Technologists don’t make purchasing decisions. Executives do. Most executives are not techies. Technologists advise. So do finance guys. Some of the technologists might be in love with a given product suite and if the finance guys tell the executive the company is shaky and if you go with them you might have to buy the company in order to keep the product alive it’s an easy no deal decision. I’ve experienced this.

And just like we’ve seen in the techie discussions on this board (and NPI), techies almost never agree. What’s a poor executive to do when his top techie advisors are giving him conflicting advice? I’ll tell you, because again, I’ve experienced it. He’s going to listen to the finance guys. First, is the company viable. OK, say all the alternatives on the table meet that criteria. Next, which company offers the lowest total cost of ownership (this includes hosting, network load, training, maintenance, etc.) over whatever period the company uses for evaluation (where I worked, usually about 5 years though the products may become embedded for much longer).

The other thing that plays into the decision is vendor lock-in. For obvious reasons, executives generally don’t want to buy a product which will be very difficult to transition to a different product. To be honest, this is mostly wishful thinking, but it gets considered anyway. If a product becomes deeply rooted in your architecture (like a DBMS), it’s extremely difficult to change out.

When I left my job in 2008 all the mainstream engineering systems which were homegrown running on IBM big metal had been transitioned to COTS running on distributed UNIX boxes except one critical design application. It was still a COBOL application running against an IMS DBMS on IBM big metal.

It was the tool for design and specification of wiring and hydraulics. Every hard part and assembly in our big, complicated multi-million part products had a singular location in the product and neatly hung in a spot in the part-tree BOM. Wire bundles and hydraulic tubes don’t. And wire bundles end up with multiple branches that resolve to a plug-map. A lot of wire bundle are not flat, they have to be created on a 3D form tool so that it can be installed in a curved location. That’s some complicated stuff, our hackers built a COBOL IMS application in the 80s for that and it remained irreplaceable in the 00s. And BTW, those designs and specs had to be approved by a government regulatory agency. The “design books” as we called them were the official government approved documents. As such, the application also took care of configuration and change management as well as multiple customer variants.

Just saying that newer, faster, better doesn’t always win. Executive care most about two things, cost and schedule. Technological superiority is nice, but in the end, it’s not the thing that wins the sale.

16 Likes

Just saying that newer, faster, better doesn’t always win. Executive care most about two things, cost and schedule. Technological superiority is nice, but in the end, it’s not the thing that wins the sale.


Agreed!
Which is why i have struggled to get behind anet and pstg.

NTNX is/was different in my eyes because it wasnt about being a better switch than cisco or a better san than emc. It was hyperconverged (hci) which was disruptive and new and you didnt try and sell the technical storage guy on it.

It was/is a larger play on quicker TTM, cheaper than legacy san, less complex to manage, and no future forklift upgrades and easier space requirements.

It was a very different sales cycle for storage.

Dreamer

3 Likes

Funny, this is exactly why I am in PSTG and ANET (and NTNX as well). All three offer not just technology but easily demonstrated cost savings.

PSTG in particular has a compelling story. With most new technologies it is often cheaper to do nothing at present. If the existing and paid for technical infrastructure serve the immediate needs, why do anything. With the PSTG evergreen pricing there is a compelling reason to swap out the existing storage infrastructure.

4 Likes