August 11, 1998
Motley Fool Interview With Gorilla Game Author Tom Kippola
On July 31, Fool staff writer Louis Corrigan spoke with Tom Kippola, co-author, along with Geoffrey Moore and Paul Johnson, of the high-tech investment bestseller The Gorilla Game. The book was reviewed in the April 22 Evening News as well as in the Cash-King portfolio reports for June 16, June 18, and June 19. The book has generated a lot of discussion, both on our AOL message board and on our website, from investors who find its conception of competitive advantage in high-tech markets to be remarkably valuable.
Kippola is managing partner of The Chasm Group, a consulting firm started by Moore that's had wide influence helping young companies understand the unusual aspects of high-tech markets. The accomplished investor among the three authors, Kippola has particular expertise in front office software, where Siebel (Nasdaq: SEBL), Vantive (Nasdaq: VNTV), and Clarify (Nasdaq: CLFY) are the pure plays in an ongoing gorilla game.
At the time of the interview, the authors' model Internet-related gorilla portfolio launched September 15, 1997, showed signs of the recent weakness in supply chain management stocks i2 (Nasdaq: ITWO) and Manugistics (Nasdaq: MANU) and the losses in the basket of security software stocks. In fact, the portfolio's two biggest winners were old gorillas Microsoft (Nasdaq: MSFT) and Cisco (Nasdaq: CSCO). Since inception this model gorilla portfolio was up 12.6% versus the Nasdaq's 17.4% return over the same period.
Meanwhile, most of the Internet stocks that the authors don't consider gorilla candidates -- for example, America Online (NYSE: AOL), Yahoo! (Nasdaq: YHOO), Amazon.com (Nasdaq: AMZN)-- were sitting on triple digit gains over the same period, despite being well off their highs. This performance issue was one topic covered in this wide-ranging interview in which Kippola talks about the "tulip bulb craze" moving stocks like Amazon.com. (After our interview, the authors stopped tracking their Internet portfolio, posting this note in its place.)
Those puzzled by the terminology might want to take a look at the reviews mentioned above. Briefly, a gorilla is a company that locks up a market with a proprietary technology that leads to the creation of a new supply chain and ultimately presents customers with significant switching costs.
Gorilla game investing involves investing at particular stages of the "Technology Adoption Life Cycle." For enabling technologies such as an operating system, the authors suggest waiting until a new product has crossed the "chasm" from the early adopters to the early "tornado," when a product is about to sweep its way onto "Main Street," where essentially all customers find they can't live without it. For applications software, the authors suggest buying a basket of gorilla contenders when the product is in the "bowling alley," that is, gaining momentum in specific market niches, hopefully on the way to entering a tornado.
Gorilla games play out with one company (Microsoft or Intel) becoming the gorilla and others holding onto chimp (Apple) or monkey (Advanced Micro Devices) positions. Many burgeoning high-tech markets, however, simply aren't gorilla grounds. For example, the PC market is a classic "royalty game" where you have a king (Dell), princes (Compaq and IBM), and pawns (Zeos). Gorillas enjoy sustainable competitive advantages that simply aren't available to companies playing a royalty game.