Baby Breaker Birth Announcements

Welcome back to Baby Breakerdom! This week's quest to uncover budding Rule Breakers finds a potentially profitable channel in the TV wars and still more moola for bloggers.

First up this week is BigBand Networks, which makes equipment designed to help telcos such as Verizon (NYSE: VZ  ) and cable operators such as Comcast (Nasdaq: CMCSA  ) more reliably offer video, voice, and data services.

BigBand signaled its intent to go public by filing a registration statement with the Securities and Exchange Commission on Dec. 22. As much as $140 million in common stock could be up for grabs.

Should you want in? Signs of a private-equity-fueled bubble at first had me skeptical. But that changed when I looked at the S-1. Let's start with the financials. BigBand recorded an operating profit of $1.4 million over the nine months ended in September. Better still, cash from operations (OCF) was $18.7 million over the same period. BigBand produced just $1.4 million in OCF for all of 2005.

Then there's the client list. It looks spooky at first. More than 70% of BigBand's revenue is concentrated in its top five customers -- Verizon, Comcast, Time Warner's (NYSE: TWX  ) cable operations, Adelphia, and Cox.

What's interesting to me is that BigBand is doing business with both telcos and cable operators at the same time. It's as if the firm has positioned itself as an arms dealer in the war over who will control the delivery of communications services to your home: your cable company or your phone company.

And it is a war. For example, CNETNews.com reported that AT&T (NYSE: T  ) recently rolled out Internet-based TV service in the San Francisco Bay area. AT&T isn't yet a BigBand customer, according to the S-1. But Verizon is, and it's planning similar incursions in its markets using BigBand equipment.

Meanwhile, as AT&T's assault begins, Comcast is laying thousands of new lines of fiber-optic cable to provide voice and enhanced TV service. BigBand could be playing a role in the counteroffensive; Comcast accounted for 14% of its $113.6 million in net sales over the last nine months.

I've not studied BigBand's product line well enough to know whether it has a defensible competitive advantage. But supplying arms to both sides in a battle where billions are at stake -- as is the case here -- isn't likely ever to be a bad business. Put this one on the IPO watch list, Fool.

Next up is PayPerPost, which has become a haven for professional bloggers. The firm received $3 million in financing from venture capitalists in October, a portion of which was used to purchase Performancing.com, VentureWire reports.

The goal, PayPerPost CEO Ted Murphy told VentureWire, is to help bloggers get better at what they do. Really? That's not at all clear from the site. Instead, PayPerPost seems to be a blatant attempt at paid advocacy. Advertisers pay for copy or videos or images they like; PayPerPost is the broker.

Journalism majors may sniff at the idea. I do, and I'm a former PR guy. Yet there's a problem with my reticence. Pro bloggers, just like TV networks, are almost universally advertising-supported. And blogs are no substitute for journalism, despite high-minded claims to the contrary. Why shouldn't bloggers be given the opportunity to make money through advocacy?

They should -- or at least venture investors think so. Murphy told VentureWire that VCs are still approaching him with offers to provide financing. Accordingly, he's thinking of organizing a new round of funding this month. I expect it to be a short path from there to an IPO.

Don't expect me to be buying if that occurs. Rule Breaking firms do more than grow at a torrid pace. They create defensible, important franchises. I sense neither in PayPerPost. It's more likely a flavor-of-the-month-club pick that happens to be making money right now. Mix in one bad lawsuit, or a dozen or more well-funded competitors, and Murphy's idea may become an unwilling victim of Murphy's Law.

That's all for now. See you back here next week when we continue the quest to find the greatest growth.

For more Rule Breaking Foolishness:

High tech. Biotech. Nanotech. Any tech. David Gardner and his Foolish band of analysts cover it all for Motley Fool Rule Breakers, and they've unearthed six multibagger stocks in two years as a result. Want to find out who they are? Try the service free for 30 days.

Fool contributor Tim Beyers, ranked 1,381 out of more than 18,700 in Motley Fool CAPS, didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on all the stocks he owns by checking Tim's Fool profile. Time Warner is aStock Advisorpick; AT&T is a former selection of that service. The Motley Fool's disclosure policy is a rebel on Wall Street.


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