<THE RULE BREAKER PORTFOLIO>
What Happened to Fool Port?
Cable Versus ADSL? Hmmm.
Zoot Suit Rioting hurts Amazon
by David Gardner (DavidG@fool.com)
ALEXANDRIA, VA (Jan. 13, 1999) -- The Rule Breaker Portfolio lost another nice healthy chunk of its value today. We got Iago'ed. A pound o' flesh! A pound of flesh equal to precisely 4.51% of our total assets. The total assets of the S&P 500 and Nasdaq respectively lost just 0.41% and 0.17%.
@Home and Amgen and AT&T were the only stocks up for The Fool. @Home (Nasdaq: ATHM) rose $5 3/4 back to $105 3/4, following the announcement yesterday of a competing broadband service from SBC Communications. The competing technology? You've known about it all along, if you're a regular reader of the Rule Breaker Portfolio: ADSL. That's Asymmetric Digital Subscriber Line, which is primarily the Baby Bells' answer to high-speed Internet access.
ADSL uses the copper wire in existing telephone lines much more efficiently than your 28.8 modem, because it's digital rather than analog. Your ADSL modem routes its commands along a highly efficient wire path (you can even be on the phone, on a single line, at the same time), creating Internet speeds that are very similar to the cable line that @Home uses. Yesterday, as reported in our Motley Fool Evening News, SBC announced it would be offering ADSL in California by the end of 1999.
Will this hurt @Home? Did this merit a $22 drop in @Home shares yesterday?
I think too often we tend to think there will only be one winner or one business solution. Many people think only cable will win, or only ADSL will win. But business doesn't work this way. There are different reasons to use these services, and some customers will be prevented from using cable (don't have cable access) while others won't be able to use ADSL (aren't within three miles of a switching office -- you can read more about this in our initial @Home buy report). Both will need to exist. And wireless satellite access will play a role, too, later (and probably quite a significant one, if Bill Gates and Teledesic have their say).
I always go back to America Online versus Microsoft. The conventional wisdom in 1995 was that Microsoft was going to come along and bury America Online with its Microsoft Network (MSN). This was the opinion of the bears, written about in The Wall Street Journal, talked about on CNBC ad nauseam.
You were hearing something different, though, if you were a Motley Fool reader back then. You were hearing us say that business usually isn't a zero-sum game. In a fast-growing market, there's room for more than one answer, more than one business solution, more than one stream of profits. We stated emphatically in our reports back then that BOTH AOL AND Microsoft would succeed -- it wasn't a question of either putting the other out of business. The stocks haven't done too badly since.
I think it's the same for ADSL and cable access, at least until the market matures and ossifies. However, cable has a big lead, because it's actually been deployed. People are using it, paying for it. @Home has first-mover advantage, while I have never been particularly impressed by the Bell companies (remember ISDN, their expensive and surprisingly slow previous "solution?"). The announcement made by SBC is that it'll be rolling out its technology in one state by the end of this year.
And how good have the Bells been at simple, competitive pricing? I ain't holding my breath.
As always, keep your eyes peeled here because we actively discuss topics just like this -- wherever Rule Breakers are, we hang out and learn (and invest). Meantime, if you're interested in learning more about broadband access, read this interview with CEO Tom Jermoluk of @Home reflecting on ADSL (dated 12/17/98). (Click this hyperlink to news.com: check it out.)
OK, changing gears, I discovered a new feature on Amazon.com (Nasdaq: AMZN) today that I hadn't seen reported anywhere else, yet. So, unless someone in the media wants to claim an earlier writeup and review of this feature, please consider this breaking news from Fool HQ. You heard it here first, bay-bee!
Click into any Amazon book page now and you'll see (as always) the three other books most purchased by Amazon.com customers who purchased that book. But down below that short list, there is a new link that reads: "Click here for more suggestions..."
If you click that link, you'll be led to a page with additional book suggestions beyond those first three, probably what you'd expect. BUT, NOW -- for the first time ever -- there is also a short list of new music CD suggestions. That's right, for any book on Amazon you can now find what were the three most frequently purchased music CDs by Amazon.com customers who purchased that book.
Authors will find this particularly humorous. Take me, for instance. Our new book Rule Breakers, Rule Makers (#1 across all Amazon again today -- woo hoo! -- thanks, Fools!) has as its "music CD sisters" the following selections:
These Are Special Times; Celine Dion
Sing It!; Marcia Ball, et al
Ray Charles: The Complete Country & Western Recordings 1959-1986 [BOX SET]; Ray Charles
What does this mean?! That's obvious: It means when you think "Motley Fool," you think "Celine Dion" (doesn't it come trippingly to the tongue?). Beyond that, great question. This new customer preference tool is not the most earth-shattering thing in the online world, but it does indicate one thing to me: Amazon.com is further demonstrating innovative uses for its huge database of customer information, info all about customers like me.
And as I further personalize my own Amazon.com page, by letting it know what I like and what I don't, Amazon is getting to know me better across multiple and growing product categories (this will eventually lead to lucrative advertising) and is positioning itself to make more sales as it recommends additional new products for me. Also, housing my customer info at Amazon.com makes it less likely I'll purchase from anyone else, throwing up a barrier to entry by competitors.
By the way, how 'bout that Ray Charles? The man, as I understand it, is a true Rule Breaker himself, being one of the few musical artists who managed to retain the rights to his master recordings. (In his early career, he set things up so that after five years his master recordings reverted to his sole ownership.) No wonder customers are going from our book to Ray, or from Ray to our book!
(It's quite funny to see the different musical choices made by customers of our different books. For example, our Tax Guide is moving Bob Dylan, while You Have More Than You Think has had a peculiar charm for fans of "Zoot Suit Riot: The Swingin' Hits of the Cherry Poppin' Daddies." Or vice versa.)
Amazon.com lost $15 3/8 of its value today, possibly related to Zoot Suit Riot. Actually, this incredibly volatile stock opened $23 lower than that, so why are we complaining? Of course, the long-termer in me looks at those numbers and yawns. I'm not invested for yesterday or this month. We're looking years ahead.
Contrast this viewpoint with that of the daytrader -- ain't this a hot thing to be these days? -- who was probably instead popping veins or popping pills, depending on his preference.
Or... poppin' daddies.
-- David Gardner, January 13, 1999
Day Month Year History Annualized R-BREAKER -4.51% 12.23% 12.23% 1026.45% 72.52% S&P: -0.41% 0.42% 0.42% 181.99% 26.29% NASDAQ: -0.17% 5.66% 5.66% 221.70% 30.10% Note: Yearly, historical and annualized returns for the S&P include dividends Rec'd # Security In At Now Change 8/5/94 1100 AmOnline 1.82 146.25 7945.88% 9/9/97 1320 Amazon.com 6.58 148.00 2149.50% 5/17/95 1960 Iomega Cor 1.28 9.00 602.90% 10/1/96 84 LucentTech 23.81 104.44 338.66% 8/12/96 130 AT&T 39.58 84.81 114.29% 12/4/98 450 @Home Corp 56.08 105.75 88.57% 4/30/97 -1170*Trump* 8.47 4.31 49.08% 12/16/98 290 Amgen 85.75 109.00 27.11% 2/20/98 200 Exxon 64.09 70.50 10.00% 2/20/98 215 DuPont 59.83 57.06 -4.63% 7/2/98 235 Starbucks 55.91 52.72 -5.71% 2/20/98 270 Int'l Pape 47.69 44.63 -6.43% 1/8/98 425 3Dfx 25.67 12.38 -51.79% Rec'd # Security In At Value Change 9/9/97 1320 Amazon.com 8684.60 195360.00 $186675.40 8/5/94 1100 AmOnline 1999.47 160875.00 $158875.53 12/4/98 450 @Home Corp 25236.13 47587.50 $22351.37 5/17/95 1960 Iomega Cor 2509.60 17640.00 $15130.40 10/1/96 84 LucentTech 1999.88 8772.75 $6772.87 12/16/98 290 Amgen 24867.50 31610.00 $6742.50 8/12/96 130 AT&T 5145.11 11025.63 $5880.52 4/30/97 -1170*Trump* -9908.50 -5045.63 $4862.88 2/20/98 200 Exxon 12818.00 14100.00 $1282.00 2/20/98 215 DuPont 12864.25 12268.44 -$595.81 7/2/98 235 Starbucks 13138.63 12388.91 -$749.72 2/20/98 270 Int'l Pape 12876.75 12048.75 -$828.00 1/8/98 425 3Dfx 10908.63 5259.38 -$5649.25 CASH $39332.55 TOTAL $563223.27
</THE RULE BREAKER PORTFOLIO>