There is no such thing as an internet company. From an investor’s point of view (and most others) the category simply does not make sense, unless interpreted in a much narrower way than it usually is.
Many investment businesses are something else. Amazon is a retailer that sells over the internet. It is no more an internet company, many more than a company that accepts orders by telephone is a telecoms company. Of course, Amazon uses the internet to deliver its services and getting the IT right is critical to its success. The same is true of banks (especially investment banks), transport companies (some of them do say they regard better IT as a critical competitive advantage), plenty of others.
So called internet companies include:
- Retailers
- Advertising companies. Most of what Google does is funded by selling ads, both on its own websites and by acting as a middle-man for other websites, and there are plenty of internet ad specialists like Burst Media. Then there are classified ads businesses like Craigslist.
- Infrastructure providers: web hosting cloud computing etc.
- Telecoms: that is the business your internet service provider is in.
- Software vendors: all the software as a service companies. Most of their products could be installed on desktops or corporate servers, but are delivered over the internet instead.
- Publishing companies: all those content websites whose main purpose is to make written material they originate themselves (written by their own staff or contractors) available, just on the internet rather than in printed form.
- Broadcasters (all those podcast and video sites)
- Brokers, auctioneers and other intermediaries: Ebay, its competitors and a range of similar (and not that similar) businesses.
- Travel agents.
- Collaboration, social networking, forums, media sharing etc. These are a new categories of business that the internet made possible. This makes then internet businesses — in the same way that a mail order retailer is a postal business: it is, but is very different from other things that are described as postal businesses.
- Financial services (Paypal, Moneybookers, Escrow.com...)
- Vendors of desktop and server software that uses the internet: Opera, Zeus. Most of these are specialists, forced into the margins by competition from Microsoft's marketing and bundling as well as open source software with its cost and choice advantages.
- Information services that make existing information more easily accessible or searchable: Google (again!), Wolfram Alpha, Repec and many others. Although the search engines, like Google, are clearly internet businesses, the others are descendants of the electronic database services that pre-date the internet.
Many of these are cyclical businesses, but others are not (software as a service companies with defensive industry customers, for example). Some, as cost saving alternatives, may even be counter-cylical.
There is absolutely no commonality in the sources of revenue, business models, or customer base. They have no more in common than relying on common infrastructure (except for those that supply it), just as virtually every business relies on electricity. Why should investors regard them as a category?
Comments
Becoming a Cropper : Interactive Investor Blog[...] Graeme says there’s no such thing as an internet company. [...]