Private Investor: Now it's time to play monopoly on the internet
Saturday 02 December 2006
What a lucky punt! Yes, indeed. In a miracle of good timing last week, I managed to sell out of ITV and into Rightmove. Since then ITV's chances of being the subject of some sort of takeover have diminished even further with the appointment of Michael Grade as executive chairman.
Between James Murdoch's near 20 per cent stake in the group and Grade's formidable personality, I can't see Richard Branson and his allies breaking into the channel. The fact that I managed to exit with a modest profit eased that particular pain.
So, noting some weakness in Rightmove's share price on the back of a negative broker's note, I just piled in. Without wishing to stir up unpleasant memories of the dot.com bubble, I have to say that Rightmove fits into my personal "new paradigm" of online business. In the tech-media- telecoms bubble "new paradigm" usually meant a dot.com firm had no customers, a phenomenal rate of cash burn, and a name that meant little to anyone, despite millions spent on advertising it (ironically, in the "old media" such as the one you're holding). Boo.com, for instance. Remember that?
Anyway, of course, some online businesses were going to survive and thrive, and my "new paradigm" for investing in them is to look out for the ones that have garnered a near-monopoly position in a given market.
Fortunately, nowadays, if you spend any time online, they're as ubiquitous as Coca-Cola, McDonald's or Toyota are in the real world. Google and eBay are two obvious examples, and I've slotted both of those in the portfolio: Rightmove, much smaller and UK-based, is another example of this tendency to rapid concentration.
Something like 70 per cent of UK estate agents are signed up to it and most people have already used it for at least part of their research into buying a home at home. The site seems to work well. When the postcode was invented in 1959, few could have imagined its influence today. (By the way did you know that SAN TA1 is the special postcode for letters to Father Christmas?).
From the experience we have had so far, it seems that the internet is no different to the old media; once a given brand becomes synonymous with a particular market, it tends to get a stranglehold and it's very difficult to wrench business away from it. I would hope that there is someone out there in a business school right now researching this remarkable phenomenon.
After all, the internet was supposed to create vast amounts of competition, because barriers to entry - financial, technical, electronic - were relatively low. How, then, have organisations such as Google, eBay and Rightmove gained market shares that, were they in the old world, would soon attract the attention of the competition authorities?
Over a hundred years of trust-busting, everyone from Standard Oil to Microsoft has been put under pressure because of an over-dominant market position, but the internet companies have so far escaped it. It can only be because the impression of chaotic myriad competing sites is still etched into the bureaucrats' minds.
Shareholders in these new kings of the internet are laughing. I'm happy with Rightmove because this week it's up about 7 per cent on where I bought it, with the promise of more on the way. It's a great buy because, first, it capitalises massively on the changing way we buy properties, so more online browsing by postcode and less window shopping in the high street. Second, it is the subject of constant takeover rumours, which just confirms its attractiveness to me.
I read in the press that there's another broker's note now from Numis that actually cottons on to the fact that the structural changes in the property market will probably outweigh any adverse effects a housing downturn would have on the business.
One last thought. Whatever's happening to popular capitalism? Say you had a few shares in the privatised utilities and the demutualised ex-building societies; chances are that, thanks to foreign takeovers and private equity, you haven't got them any more. The wider share ownership that started in the Eighties must have gone sharply into reverse (especially with BAA disappearing). Just thought I'd pay my respects to a dream that died.
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