Will Google End Up Like Atari?

No matter how you slice it, GOOG posted incredible earnings numbers. 70% YoY revenue growth is astounding – especially for a company that size. Since my top ten reasons to sell Google stock, the price has shot up almost 41%.

With that kind of track record, you’d have to be an idiot (or a Google Employee) to take my advice on investing.

. . .so for my fellow idiots out there, I dug up a Motley Fool’s Post I did around June of 2000. It was posted on the “Gorilla Gamers” board – a subforum of investors nay Disciples dedicated to the principles of Geoffrey Moore’s Book “The Gorilla Game.” It was largely done in response to one of the board leaders, BruceBrown, who commented something to the effect of “Just buy Stock in Gorillas and go fishing for 20 years.”

How does Google Fit into Moore’s definitions? It would be classified as a King more than a Gorilla. How does this post relate now? Maybe some. Perhaps not at all. Judge for yourself:

How ’bout some “Gorilla-Like” Returns?

Imagine if we “Gorilla Gamers” found a company that pioneered a new market in technology software AND hardware. This company:
1. Developed a discontinuous innovation that would forever change the world
2. Has proprietary, open architecture to this technology
3. Has very high barriers to entry
4. Has a relatively high switching cost
5. Developed and completely controls the value chain and
6. The market will grow at 25% for at least the next 20 years!

If I told you that this company generated over $2 Billion dollars in profits last year and owns more than 90% of the market, how much would you pay for it?

Some of you would say 25 X earnings would be a steal – $50 billion.

Some of you would say 80-100 X earnings or even 192 X earnings like Cisco would be fair – $160 – $384 billion.

Some of you would even say that that “it doesn’t matter what the market capitalization of this company is – just buy it!!!!”

Regardless, most all “Gorilla Gamers” would say that you could put $500,000 into this company, not look at it and basically go fishing for 20 years – right BB?

Let’s say (for arguments sake) that you got in when the market cap of this company was only $50 billion and went fishing for 20 years.

<time elapse 20 years>

Now, you just got back from your 20-year fishing safari and are ready to retire in Style! You look up the ticker and can’t find it. It turns out that your ENTIRE COMPANY was sold to Hasbro in 1998 for $5 million (with an m).

The company you just bought was Atari Inc. in 1980. At that time, they had just posted record sales and $2 billion in annual profits, occupied 80 offices in Sunnyvale, California and dominated over 90% of the video gaming community.

Your $500,000 investment is now worth

Drum roll . . . .

$50 – Have fun on your retirement.

Atari was the biggest and best example of a mature gorilla 20 years ago. They DOMINATED the video gaming world, controlled the value chain and had ALL the characteristics of a Gorilla as defined by the book and this board.

I realize that the principles of the GG say to sell when a discontinuous innovation threatens the gorilla; you may have sold Atari when you acknowledge a threat from Nintendo. The point is, you must stay informed and open-minded about evolving technologies. Most importantly, you must understand that price does matter when evaluating a stock.

Unfortunately, there is no easy answer. No book has all the answers for investing. The Gorilla Game isn’t “wrong” per say, it just isn’t always right. Price DOES matter and the people who said to buy QCOM in January 2000 were WRONG. If you owned it then, you should have sold.

If you own CSCO now, you should sell – it’s too expensive given it’s future earning potential

If you own INTC now, understand that it is both expensive and NOT a sure bet; the AMD Athlon core is a discontinuous innovation (possibly akin to Nintendo vs. Atari?). INTC does not have the laser tight focus it had 5 years ago; it’s branching out into everything.

JDSU – I donno: I really don’t.

I know that Price Does Matter and “Gorilla-Like” returns could mean a 10,000 fold DECREASE in your portfolio over a 20-year period.

JMHO (with some facts thrown in)


P.S. Perhaps the Gorilla Game should be re-titled “You should have bought CSCO in 1990.”

About every stock that was talked about on the Gorilla Game board in 2000 is still in the shitter. It’s been more than 6 years and almost all of the companies discussed are down significantly from where they were. The moral of that story is not to get caught up in Pop Investing Advice.

But is Google the next Atari? Probably not. They are not sitting on their laurels. The Youtube buyout could be the most important Internet acquisition of the decade. Jim Cramer Says Google is going to 560 and Joseph Morin says Google revenue could grow from $10 billion per year today to . . .

Interstingly enough, Joseph sites “Crossing the Chasm”, another of Geoff Moore’s books akin to the Gorilla Game.

hrmmmmmmmm . . .

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3 Responses to “Will Google End Up Like Atari?”

  1. Like I said before, GOOGLE is moving UPWARDS, it may plateau for a bit then continue moving up but I do not see a downturn in the forseeable future. Stocks don’t always follow the obvious logic, and the market can always be wrong for much longer periods of time than I can. On that note, I’m not fighting it! BUY BUY BUY!

  2. […] Will Google End Up Like Atari? A good comparison of the similarities between the power and dominance of Atari in it’s heyday compared to Google. […]

  3. Andrew Johnson says:

    I see things like this: IBM, Microsoft, and now Google. Right now Google is holding the torch. However, exponential growth in all areas of technology means Google might be holding that torch for a much shorter period of time than Microsoft did.

    If Google can manage toward the next stage of the game (which I believe is effectively AI), we could be looking at an unbeatable behemoth for the next 100 years. Its possible.