Last week I signed myself up for a tout sheet called “The Death of the PC” as I began the process of revising the IT Investment Research taxonomy of the information technology market for 2011. I knew full well I would subsequently get dozens of the spamming emails to which retail investors must subject themselves. I am not providing the link to the tout sheet purposely so as to save you the temptation to junk up your inbox.
But I had no choice. After all, if the PC has died I need to account for 20%-40% of the market with some other terminology. (Next up, I will dig into the similar meme heard throughout 2010 that enterprise software has died. Enterprise software drives another huge chunk of the IT market both directly and via drag.)
The idea behind the promotion for the tout sheet was that there were three mysterious public companies out there in which one could invest in order to take advantage of the death of the PC. I kind of knew where it was going but I had to check. Surprise/surprise: PC computing has died says the tout sheet, replaced by cloud computing. Two of the mysterious stocks I should invest in in order to take advantage, the tout sheet tells me breathlessly, are VMware (VMW) and Google (GOOG). If I want to know who the third company is, I have to send the tout sheet $25.
Interestingly to the tout sheet’s premise, VMware has a lot to do with virtualizing PCs. You wouldn’t think the PC’s death would make VMware a good investment. But VMware is a good company. I suggest staying away from it retail because of the unnatural EMC connection; EMC owns near 99% of the company. You’d own a small percent of the other percent. EMC hasn't done too well by its voting shareholders. Why would it ever do much for a percent of a percent shareholder?
Similarly Google is 97% about helping marketers automate advertising on personal computing devices. (As an aside, clearly the definition of PC has been expanded greatly from the taxonomies of the 1980s.) Google is a good company and – as opposed to benefiting from the PC’s death – Google actually has a shot at replacing the leader in the PC section of the market, Microsoft (MSFT), with Google browsers, operating software and personal productivity applications software. But it’s a long shot and Google already abandoned an attempt at building collaboration software to compete with IBM Notes and Microsoft Outlook. Despite my desire to take Erik Schmidt at his word and analyze Google as an IT company, it looks more and more likely that I should scratch them off my list. Google is becoming the media/content company that the mainstream investment analysts have always said it was, competing more with Disney than Oracle (ORCL) or any of the other IT providers mentioned above.
So what’s the name of the third company that the tout sheet wants me to pay $25 for? It’s probably not Microsoft, IBM, Oracle or SAP although they would be my picks to do as well by putting cloud computing technology under their functionality as any other companies. Remember PC in the sense of my research and the tout sheet does not refer to a device but to a mindset rooted in human nature. Folks are going to want to keep their personal data personal for the foreseeable future despite the Facebook generation. So there is going to be a continuing need for personal computing IT. There are good business reasons behind this thought process as well.
So, one more time, cloud computing is not comparable to software (or open source or Software as a Service) as explained here. Cloud computing is a deployment technology whereas enterprise software is a market, open source is a license condition and SaaS is a delivery methodology. Don't invest based on deployment technology or delivery methodologies or license terms; invest based on market dynamics.
-- Dennis Byron
(No financial interest in companies mentioned)