A folly of 1996-2000, which still doesnt seem to be going away
Today, Red Herrings Catch of the Day missive observed its latest trend. The main headline proclaims:
The once-hyped ASP business is wearing out its welcome, and may be in for a rough 2001.
Its probably accurate. Which is pretty pathetic, since theres no such thing as ASP Business. But Red Herring seems to think there is, and the professional investment community happily agrees. Three years ago, B2C was sexy. Then it was B2B. Next it was ASP(1).
But these will all fail for the same reason: they arent businesses. They arent business structures, nor are they even business models! They just describe a distribution channel. Do businesses that share a distribution channel have much in common? Fine diamonds and toilet paper both distribute through BJs Wholesale Club (a discount club), but few investors would consider them the same kind of business. It just doesnt make sense.
When talking about groups like the B2B companies, the group members need enough in common that wed expect them to behave the same way. Think Biotech. Now thats a real industry. Different biotech companies have similar characteristics. They sell to similar customer bases, they have similar business characteristicsincluding huge up-front R&D investment, FDA approval process, patent-protected monopoly for 17 years for successful drugs, the need for extreme chemical expertise, etc. Theres a case that there is a real sector there.
If you want to lump businesses together, many times you can group them sensibly: Lump businesses by customer base. Then the businesses will share the common problems of that customer base. Or group them by business model; the businesses will share financial characteristics over time. Or lump by the organizational capabilities they needcompanies that all require top engineering talent will all be affected by talent availability.
But let me suggest a shocking idea: resist the urge to lump! Thats right, dont lump. Learn about each business individually. Consider it on its own merits. Research its market and product. Does it have a product that its market wants that creates value well over the cost to deliver the product? Will the business model produce high profits that can be reinvested in the business? Is it backed by a management team that can successfully build an organization to deliver to that market? Does the company have patents or other barriers that make competition difficult? If the answers are Yes, its probably a business worth starting. So start it. Or invest in it. Or write about it. Because its a real business. And it doesnt matter if its B2C, B2B, or ASP. What matters is the one thing it wont end up beingan IOU.
(1) See asp-flame.htm for an April 2000 essay I wrote noting that ASPs were less than revolutionary. Maybe I should become a pundit. If I had $10,000,000 for every time Ive predicted a trend correctly, Id be rich! back