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WARNING: Loooong post

<< I have a suspicion that the value of internet advertising is much lower than net mavens would have you believe. >>

True enough, and when they start adding a lot of motion, bells, and whistles it gets downright annoying.

I would add that e-commerce in general, in terms of selling to the public, has an inherent shortcoming. With the coming wave of shopping comparators, most products will become commoditized, with sales going to the lowest-priced vendor. Who cares if your vibrator is shipped from California instead of from Maine?

So if eyeballs for advertising are overvalued, and product sales on the Internet are low-margin, what will create the demand for all the bandwidth we discuss around here? In addition to some applications we can't imagine yet, here's a few ideas:

1. Video on demand. Forget the clunky nature of pay-per-view movies from your cable provider. Choose any movie, TV show, or sporting event to watch whenever it is convenient for you. Multipy Internet-enabled homes times hours spent watching TV times maybe $.50 per hour to the content provider and you have a large number. But you'll need some pretty big data pipes to send the signals everywhere.

2. Enhanced chatting. Instant mail and chatting is pretty cool. And what we see now will seem archaic before long. Add voice, video clips, and collaborative projects to the mix. How about sending links to your friends about real-time news/entertainment/sports events that you have noticed in the other window on your monitor? Watch the finals of the World Women's Soccer League while chatting about the game with your sister in Singapore.

3. The Internet as file server. We have advanced now to easy purchase and downloading of software. But do you really want to fill up your computer with bloated programs and large data files? Imagine a future where you don't own software, but access a program at the company where it is written (paying incrementally for usage, but just a few cents) and store the resulting document or data file in the server farm of your choice. Of course, that will require several things - robust, large-volume data links, enhanced security systems, and massive centralized data storage capacity.

4. Business-to-business transactions. One of the biggest advantages companies in the U.S. have is the efficiency gained from our fantastic communication infrastructure. Examples include a salesman accessing real-time inventory while on the road, the streamlining of the purchasing and distribution process, just-in-time parts ordering from the lowest-cost vendor in the country, or the automation of a myriad of business-to-business transactions. In all those cases, the Internet is assuming a central and growing role. And all that data is going to be flowing throught the same pipes as that naughty video you are watching.

That's just a sampling - we ain't seen nothin' yet. Where does that lead me, investing-wise? Not to the e-commerce companies, with low margins and high competition. Not to content providers, advertisers or portal companies - I don't know which way that wind will blow. I'll keep moving toward concentration where I KNOW money will flow. Enabling technologies - fat pipes, security, data storage, the picks and shovels of the Internet. I have no concern that we will have too much bandwidth soon - I believe most folks still have no idea what kind of a revolution we are starting here. The Internet for most people is the AOL interface, and they don't even realize that they are looking at the world through a keyhole.

See you at the movies, right here,

Rick

(Disclosure: long JDSU, CSCO, NT, LU, HSAC, ATHM, EMC, CIEN, INKT, ORCL, PMCS, TLAB)
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