Friday, December 01, 2006

Gilder's Ten Rules For Tech Investors

Below are what technology strategist George Gilder calls his "Ten Key Rules for Early-Stage Technology Investors to Triumph in This Time." George isn't a professional investor, so I would take his investment recommendations on individual companies with a grain of salt. That said, he is a provocative thinker...

Gilder's 10 Key Rules

1. No one knows less about the fast-growth tech business than the CFO. Early-stage tech is about the future. CFOs deal with past numbers. In effect, CFOs are trying to steer companies by looking in the rearview mirror. Moreover, CFOs tend to focus on internal problems, and early-stage tech companies should not try to solve problems. They instead should pursue opportunities. Solving problems sounds good, but it is a loser. You end up feeding your failures, starving your strengths and achieving costly mediocrity.

2. The elasticity of Moore's Law. In the tech world, Moore's Law ordains that prices routinely drop 50% every 18 months for a given rate of performance. In older businesses, price collapses would be bad. But in the tech world, users multiply when prices drop. You get positive elasticity.

3. Metcalfe's Law. The value of a network rises by the square of the number of compatibly connected users. Obviously not literally true, yet a rough and useful guide.

4. Dumb networks will prevail over smart networks. The future is all-fiber networks that do nothing but transmit bits. Intelligence belongs at the edges and endpoints.

5. Software hardens at the core of a network--hardens into glass--pure fiber. Software softens at the edge.

6. The edge of the network is analog, because that's where humans live, in an analog world. But the analog world is one of shortages, because there is a shortage of great analog engineers in the U.S. and throughout the world. Therefore, great digital-to-analog design will almost always produce great profits.

7. Law of Abundance. Far-seeing entrepreneurs waste what is abundant in order to save what is scarce. Today, processing power is abundant. Bandwidth is becoming abundant. Electricity, on the other hand, is becoming scarce. So invest in chips and computer architectures designed to save electricity.

8. Law of Scarcity. Speed of light is the scarcity that governs networks. Span of life is the scarcity that will govern human interactions and consumer businesses. Consumers hate to have their time wasted. That's why broadcast TV is a failing model--it wastes the consumer's time.

9. The computer is dead--hollowed out by fast networks that move data faster and store data more cheaply. As computers hollow out, value migrates to the search and sort function. This law was put forth by Sun's Eric Schmidt a decade and a half ago. Schmidt, of course, is now the CEO of Google, where search and sort has paid off rather nicely.

10. Every ten years there is a hundredfold drop in the cost of computing, leading to a new paradigm in computing. Google-like server farms are the new computing paradigm. But in five years, something newer and more radical will take its place.


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