A Buffet of Thoughts on Tech Investment

Publisher's Outlook

A Buffet of Thoughts on Tech Investment

By Rich Tehrani, CEO, TMC  |  November 12, 2012

This article originally appeared in the November 2012 issue of INTERNET TELEPHONY.

As news breaks that Coca-Cola is mulling a $10-million investment in Spotify (News - Alert), some may recall Warren Buffett’s comments on the tech market – saying he wouldn’t invest in it because he didn’t understand it. While some took this comment at face value, it seems the spirit of the comment was that Buffet is a value investor often holding a company’s shares for years or even more than a decade. Trying to figure out who the tech leaders will be over such a long time is very difficult, if not impossible.

Interestingly, Coca-Cola is a great example of a Buffet investment – it is a leader in its space and much of its revenue is derived from Coke and its variants, which just happen to be addictive due to their caffeine content.

But I digress. The point is, marketing has evolved into content marketing, meaning now more than ever, companies are blogging, tweeting and hiring others to product content for their websites.

If you are a consumer brand there is a limit to how far you can go with social networking and content. After all, when I need a soda or bottled water, I don’t need to research related articles about how good hydration is for your skin before buying. They aren’t selling networking switches, so branding is one of the few areas where they can influence their potential customers.

But in a content-driven world, having control of content distribution could mean a better ability to utilize said content to build a brand. And this news builds on an earlier announcement that Coca-Cola and Spotify had entered into a strategic sponsorship, so one has to assume the beverage company is happy with the results so far.

Getting back to Buffet – as founder of Berkshire Hathaway, his investment company owns about 8.9 percent of Coke worth over $15 billion, or 400M split-adjusted shares at a share price of $38.11.

So in a roundabout way, Buffet is investing in tech – to be fair he has made tech investments this past decade but one would imagine there are few investment areas which are as unpredictable over a decade than consumer technology.

For Coke, a company spending millions on branding, this investment could lead to a more cost-effective way to get the message out while also potentially allowing them to profit from an increase in the share price of Spotify.

Disclosures:

  • I am long on Berkshire Hathaway.
  • I am no fan of the Buffett Rule. I believe to help a country’s economy, the more money left in the private sector, the better.
  • Warren Buffet wrote a very complimentary letter to TMCnet some years back and I am eternally grateful.
  • TMC (News - Alert) currently provides content to a number of websites to help them build their thought leadership and search rank – contact inquiry@tmcnet.com for more.
  • I am CEO for TMC and TMCnet.

Speaking of investing, Israel is legendary as a tech powerhouse – the entire IP communications market owes its success to engineers from this middle-eastern country where compulsory army training has a side benefit of immersing the population in engineering specifically applicable to communications.

I remember fondly over the years attending SUPERCOMM, VON, Computer Telephony Expo, Communications Solutions and ITEXPO (News - Alert) and always seeing new and innovative startups from this land of milk, honey and falafel.

Sadly, over the years, things have changed – over a decade earlier, investors were making such large amounts of money from IPOs and acquisitions that it made lots of sense to reinvest much of it back into new companies.

Many things have changed over the years – IPOs are a much trickier proposition thanks to Zynga, Facebook (News - Alert) and more jittery investors as a result of the dotcom and communications crash from early last decade. The cloud has made it easier to invest in companies, which don’t need much capital to get going. Cisco was an acquisition machine and so were Lucent and Nortel (News - Alert), but things have changed dramatically over the years. In fact Alcatel-Lucent spun Genesys off to raise cash so an acquisition strategy seems to be the opposite direction of where they are currently headed.

The end result is that while the U.S. seems to have no shortage of startup investment, in Israel the situation is different. In fact, instead of massive investments from VCs, startups have to rely on incubators and accelerators that reduce the overhead needed to launch a new company.

The good news is Israel is on track to see 600 new companies started in 2012, or about the same number as 1999 and 2000. The biggest challenge many of these companies may face is getting the credibility associated with American investors.




Edited by Braden Becker
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