The Case for Boring Hi-Tech
by MF Yakko

A couple of years ago, a friend of mine---an up-and-coming technical wiz in the Silicon Valley---came to the realization, while dangling himself day after day over the industry's leading edge, that the edge was getting a tad bit crowded. After all, it's no secret that you can quickly chase a new idea to fame and fortune as a high-tech startup business. At one extreme look at Netscape, the darling of Wall Street, the seductive Don Juan of the software world. In 18 months it went from a cool idea to get pictures on the Internet to the verge of redefining the worlds of commerce and advertising. Do you think they knew what they were building? I doubt it. But everybody likes to think they do, and everybody---like Humpty Dumpty---wants elbow room on the Edge.

The high-tech industry and investors both love it up there. The breathtaking view from heights, the danger of the collapse, it's all quite irresistible. The problem is, of course, that most people eventually fall off.

In my experience, the failures are frequently caused by too many technical wizzes building what they think the industry needs, and not enough people asking customers what they really want. Investors love these little companies with revolutionary ideas that are defining markets as they go. But hey, creating a market is hard---customers don't know why they should want stuff they're not convinced they need. Look at pen computing, look at General Magic, look at object databases. Products and companies that tell a great story, then get to market only to find out that they don't really understand the consumer, or that consumers don't think like MIT grads. Can you say "earnings disappointment?"

So what's a "safe play" in high-tech? It seems so obvious. Define a boring overlooked need that already exists, then go after it full bore (a pun! ;->). There are many add-on niches, or areas that need continued attention that are vital to business. Consider high-tech infiltration of old-world industries. Process automation, manufacturing QC, financial applications. Just about every company established in these fields is growing like a weed. It doesn't demo like pen computing, but it has the advantage that customers are actually starving for service. Smart technology people just walk in and take the money. Great business model!

And great Foolish opportunity. Enter MF Boring, ironically one of the most original and fresh-thinking investors on-line. These days he's cleaning the clocks of the average day-traders and high-tech "story" investors with his picks of boring companies in boring established markets.

Example: look at the success of Microsoft. They aren't out defining new markets, they're dominating old ones. When the smoke clears on Windows 95, it's a whole lot like Win 3.1, except with prettier pictures and a more elegant way of handling the running-out-of-disk scenario. NT is a lot like UNIX but slower and with pretty pictures. Excel 5 is genuinely better than Excel 4 (unless you use it on a Mac,), but still, at the end of the day, it's just a spreadsheet. Word 6 has done its mundane duty so well that no one can even think about challenging it. Imagine recruiting programmers to work on a new word processor that will kick butt on Word 6. Picture all the hot young developers that are gonna flock to that scenario.

Microsoft has mastered the routine art of perfecting the proven, and marketing the marketable. And the cycle repeats.

As for my friend, one day he up and quits the rat race and starts a business buying the rights to out-of-date and out-of-print text books, and sells them to Asian and other third-world countries. From inside the bubble that is Silicon Valley, everyone called it heresy. "What a waste, the guy was a star!" Well, in the first year he made $500K working a handful of hours a week. Boring, maybe. Foolish---certainly.