FOOL ON THE HILL
An Investment Opinion

Standard 100 List a Good Idea But Needs Work

By Yi-Hsin Chang (TMF Puck)
September 27, 1999

Standard 100 List a Good Idea But Needs Work

It's got a nice ring to it, "The Standard 100." It's appealing because it's short and because it has a nice round number attached to it. It no doubt aspires to attain the same status as the annual Fortune 500 list.

What is this Standard 100? It's a brand new list compiled by the folks over at The Industry Standard magazine. They say they came up with the list, well, because magazines love lists (definitely), and because readers love lists (maybe). Their list comprises the 100 companies they deem most important in the Internet economy.

The list itself is a good idea. The Internet has become important enough to have its own list. But while the Standard makes a noble effort, there are several shortcomings to the Standard 100 that make it less useful than it could be.

First of all, the methodology. It's good that they chose not to limit the list to "pure-play" Internet companies. After all, there are plenty of non-Internet-exclusive companies, such as Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> and Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>, that are major players online. But by choosing 10 categories with 10 companies each, the Standard 100 as a whole seems to give too much weight to non-pure-plays.

For example, one of the categories is called "Telecom Services." There's no question that the major Internet service providers should be part of the Standard 100, but it's silly to include phone companies such as Bell Atlantic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> and Sprint <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> just to round out the list of 10 in that particular category.

Similarly, to include 10 of the top "Networking Equipment" companies is like including all seven of the Seven Dwarves. Call me cynical, but I doubt this category list will change much next year. The same goes for the "Computer Hardware and Software" makers. Readers would've been much better served had the list included fewer computer hardware and software companies and fewer networking equipment firms, and more pure-play Internet companies.

Secondly, the list is flawed because it's not really a list. What I mean is that the list is not numbered -- the companies aren't ranked. I can see the difficulty of ranking a portal such as Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> versus a financier such as Goldman Sachs <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GS)") else Response.Write("(NYSE: GS)") end if %>, but the companies aren't even ranked within the 10 individual categories. The Standard lists the companies alphabetically instead. This is really wimping out here. It's as if the Standard feared offending the 100 companies, or shall we say 100 potential advertisers.

Lists by more established magazines, such as Fortune and U.S. News & World Report, consist of rankings. To just present an amalgam of 100 companies greatly diminishes the list's utility to investors. I dare say the firms themselves would prefer rankings -- provided that they are based on fair criteria. After all, companies do use these things to market themselves. It's certainly more impressive to be ranked No. 1 or even No. 10 in the Standard 100 than just to be part of the overall list.

Another problem with the way the list is presented is that some companies are notably missing from certain categories simply because they've been included in another category. Take America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>. It's been thrown in the "Telecom Services" realm. While AOL is a powerhouse as an Internet access provider, its immense influence as a portal shouldn't be ignored.

Likewise, Microsoft shouldn't be pigeonholed in the "Computer Hardware and Software" category when it's a major portal and Internet access provider thorough MSN. What's more, as a major investor in a wide range of Web-related companies, Microsoft is arguably one of the top 10 Internet financiers. In short, the Standard 100's structure doesn't do justice to the companies that play multi-dimensional roles in the Internet economy.

One thing I do agree on with the Standard 100 folks: The list will change a lot from year to year. The Internet is far more exciting and volatile than most other industries. For one thing, several of these top players will merge as the industry continues to grow and mature -- why, Earthlink <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELNK)") else Response.Write("(Nasdaq: ELNK)") end if %> just announced its merger with rival Mindspring <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSPG)") else Response.Write("(Nasdaq: MSPG)") end if %>, which didn't quite make the Standard 100 list but was deemed a "contender."

Other traditional non-Internet companies are also investing more online and may well displace a current member of the list. Plus, overnight success stories will emerge on the scene much as Webvan and Healtheon <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HLTH)") else Response.Write("(Nasdaq: HLTH)") end if %> did in a relatively short period of time.

The Industry Standard would be doing itself and its readers a great service if it were to re-evaluate the way it assembles this list. Ranking the companies, not pigeonholing diversified companies into narrow niches, and perhaps adding a category that pays more attention to business-to-business Internet firms would go a long way in making the Standard 100 a useful list that truly gauges the state of the Internet economy.