Phase Transitions and the Googlephone
by ilene - December 23rd, 2009 4:30 pm
Baruch compares the smartphone space to a place called "Extremistan" and questions Google’s decision to branch out from its own Googlextremistan home to more dangerous territory where it may only have mediocristan survival skills. – Ilene
Phase Transitions and the Googlephone
Courtesy of Ultimi Barbarorum
Baruch keeps thinking about Apple and what it’s done to mobile phones. Call him obsessed if you will, but it is also his job to think about it, and there’s good money to be made if you get it right. You may recall his last post on the subject, that Apple has become wholly dominant in the mobile internet and smartphone space. What’s struck him recently is how few of the intelligent analysts and counterparties he talks to actually agree with him on what seems even to generalists utterly obvious. Lots of them still think it’s a good idea to push other smartphone stocks, like PALM or RIMM, which if Baruch is right is a very efficient way to lose money, inferior only to piling it up in big mound and setting light to it.
Why people can think this way was a mystery to Baruch, until he made the realisation that the phase transition in the handset market is not yet evident to them; they still think the handset market resides in Mediocristan, as opposed to the Extremistan regime it has most likely become. They haven’t been reading their Taleb.
It’s a forgiveable error; again, Mediocristan is a fictional place where standard distributions, bell curves, rule, where market shares are shared between players, and where tall poppies get their heads cut off. Hardware and appliance markets have traditionally exhibited these characteristics. Look at cars, or blenders; lots of players can make a decent living selling blenders. Similarly, until now, 4 or 5 names shared out the vast majority of goodies in mobile telephones. Maximum market shares seemed to be limited at 30%-40%; losing or gaining 10 points of share took years. Over long periods those gains or losses would, unless something had gone very wrong with one of the players, tend to mean revert. It seemed a fast, dynamic sector at the time, but really, it wasn’t.
Now, software or application markets show us entirely different characteristics, those of Extremistan, where rapidly evolving monopolies and duopolies are much more common. SAP and Oracle own the enterprise software space. Adobe owns documents. Google owns search. Microsoft still…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site