Siebel develops the applications, but without Siebel's software there'd be nothing for IBM to integrate. I'd venture to say EA would pass all of our quantitative criteria, given the financial and business model advantages of software companies. The company also exhibits many of our qualitative criteria we look for, such as a repeat-purchase business and expanding possibilities. However, EA falls well short of controlling its value chain. The best evidence of this came when it recently reported a revenue shortfall.
New games have little consumer value unless there's a corresponding machine.
EA is also reliant on PlayStation 2's consumer success. In other words, EA's part of a huge value chain with Sony and Microsoft, but doesn't have the type of control we look for in Rule Maker companies. It should come as no surprise that the main concern among Rule Maker investors is business quality. We're looking for companies that dominate their industries with sustainable competitive advantages. First and foremost, your efforts should be put toward identifying good businesses, not attractive valuations.