If their addressable market space is not sufficiently large, investors will not reward the company with a rich stock market valuation. In our view, the seminal event of 1999 that investors should focus on was the creation of online purchasing networks by Ford and Oracle, General Motors and Commerce One, and now apparently Boeing and Oracle. However, for us as investment managers, the key factor is still defensibility. Remember, our timeframe is three to five years. Many other stocks are excellent investments, but the Sun Microsystems business model is worth examining.
Most small businesses start with a network of inexpensive personal computers.
As they grow, they eventually purchase a high-end PC server. However, at some point, their growth requires superior computer hardware. At this point, nearly every business considers purchasing Sun Microsystems' server equipment, and, at this point, price is no longer part of the decision. The decision rests on the ability of the vendors to deliver a superior computing experience. Sun understands this and has positioned itself accordingly.