Speed Is of the Essence

06/20/2007 12:00 am EST

Focus:

Tobin Smith

Founder and Chief Research Analyst, NBT Equity Group

Tobin Smith, editor of ChangeWave Investing, says enablers of fast transmission of data, especially multimedia, over the Internet have the inside track to making profits off the trend.

If you open up the current issue of Business 2.0 magazine you'll see that it ranked the fastest growing technology stocks and companies, and guess who was the winner? It wouldn't surprise any ChangeWave followers—it was Akamai Technologies (NASDAQ: AKAM).

Many of you understand this massive shift to Internet Protocol (IP) multimedia—audio, TV, gaming or video over the Internet—and the explosive growth we're seeing in this area. I call this the “Video Is the New E-mail” wave. Just as e-mail was the killer app of the [late] 20th century, high-def video over Internet Protocol is the killer value proposition of the 21st century.

Why does Apple exclusively use Akamai high-speed service to send all iTunes music and video sales? Why do MTV, ABC, CBS, etc.? Because speed is a must in this business. People want their music and video NOW! Slow is the death of multimedia.

Think about the number of E-mails you send during the course of the year. Now consider the fact that downloading a file for a half-hour television show contains the same amount of data as all of the e-mail you send in an entire year. Starting to get the picture? And that's not even considering high-definition videos that are certainly coming soon. When you're downloading high-def videos, we're talking about ten times more data.

This high-def revolution is just beginning, and once you go high def, you never go back. After experiencing the excitement of watching sports in high def, you'll never want to watch the game at the home of a friend who doesn't have a high-def TV.

As the United States continues the shift to 100%-digital TV programming by 2009, most of the digital programming you'll see will be in high def—meaning ten times more data per show.

We're going to need massive Internet upgrades just to handle this. We'll need technologies that are able to increase the capacity without making the lines any bigger. It's going to take some innovative technology to avoid a gigantic bandwidth traffic jam on the Internet.

When we investigated the food chain of companies that provide the key technologies to clear up this traffic jam, Akamai topped our list. It was number one, with about 80% of the market share. (The stock closed just below $47 Tuesday—Editor.)

To make money on the massive, secular shift I call the “Video Is the New E-mail” wave, you need to look at the companies that have key enabling technologies. And I want to make sure that, as you're looking at your investment strategy, you're riding this “Video Is the New E-mail” wave, or more specifically, the “High-Def Video Is the New E-mail” wave, by owning these key enablers.

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