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Channel, Channel, Who's Got The Channel?

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April 30, 2012 – Comments (9)

Thinking back on the last fifty years, something popped out at me. The big changes in an industry come when there is a change in the type of distribution channel. As long as the channel stays the same, there is competition within it, but the big disruptions come when a different channel appears.

The classic story here is from Peter Lynch and is of course L'Eggs panty hose. Before that, stockings were sold in department stores and were pretty expensive. Then L'Eggs appeared in the supermarket and that killed the department store business. Other examples are watches moving from jewelry stores to department stores then down to discounters as they got relatively cheaper. Music sales has changed a bunch of course and so has movie distribution. Remember all those VHS tapes? Pretty much landfill now.

 

So what new channels are appearing on the horizon? One is using your smartphone for payments, not a credit card. Another is digital distribution of books. I think this is going to turn the textbook industry upside down.  Paper newspapers are pretty much on the way out and will probably be gone in 20 years. 

Another play might be to figure out what can't have the channel change out from under them. These might be pretty good, if bought cheap, because they won't be displaced. Water and gas distributors, probably power and content creators. People will still drink Coke and eat Doritos, because you can't download them. 

 

Yet. 

9 Comments – Post Your Own

#1) On May 01, 2012 at 12:39 AM, Frankydontfailme (27.38) wrote:

3-D printing of Pepsi!

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#2) On May 01, 2012 at 3:38 PM, SkepticalOx (99.44) wrote:

#1 you mean a Star-Trek like replicator? :P

3D Printing at it's current state usually only involves using one type of material to make the object. It's gonna be awhile before 3D Printers can make something that is made with different materials.

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#3) On May 01, 2012 at 4:13 PM, Valyooo (99.37) wrote:

Very good point.  Pretty much everything you said just makes me want to buy more AAPL.

One is using your smartphone for payments- iPhone

Another is digital distribution of books. iPad

Music sales has changed a bunch of course - iTunes

Remember all those VHS tapes?- iTunes and iTv

 

Another play might be to figure out what can't have the channel change out from under them.

Doesn't exist.

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#4) On May 01, 2012 at 4:13 PM, Valyooo (99.37) wrote:

Very good point.  Pretty much everything you said just makes me want to buy more AAPL.

One is using your smartphone for payments- iPhone

Another is digital distribution of books. iPad

Music sales has changed a bunch of course - iTunes

Remember all those VHS tapes?- iTunes and iTv

 

Another play might be to figure out what can't have the channel change out from under them.

Doesn't exist.

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#5) On May 01, 2012 at 4:25 PM, EnigmaDude (90.18) wrote:

Interesting thoughts.  Along those lines I came across an article yesterday which sort of highlights your point regarding Water distribution in particular.  Here is the basic premise:

The American Water Works Association (AWWA) has warned that the cost of repairing and expanding U.S. drinking water infrastructure will top $1 trillion in the next 25 years, an expense that likely will be met primarily through higher water bills and local fees.

So a good bet on long-term investment (20 years+) might be those companies heavily involved in water pipeline manufacturing, pipe coatings, infrastructure repairs, etc.  I don't envision anyone coming up with a better way to distribute water to the masses that does not require pipes, although I would not be too shocked if someone did.

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#6) On May 01, 2012 at 4:41 PM, chk999 (99.97) wrote:

EnigmaDude - that was the thesis behind an old Hidden Gems pick, Mueller Water Products (MWA). They had several divisions that made iron water main pipe, large control valves and the like. They also had a coal mining division. The coal division got spun off and made a lot of money on the Chinese iron smelting boom, but the water company has languised very badly. It still has a net loss for the quarter. I think I broke even overall, but it wasn't a fabulous investment. It might take off at some point, but I don't think we are there yet.

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#7) On May 01, 2012 at 5:24 PM, miteycasey (30.36) wrote:

Another play might be to figure out what can't have the channel change out from under them.

Oil companies and cars...think wide moats as Buffett would say.

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#8) On May 01, 2012 at 5:46 PM, TDRH (99.63) wrote:

I can see a day in the future where companies will pay you to use the latest & greatest cell phone with unlimited talk & text just for using your phone for payment.

 Not sure what profit is in this forcast, but I can see the US Post office channel going the way of the Dodo Bird.   Displaced by National internet.   It will be the new manifest destiny, wireless across the country, for a fee/tax of course.

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#9) On May 01, 2012 at 7:32 PM, Frankydontfailme (27.38) wrote:

3-d printing a moat? how's that for a moat? Seriously though, great post. Disruption is the name of the game, and what better place to look for potential disruption than distribution channels.

Despite (or because of) all the pessimism, I think many of these social media plays will seriously beneficially disrupt the way we interact.

LNKD has potential to hook up job searchers and job seekers efficiently, ANGI and YELP spare use the pain of a bad meal or haircut, and who knows what FB is capable of... probably plenty of time to wait for consistent earnings before buying but LNKD is big time on my radar as a speculative play. 

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