From Ken Little,
Your Guide to Stocks.
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What do Google, Microsoft, and Apple have in common?

Obviously, they are technology-based companies and, in the recent past at least, they have all been very successful.

There are other comparisons we could make, however the one I want to focus on is that they all can lay claim to having pioneered “the next big thing,” in their particular areas. In some cases, they can claim more than one “next big thing.”

Investors dream of finding the “next big thing” before anyone else and getting in before the market bids the price up. The key is knowing the difference between the “next big thing” and just the “next thing.”

Successful

I picked these three companies not because they are technology companies, but because they stay in the news so most everyone is familiar with them and their products and services.

Each one in its own way has been successful with particular products and services because it has come to dominate its market. Let’s look at each company:

• Google – Google, which just went public in 2004, dominates the Internet search market. They are so clearly the leader as to define the market for others to try to capture.
  
  
• Microsoft – The software company is synonymous with personal computing. The Windows operating system drives over 90% of all personal computers. Their suite of Office products leads all others in market share.
  
  
• Apple – Until a few years ago, Apple was struggling just to survive, despite having given birth to the personal computer. A single product, the iPod has turned the company around to the point that Apple stock tripled in price in 2004 and doubled in 2005. Apple is selling iPods by the millions and has expanded the line. Their iPhone has changed the way people think about cell phones and their computers are enjoying a new popularity.

There are two basic elements to the success of each of these companies.

Elements of Success

All three of these companies had the “next big thing,” but they also had something else. The second element was a huge market for the “next big thing.”

That huge market is the difference between a big thing and a thing.

I have seen this analogy several places, so I don’t know who to give proper credit to, but it makes to point precisely:

Would Microsoft be one of the largest companies in the United States if personal computers cost $100,000?

Obviously, the market for Windows would look very different than it does today.

Carrying that analogy on to the other two companies:

Would Google be as large as it is if Internet access cost $150 per month? Would iPods be so popular if it cost $9.95 to download a song?

The Point

The point is the “next big thing” can only be that way if there is a market for it. Whether it is technology, pharmaceuticals, or fashion, you must be able to see a large enough market for a product or service.

Is this product or service something that a large number of people are going to want? Can the company deliver the product or service in a timely manner and at a price that the largest percentage of the market is willing to pay?

Google, Apple, and Microsoft have found a way to answer yes to these questions. Look for the same answers in any company that wants you to believe they have the “next big thing.”