Thursday, May 25, 2023

The Road to Better Tech Is Strewn With Losers... Here's How to Find the Next Winner

By Whitney Tilson (View Archive)

As technology evolves, the victims always pile up...

Take camera and film maker Kodak, for instance.

The company traces its roots all the way back to the 1880s. Kodak mastered the "razor and blades" business model... It would sell inexpensive cameras (the razor) and then make large profits from its film sales (blades).

For decades, Kodak had a bulletproof global franchise... until digital cameras came along, which put Kodak's business in peril.

Ironically, it was a 24-year-old Kodak engineer named Steven Sasson who developed the first digital camera in 1975 using leftover parts from around Kodak's factories. Sasson's prototype was the size of a toaster and took 23 seconds to take a black-and-white photo. As he later told the New York Times...

But it was filmless photography, so management's reaction was, "That's cute – but don't tell anyone about it."

Every digital camera that was sold took away from a film camera and we knew how much money we made on film. That was the argument. Of course, the problem is pretty soon you won't be able to sell film – and that was my position.

Sony (SONY), Nikon, Fujifilm, Panasonic, Olympus, and more eventually went all-in on digital photography... leaving the stubborn Kodak in the dust.

Bill Miller at Legg Mason's Value Trust – one of the most famous and successful value investors ever – got sucked into the value trap that was Kodak's stock. Long after the advent of digital cameras, Miller made a massive bet on Kodak around the start of the 21st century.

Miller wasn't a fool... Obviously, he could see the shift toward digital cameras. But he believed it would happen slowly, which would allow Kodak to continue to earn big profits for many more years. Plus, he thought the company could successfully compete in the new arena.

He couldn't have been more wrong...

Consumers rapidly switched to digital photography and stopped buying film. And Kodak failed to compete effectively in the new world.

Kodak's business declined precipitously, and in 2012 the company filed for bankruptcy protection.

But just as digital cameras all but killed off film, another disruptive technology has made digital cameras a relic of the past...

I'm talking about smartphones.

When Apple (AAPL) introduced the first iPhone in 2007, it had a small 3.5-inch screen and a low-resolution, two-megapixel camera...

It was met with heavy skepticism from Apple's competitors. Executives across the tech industry didn't think the iPhone would be a serious player.

As then-Palm CEO Ed Colligan, whose company focused on personal digital assistants, said...

We've learned and struggled for a few years here figuring out how to make a decent phone... PC guys are not going to just figure this out. They're not going to just walk in.

Anssi Vanjoki, the former chief strategy officer at Nokia (NOK), also wrote off the iPhone, saying...

Even with the Mac, Apple attracted a lot of attention at first, but they have remained a niche manufacturer. That will be their role in mobile phones as well.

Steve Ballmer, who was the CEO of Microsoft (MSFT) at the time, famously dismissed the iPhone, saying...

That is the most expensive phone in the world. And it doesn't appeal to business customers because it doesn't have a keyboard. Which makes it not a very good e-mail machine.

BlackBerry's (BB) co-CEO at the time, Jim Balsillie, shared the sentiment...

It's kind of one more entrant into an already very busy space with lots of choice for consumers... But in terms of a sort of a sea-change for BlackBerry, I would think that's overstating it.

But over the next 15 years, Apple sold more than 2.2 billion iPhones, becoming not only the bestselling smartphone, but the bestselling consumer product of all time. The latest model, the iPhone 14, features a 48-megapixel camera and the ability to record high-resolution video in 4K.

Within a handful of years, people essentially stopped buying digital cameras altogether...

Kodak is a classic example of a business that was made obsolete by technology...

This has affected more than just Kodak and cameras, of course. Smartphones killed off a whole host of products, including pay phones, pagers, GPS devices, and alarm clocks.

The Internet made fax machines, phone books, and most print media obsolete. It led to the birth of streaming, which killed DVDs and is trying to do the same to cable TV... It also led to the cloud, which did away with flash drives and CD storage.

Think about the dozens of businesses that retail giant Amazon (AMZN) has wiped out, including big names like toy store Toys "R" Us, bookseller Barnes & Noble, and electronics retailer Circuit City.

But even as recently as a few years ago, executives at brick-and-mortar retailers were skeptical about Amazon. As Foot Locker (FL) CEO Richard Johnson said in a 2017 earnings call...

We do not believe our vendors selling product directly on Amazon is an imminent threat. There is no indication that any of our vendors intend to sell premium athletic product, $100-plus sneakers that we offer, directly via that sort of distribution channel.

At the time, Foot Locker's market cap exceeded $10 billion. Today, it's worth less than $2.5 billion.

Disruptive travel company Airbnb (ABNB) is taking a chunk out of the hotel business. It was founded just 14 years ago but its market cap sits at $68 billion, far bigger than its three biggest competitors. It sports higher margins and a bigger market cap than its peers, despite employing far fewer workers. Take a look...

Company Founded Market Cap Employees

Airbnb (ABNB)


$68 billion


Marriott (MAR)


$51 billion


Hilton (HLT)


$36 billion


Hyatt Hotels (H)


$11 billion


The list goes on and on...

  • Streaming giant Netflix (NFLX) has delivered a crushing blow to movie theaters
  • Music streaming company Spotify (SPOT) is disrupting radio
  • Zillow (Z) and Redfin (RDFN) are disrupting the archaic realtor business model
  • Expedia (EXPE) and Tripadvisor (TRIP) made travel agents obsolete
  • Uber (UBER) and Lyft (LYFT) have squeezed taxis

As technology evolves, the victims always pile up.

The good news is that you can flip this on its head to find the likely winners of the next decade...

As billions of dollars flood into the Internet of Things, financial technology ("fintech"), artificial intelligence ("AI"), the metaverse, the blockchain, electric and self-driving cars, big data, genome sequencing, etc., we'll see plenty of winners and losers.

And when it comes to the winners, an upcoming event will give you the chance to make 5 to 10 times your money through a huge turning point in the market that most people will never see coming.

It could cause some of the best-known companies to crash or go bankrupt... while others could see their stocks go on to rise 10,000%. Learn more here.


Whitney Tilson
May 25, 2023