Inside The 'Circle Of Competence'

AT&T's original plan was widely hailed as an aggressive move to take the company into the 21st century. It certainly seemed to make strategic sense, and the company was right to look for alternatives outside the long-distance business. Optimism about its long-term prospects helped its stock outperform the S&P 500 in the late 1990s, even as its debt load grew like kudzu.

But when AT&T suddenly realized that the potential for the business it was building wasn't as great as it hoped, the shares fell rapidly, leaving shareholders with a 10-year average gain of precisely zip. If the stock stays put for another decade, we may find AT&T stockholders still wondering whether "bundling" was the way to go after all, or if the company mortgaged its future on a fad.

Equally difficult when evaluating technology companies is deciding which are true revolutions in the making and which will be footnotes. Suppose that you'd heard a tip about Cidco. You researched it and thought you knew it. At one point last year it was worth more than $1 billion--nearly as much as powerful digital-device maker Handspring is today. Money managers touted the potential of Cidco's MailStation, essentially a typewriter that plugs into a phone jack and sends e-mail.

It was new, it was different. But the product was also bizarrely behind the times: targeted at the tech-averse, it never really proved that a viable market existed. Meanwhile, better alternatives--such as handheld, wireless devices and Web-enabled phones--were filling the void as demand for PCs slowed. Losses are mounting, and while the company has upgraded its product, it has also brought in an investment bank to help it move out of penny-stock land.

Does Cidco have a hope? Marketing copy on its Web site asks, "Who said the Internet has to come through a PC?" And its higher-end Mivo products are certainly an improvement on the MailStation in that they offer Web content specially configured to be accessed through their small, grayscale screens. But these devices cost more, and their monthly service fees approach those of traditional Internet service providers like AOL that offer full Web access. Once again, Cidco appears to be creating something that's new and different, but not necessarily better.

The opposite side of this coin is over-simplification. The temptation is to take Lynch's catchphrase and run madly around the house snagging stock ideas from each room: buying shares of Rite-Aid because you have a bathroom, Apple Computer because your kids have one or Motorola because you have a mobile phone.