Facebook IPO Marks The Transition To The Semantic Web

by: Uncle Scrooge

A brief history of information technology

Electricity, in the form of lightning bolts, has been considered a mysterious phenomena by mankind for centuries until the mid 18th century when Benjamin Franklin conducted extensive research to understand what it was made of and his electrical experiments led to the invention of the lightning rod. Italian scientist Alessandro Volta also dedicated his life to the study of electricity and invented a device to store electrical energy, the battery; unfortunately he didn't live long enough to drive the electric car named after him. Fast forward 100 years and in the late 19th century Thomas Edison reasoned that he would "make electricity so cheap that only the rich will burn candles", so he researched and invented the light bulb and founded General Electric (NYSE:GE) to produce and sell electricity in New York.

In the 1950s the transistor was invented to replace the electron tube and by 1960 the era of modern computing had begun. At that time IBM (NYSE:IBM) emerged as the largest computing company in the world, developed the Fortran programming language and their computers helped land a man on the moon. In the 1970s Arpanet was developed for military purposes and the concept of a computer network was born. In the 1980s the fad was all about Usenet and BBS, the precursors of modern web forums. Although Thomas Watson, president of IBM, in 1943 stated "I think there is a world market for maybe five computers", by the early 1990s almost 50% of households in the US had a desktop PC and that made Microsoft (NASDAQ:MSFT) shareholders very happy. Soon after, the World Wide Web was created and a simple click would instantly deliver information to the four corners of the planet. That was Web 1.0.

Web 2.0

In Web 1.0 one would look up information in search engines that would then point to a remote server that stored data locally. A change took place in the early 2000s when the concepts of user-generated content, tagging and social networking became popular; information has been delocalized and now everything is being moved or directly created into the "cloud". Web 2.0 was being born and Google (NASDAQ:GOOG) went public in 2004 to mark the transition; early investors in the Google IPO as of 2012 tripled their money.

Now another milestone is nearing with the upcoming Facebook (NASDAQ:FB) IPO, denoting the transition between Web 2.0 and the future. The shape of things to come is still blurred but Tim Berners-Lee, a British computer scientist, inventor of the World Wide Web and president of the W3C Consortium, originally expressed the vision of the Web 3.0, also called Semantic Web, as follows:

I have a dream for the Web, in which computers become capable of analyzing all the data on the Web - the content, links, and transactions between people and computers. A 'Semantic Web', which should make this possible, has yet to emerge, but when it does, the day-to-day mechanisms of trade, bureaucracy and our daily lives will be handled by machines talking to machines. The 'intelligent agents' people have touted for ages will finally materialize.

How do we profit from it? Well, the next big thing is the semantic web and it will feed on your private data to provide you with your tailored web experience with behavioral and personalized search, content and advertising (This is why Google paid $3 Bil. for DoubleClick). All our lives will be soon in the cloud; our pictures, friends and our every move are being tagged on Facebook. Wherever we are, our iPhones keep us connected. Our mail and searches are on Google. Our careers and curricula are stored on LinkedIn. Our shopping is being tracked on Amazon. And so on.

Too many clouds may become a thunderstorm. In the past ten years the major concern was all about online threats, viruses, trojans, worms and DoS (denial of service) attacks. Now all this looks somewhat vintage. The threats of Web 3.0 are phishing, identity theft and profiling. So while all the big names in the IT business try to get a hold of your personal data to make a profit , others are preparing themselves to pick a share of the billions of dollars that are to be made selling products to protect your privacy. The smart money is going into privacy start ups. Venture capitalists who invested early in Google and Facebook made a fortune and now are looking for the next winners. Intel grabbed McAfee for a reason, that is, in the words of V.P. Renee James

I'm either the craziest person who spent $8 billion on a security company or this is the single most important development in technology transformation.

Big Brother 2012

Is the government spying on you? I can't help but wonder how the U.S. Government managed to intercept a tweet (supposedly a joke) from two English tourists and arrest them on terror charges once they landed in L.A. Maybe Boeing (NYSE:BA) has something to say about it. In 2010 they bought private company Narus,

a leading provider of real-time network traffic and analytics software used to protect against cyber attacks and persistent threats aimed at large Internet Protocol networks.

Some say in reality Narus sells the "mass intercept" black boxes that sit in phone company closets surveilling customer traffic for the NSA and other intelligence or law enforcement agencies. One of its capabilities is "semantic analysis" or, in other words, the ability to keep track and update the profile of everyone that interacts with the web. Digital privacy is becoming a huge concern, demand for VPN connections to hide your identity online is growing strong, antispyware/antiadware software is being installed everywhere and Linux is increasing its installed base as it is considered a safer operating system because it is open source.

Where to invest

Which companies will reap the biggest profits from the exploding privacy megatrend?

A few names I would pick up as winners would be:

EMC Corp. (EMC) provides information storage, back-up and protection, management, security, information intelligence, data computing and virtualization technologies, services and solutions. The market cap is 54B and the P/E ratio is 24.

Check Point Software Tech. (NASDAQ:CHKP) develops, markets, and supports a range of software, and combined hardware and software products and services for information technology security applications worldwide. The market cap is 14B and the P/E ratio is 48.

Symantec Corp. (NASDAQ:SYMC) is a global provider of security, storage, and systems management solutions that help businesses and consumers secure and manage their information and identities. The market cap is 13B and the P/E ratio is 17.

Fortinet (NASDAQ:FTNT) provides network security appliances and unified threat management (UTM) network security solutions to enterprises, service providers, and government entities worldwide. The market cap is 3.9B and is quite expensive with a P/E ratio above 60.

AVG Technologies (NYSE:AVG) is a Czech company that specializes in computer security software for consumers and small businesses. The market cap is 700M and the P/E ratio is 16.

Websense (NASDAQ:WBSN) provides unified web, data, and email content security solutions to protect data and users from cyber-threats, information leaks, legal liability, and productivity loss. The market cap is 690M and the P/E ratio is 23.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.