Killer apps, proprietary edge, and sustainable high margins

By Jim Jubak

Look for the killer app. The killer application -- the software program, piece of hardware, product improvement or whatever -- that everyone has to have is what powers hockey-stick growth. It took everyone a while to figure out what an Internet browser was and what it was good for, but once that period of slowly growing use was past, everybody had to have one, because being browserless was just inconceivable. Same with digital cameras and wireless phones and, before that, with routers and personal computers themselves.

Look for a company with sustainable high margins. In the technology markets of the 1990s, a company could ride a sustainable proprietary edge -- and a willingness to use that temporary advantage over the competition as if the devil were at its heels -- to years and years of outsized profit margins.

or else:

There's so much capital in the world now that a high profit margin becomes a red flag that draws a horde of well-funded competitors from around the world -- and at least a few of those are willing to run at a loss for years because the government that has arranged the financing has goals besides profitability.

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