| What should I be aware of in buying future products? |
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| Written by Tan | |
| Saturday, 08 December 2007 | |
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What should I be aware of in buying future products? Written by Paul ‘Tan’ Katchings What should I be aware of in buying future products? The quick answer is Product Equity Value©. Does this company offer Product Equity Value©? Customers of the future will accumulate Product Equity Value© in the same way that many housewives accumulate coupons when shopping for groceries! The battle, and retention of Web 2.0 customers will be furious! Recently there was a WSJ article lamenting on the lack of patents in the US pipeline. This lack of innovation and patent filings is an indication of the lull before the storm. Now the concept of Product Equity Value© will initiate the storm. Product Equity Value© will favor the nimble entrepreneur and the customers. Here is the “why” and “how.” The “why” comes from the motivation to do away with a flawed process for taking companies public. Positioning the general public in the absolute bottom rung of this process is the flaw. Most lawyers, accountants and financial planners should know just how a determination is made for the number of shares issued from a new company and who gets what percentage of the new company when it is taken public. Greed is the only motivating factor for how the percentages of an initial public offering (IPO) are determined today. If this was not so, you would have witnessed Product Equity Value© long before now. You would see the customer being treated better! Witness the number of small companies that are gobbled up by the large companies. Notice how fast Google started its acquisition process. Nothing about what we are stating here is wrong. This was the past. This was the only way that these old companies had of determining who got what. The stock allocation precedents were set long before many of the publicly traded companies came on the horizon. The “how” will be new companies placing their product with Product Equity Value©, into the hands of millions of users instantly. The product’s price could be $1. Product Equity Value© will distinguish one product from another. Imagine there is a new Web 2.0 operating system that runs on all computer operating systems – Windows XP, Vista, Mac OS X Tiger and Leopard. Let’s say over 100 million people use these computer operating systems daily. This is only an example to get your entrepreneurial juices flowing. Let’s say it costs the developers of this new Web 2.0 operating system $100,000 in actual materials and $400,000 for their time. These four developers are from Russia, USA, Israel and the Ukraine. These four developers come to the Product Equity Value© blog site and learn all there is to know about Product Equity Value©. They learn what is required to get a company registered for public listing in the USA. Or better yet, since the USA can be a bit too complicated and favors the entrenched, they decide to list their new company on the Johannesburg exchange. Guess what? 100 million people will download this package TODAY for $1. These 4 developers will have just placed $100 million into their coffers. Each one of their happy new customers will have received 1 share of Product Equity Value©! Wait! We are not finished yet. Before these four developers decided to list on the Johannesburg exchange, they decided that 51% of the equity would go to their new customers. Since they anticipated 100 million sales, this represents 100 million Product Equity Value© shares. We divide 100 million by 51% to get 196,078,431 shares authorized. So far so good. This new company called RUIU, Inc (for Russia, USA, Israel, and Ukraine) decided that 18% of these authorized shares should not be issued, so this leaves 31%. Since the four of these fellows and gals contributed equally to this venture they decided on equal ownership for themselves of 5%. Now this leaves 11% which is given to their 8 parents because the $500,000 that was used in the first year to develop this high-powered web 2.0 operating system came from their parents. Let’s see just how much this RUIU, Inc is worth in capitalization. Since these four individuals are modest, they pay themselves $100,000 each. So the total annual salary is $400,000. The company is actually incorporated out of the Cayman Islands, so there are no corporate taxes (individual taxes is another question). RUIU, Inc has another software product in equal demand as this new high-powered operating system. This downloadable software package cost $6. Let’s do the math. We have a company with 2 instantly downloadable software packages costing a combined price of $7. This company now has $700 million in the bank. The four young developers decide that half or $350 million should be given back to the shareholders as dividends. The earnings per share are $350 million divided by 160,784,314 shares (remember only .82 of the shares are issued, because 18% is not issued) for $2.176 earnings per share. Now since RUIU, Inc is an enlightened Web 2.0 company, the market places a P & E of 40 times earnings or $87.073 per share ($2.176*40). Now we multiply $87.073 times 160,784,314 for a market capitalization of a whopping $14 billion, or about 20 times revenue with just 4 employees! Google’s capitalization is about 14 times revenue with 10,600 employees and much more overhead. 5% of $14 billion valuation is $700 million for each of our young entrepreneurs! Yes! The customer is very, very happy because each of the Product Equity Value© share is worth $87.073. The Product Equity Value© ratio is 12.44 times ($87.073 divided by $7) the product’s price! “What should I be aware of in buying future products?” Now you can answer this question for yourself! Tan |
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| Last Updated ( Saturday, 27 June 2009 ) |
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