“The $59 Computer” — Riches coming?

By Travis Johnson, Stock Gumshoe, February 4, 2010

There’s a small stack of potential teasers just sitting and waiting for the attention of the Thinkolator, but your friendly neighborhood Gumshoe is but a humble servant to the masses of the assembled Gumshoe faithful … so when I start getting hundreds of questions about one specific teaser, that moves to the top of the list.

And so today, the $59 computer. This is a teaser for a newsletter we’ve looked at many times before, Phase 1 Investor from the folks at Stansberry — it tends to be a biotech and small-cap tech newsletter, but they also use it when they’re picking the smallest companies from any sector, including some gold miners last year … it’s their most expensive newsletter (retail price $5,000, though it’s of course “on sale” now for about half that), which keeps subscriber levels down and lets them recommend microcap stocks without sending the share price through the roof.

Unless, of course, the Gumshoe jumps into the party and we mess up the stock chart — so I’ll be telling you who this company is in a moment, but don’t go off and get all hot and bothered about it on my account.

What is the $59 computer? Well, they go into this for several pages of sales blather, but here’s a bit of the tease:

“‘Who makes the $59 Computer?’

“Not one single company owns sole rights to the ‘$59 computer,’ or the technology that powers it.

“As scientist Peter Meli of the National Institute of Standards and Technology points out, the ‘$59 Computer’ represents “the convergence of many technologies.”

“In other words, it’s all still very much up for grabs.

“As you’ll see, that’s great news for investors. Even better than if one single company owned the rights to it.

“As I write, companies are scrambling to stamp their name on some part of this new computer.

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“Dell — the world’s 3rd largest computer manufacturer – recently tried to steal the whole thing for itself! The Texas-based company quietly filed an application with the U.S. Patent and Trademark Office.

“Of course, Dell’s application was denied. Too many technologies have gone into the evolution of this computer for any single entity to claim sole rights.

“But the purse is so large that companies – big and small – are fighting to develop their own versions of the ‘$59 computer.’

“IBM has invested at least $360 million, according to public records… and has assigned 200 researchers to work on its own ‘$59 computer’ project.

“Google – the Palo Alto search engine giant – has invested $600 million.”

OK, so that lets us at least explain the basic marketing conceit here — when they talk about the “$59 Computer” they’re really just talking about the general concept of cloud computing. And yes, Dell did try to trademark the term “cloud computing” a couple years ago, an attempt that was thankfully turned back by the USPTO.

And yes, almost every company in the computer business is investing in cloud computing, either to develop services or use the cloud for their own data or work. Cloud computing, if you’re unaware, is a very broad term that encompasses everything from remote storage to software as a service to web-based email, it’s keeping more data and applications in the “cloud” of remote servers rather than on a personal computer or on an office mainframe, and it’s part of what we’re probably all doing with our electronic lives, with some of us more gradual than others. Heck, I do it too — most of the data and the website files for Stock Gumshoe are sitting in data centers in the Midwest that I’ll never see, and I use Google Docs to share my tracking spreadsheets and other files with folks.

The cloud has been coming for a long time, and it has also been the source of a lot of investment teasers — but the strongest pusher so far has been the Motley Fool, which has been teasing cloud computing as the “two words that Bill Gates doesn’t want you to hear’ and teasing a trio of cloud-computing companies in a dozen different ways. If you’re curious about the Fool’s take (this was a teaser for their Rule Breakers newsletter), you can see the older Kings of Cloud Computing article that I wrote here, the companies were (and still are, I assume), Google, VMWare, and Akamai.

But who is this little cloud computing company teased for us today by Phase 1 Investor?

The ad goes on to provide a few clues, though they’re definitely making the Gumshoe work on this one.

First, they tell us that this company was a critical omission in the recent Barron’s cover story on cloud computing — that this little firm is half the size of the smallest company they listed in that article, Terremark World. That article is a good place to start if you don’t know anything about the “cloud,” by the way, but we can at least take away from that the clue that Terremark has a market cap of about $500 million, so this little company must have a market cap in the neighborhood of $250 million.

So that’s one clue. What else? We get one more bit of teasermania that includes some good clues, here it is in their words:

“They’ve developed proprietary software that makes the ‘$59 computer’ faster.

“What they offer is one of a kind…

“Basically, their new technology allows them to speed up the Internet – and GUARANTEE fast and failsafe delivery of Web-based applications to the ‘$59 computer.’

“Their new technology is so good at doing this they’ve developed a stranglehold on a niche within the ‘$59 computer’ market…

“‘After unsuccessful attempts by nearly a dozen other companies, the results from implementing [this company’s] solution were both effective and dramatic,’ said Stuart Ross, President and CEO of a private ‘$59 computer’ company.

“‘It’s like having a license to print money,’ said Dave Kochbeck, Director of Technology at Friendster, a privately owned social networking site in Sydney.

“In the technology world, if you have something valuable, you’d better build a moat around it.

“That’s exactly what this tiny little firm has done.

“They’ve received SIXTEEN patents in total—seven in the past year alone:

“November 26, 2009
“October 20, 2009
“September 1, 2009
“July 14, 2009
“June 30, 2009
“February 12, 2009
“February 10, 2009

“Because this technology is so valuable…

“This tiny company’s been lining up contracts with major ‘$59 computer’ players – Hewlett-Packard, Microsoft, Motorola, and Sony, to name a few.”

So who is it? Well, we can throw all that info into the mighty, mighty Thinkolator, and out the other end comes the answer:

Internap Network Services (INAP)

Why Internap? Well, those two quotes in the teaser are from customer testimonials that INAP includes on their own website, so that’s pretty solid confirmation. And the company and its employees and officers probably hold a lot more than 16 patents, but Internap did receive patents on those dates given — at least a half dozen or so of them, I didn’t check each one. And no, I don’t understand much of the actual patent language (September 1’s patent, for example, was for “topology aware route control” to help route data in networks).

And that’s a large amount of what Internap does — they run data centers and provide content delivery network (CDN) and other IP services that try to make data routing faster and more reliable, much like other companies do (including Akamai, which is the giant of the CDN business and a stock I’ve profiled for the Irregulars as well as an oft-teased Motley Fool pick). I don’t know a lot about INAP, but they seem to be effectively a turnaround story in a business where investors have been fairly cautious over the past year.

Part of Internap’s turnaround strategy is a move to do less reselling of data center services and start providing more of those services themselves — which means building up their data center footprint, something they’re trying to do over the next year or so (there’s a quick article about this strategy here, and they went into more detail in their last conference call, you can read the 3Q transcript here). There may be reason for some skepticism about INAP and their expansion and strategic plans, at least if you’ve been following them for a while — INAP is a new stock for me, but they’ve tried to remake themselves and refocus before, as this fairly critical article details from Nortia Research.

And just as an FYI, some of my readers might be interested to know that Weiss Research is actually an INAP customer, and allowed their name to be used in press releases — they use INAP for their video distribution, all those “special events” that they invite you to attend online.

So … is Internap the heretofore unseen winner in cloud computing-related stocks? They do have patents and services in data routing and deliverability, but I have no way of judging whether their technology or services are any better than anyone else’s, and the industry is getting more competitive in just about every segment these days. There is often chatter about a possible takeover of Internap, in part because they have a nice big chunk of tax losses built up over their many years of unprofitable operations, but that’s rarely a good enough reason to speculate — if you do decide that Internap is for you, it will probably be because you’ve got some faith in their turnaround plan and think it’s cheap enough to take a chance. Internap does trade at a low price/book valuation of 1.2, but that’s probably largely due to goodwill on the balance sheet — they made a big acquisition of VitalStream back in 2006 to get into the CDN business, a buy that cost them more than $200 million (and might now be laden with some regret), which is awfully close to their current market cap.

Internap hasn’t exactly been building wealth for investors to this point, but if it is going to be a big cloud computing winner it’s at least running a bit below the radar — it’s not just Barron’s that failed to include INAP, I don’t think I’ve seen any other high profile analysis that looks at INAP as a high potential “cloud” play, though obviously any company that does internet routing, content delivery, and data center hosting is, technically, worthy of being called a “cloud computing” company (there are a lot of companies offering these and similar services, Dan Rayburn maintains a list of the CDN companies, at least, on his website here if you’re curious about researching some of the other firms).

Think INAP is worthy of a gamble as they attempt to turn the business around and leverage their technology? Do the Phase 1 folks have a beauty here, or a beast? Let us know what you think with a comment below.

And of course, if you’ve subscribed to Phase 1 Investor, we’d all like to hear if it’s worth the price — please click here to share your opinion at Stock Gumshoe Reviews.


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Joe  Weise
Guest
February 14, 2010 10:26 pm

NO THANK YOU IBM and others !!!
Stick your “cloud computing”!!!
I have 0.00% trust in you holding and processing my personal data.
What’s that? Oh , you say it’s for my convenience and protection? Yea right, these are the same reason you give to want to put a ‘chip’ under my skin.
Again, I can’t say it loud enough, stick your cloud computing up your ass!!!

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JIM HOLLIDAY
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JIM HOLLIDAY
February 15, 2010 12:20 pm

THANKS FOR THE INFO ON THE $59 COMPUTER, I HAVE NEVER BOUGHT ONE OF STANSBURY’S MORE EXPENSIVE SUBSCRIPTIONS, BUT DO GET 12% LETTER AND A COUPLE OF OTHERS. I HAVE FOUND, IN GENERAL THAT I HAVE PAID MOSTLY FOR MORE SPAM AND TEASERS. I DID GET ONE GOOD TIP, AENY, WHICH HAS MADE A COUPLE OF $ SO I MAY HAVE BROKEN EVEN ON WHAT I HAVE INVESTED IN STANSBURY LETTERS. GUMSHOE IS A GREAT PLACE TO CHECK OUT TEASERS. THANKS AGAIN FOR THE HONEST OPINIONS.

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Mike from Seatte, WA
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Mike from Seatte, WA
February 15, 2010 6:27 pm

Great site – also came across this while doing research on the $59 computer. I too have subscribed to Stansberry and while they have had interesting content in the past there is an enormous amount of daily spam. RE: INAP – not knowledgeable about their technology but do know well the efforts of Microsoft, Oracle, Google, Amazon, Akamai, etc. and the level of enormous investment in place already and still pouring in. If INAP has critical, game changing technology, they will be acquired soon. And if their technology is compelling then I’m surprised that they have not already been acquired. All of the heavyweights know the next delivery model is cloud computing but the money will be made on content and apps. Whether you do email, games, etc locally or via the web, it’s still content/apps you are paying for.

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Mike from Seatte, WA
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Mike from Seatte, WA
February 15, 2010 6:44 pm

I should clarify my last comment – infrasructure/network companies can make a ton of money too. But the small ones seem to get swallowed by the giants (or run over/by) before they can return the 10x that the newsletters project. Especially in an industry that everyone seems to agree is headed to becoming a utility-like service.

Patrick Hesselmann
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Patrick Hesselmann
February 15, 2010 6:57 pm

Scientific American Reports had a Robotics issue around 5/08 that included an article about how software labs and researchers are developing routing software based on swarm insect behaviors. They use ‘software ants’ to mark ‘trails’ and develop algorithms to detect which are the fastest and most reliable trails – then apply this to routing technology on the Internet and phone services etc. At the time the article was written, presumably about 2/06, ‘extensive tests suggest that the ant-based method is superior to Open Shortest Path First, the protocol that the Internet currently uses . . . ‘. They don’t mention INAP in their discussion, though they do acknowledge that the technology is in its infancy.

Peter Courtenay Stephens
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Peter Courtenay Stephens
February 16, 2010 11:15 am

I have earned thousands of $s from S&A investment letters. I also enjoy immensely the free news letters and the commentary. I have tried most and either stayed or canceled with absolutely no problems. I too wondered about the $59 comp and am glad I know about this site. I like the Resource Report, Advanced Income and
the 12% letter.
Sure really knowledgeable people can find or figure out most if not all the stocks they reco, but the average guy can not. They are honest in my opinion and they run a biz, so advertising and teasers are part of the game. Remember it takes 7 no’s rto get a yes.
You get good value for what they sell and some people have made serious, serious money with their info..

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David A
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David A
November 29, 2014 5:26 pm

I am constantly amused by all the bad “rip-off” reporting through Stansberry investments. Personally I have done really well with their research. For on thing, they break it down, chew it up and digest it probably better than anybody else in the market. I have learned to use some common sense along the way, and that is to check here with Stock-Gunshoe on these BIG teasers. I have saved a lot of money from Stock Gumshoe but on the other hand, have obtained lots of QUALITY investment information from S&A research. The Retirement Millionaire is worth every penny! The single greatest thing for me is that S&A always offers a non-contested money back guarantee and they give themselves and all their research a report card at the end of the year! Who else does that? Not anybody I know. Bottom line, I have done very well with their research and those that just dog them, offer fun reading for me. It often shares their own ignorance!

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canbyte
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canbyte
February 16, 2010 12:44 pm

The teaser mentioned a moat but perhaps the moat is not technical but specific to China. I’m sure this gummerment, open as it is (!), would love to give away these little computers so they can keep their citizens’ info safe and sound in their warm and cozy little hands.

Stock gapped up 12% by the time I saw it so not sure what to do. Could be good given that China would be perfect for this cloud stuff, much better than places with poor infrastructure like Africa. If you go to the Yahoo message boards, it looks like the story is out so its a mugs game now.

One problem with little computers is their ability to have multiple pages open which in my mind, limits appeal/potential in developed countries.

Hmm. I’ll think about it while it tries to fill the gap.

Great site gumshoe

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George Pestik
George Pestik
February 16, 2010 1:22 pm

The main problem will be data security and insurance if violate.

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marymiller
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marymiller
February 16, 2010 7:03 pm

i have just come across stockgum by trying to find out imformation from google search i heard about $59 dollar computer

Jim from WA
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Jim from WA
February 16, 2010 9:39 pm

According to another website (justicedept.com) SAIR is a total scam. They call it a ‘pump-and-dump’ scam. They get people to buy the stock (and newsletter) and after the stock rises a bit they sell all they have making the stock drop down to pennies again. They have been investigated and fined by the SEC for fraud.

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David Allenson
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David Allenson
August 18, 2012 7:55 pm
Reply to  Jim from WA