Tom, I agree that my note makes a scary case for AOL, but it also lays out my thesis for why the prospects for the ISP's with no value added and only low price to compete with are even bleaker.
As for MSFT, I recall Billg went after Intuit and their Quicken product and couldn't make much of a dent. Tried to buy them and got blocked. Still chipping away with Money, and I certainly don't count them out. They are relentless.
Yet, this is run number two at on-line/open web access services for MSFT. Seems to me the issues and economics are the same for MSFT and AOL, and MSFT has only a deep pockets advantage, and a significant deficit to overcome in users. Their claims of 1.5 million users are not comparable to AOL 6+ million. MSFT has been practically giving their service away.
The greatest strategic advantage lies with the phone companies, with their networks bought and paid for. It's largely "plus" business to AT&T when they sign up a net surfer. That enables them to dive low on pricing. But content? Innovative stuff? They must have AOL or some other partners to provide content. I am unconvinced that they can provide it themselves.
Yet I do have a respect for what Case has achieved, in the same way I respect what Scott Cook did at Intuit. They are both marketers first, and techs second. They both focus on user friendliness and usability. That is what got them this far.
The early adopters signed up, tried AOL, and are heading out for cheaper access options. Most of them leave AOL from frustration about the price, not the content or service quality. It's price they won't tolerate, and that's only an issue when your usage is "heavy". The management at AOL is going to take care of the heavy user *I think* with their pricing announcement this month. It will not help current profitability, but it should slow churn dramatically. If you sign up 1.8 mill and 1.5 miil churn out, you net addition is 300k and that is how you get subscriber acquisition cost numbers like $200 per head (I think this is roughly the actual result for last quarter). If the churn slows, and the new business rate rises as a result of the flat and low pricing, the numbers might look more like 2 mill sign up, 500 k churn, net addition 1.5 mill users. Unlikely? We will know more come January 1997.
The advertisers will pay for the additional eyeballs. That much is true for all of these competitors. Who has the better defined visitors and handle on their visitors demographics? Who has the credit card number set up and ready for purchases at a button click?
Anyhow, it IS do or die time for Case and company. No time for halfway efforts. Case has 8+ years wrapped up and it would be a crime to go down slowly and painfully like Prodigy and Compuserve. I am staying long at least through Dec quarter to see if new initiatives and pricing take care of churn.
Good luck to all,
Brian
|
