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Technology Stocks : America On-Line (AOL)
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To: Tunica Albuginea who wrote (3320)1/25/1999 4:07:00 PM
From: PDL   of 41369
 
Who makes a profit in a deflationary world?

Most of the technology sector is engulfed in deflation -- the whole essence of Moore's Law (doubling of integrated circuit capacity/power every 18 months at equivalent price) implies a steep deflationary cycle (more value for the same or lower price). I think the internet will be a huge winner in virtually all "distribution" systems because of the inherent advantages (lack of brick-and-mortar infrastructure, no need for physical inventory) especially compared with all traditional distrubiton systems. AOL may defy the natural tendencies of "deflation" on the internet by maintaining its status and the advantages of the large special interest group that is AOL's customer base. One of the key challenges for all these players is the cost of acquiring (and keeping) a subscriber. As long as AOL has advantages (reasons for its subscriber base to stay-put) it will have significant advantages over the competition that has to pay for new subscribers either through aggressive marketing campaigns or through acquisition of portal companies. Keep an eye on what companies are willing to pay for other portal or ISP companies (on a per subscriber basis) -- that trend will tell us something about the long-term value of a subscriber (in terms of e-commerce, etc.). Regards, Pete
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