"Predatory Pricing: Where's The Proof?"
FROM: Interactive Week - October 96
"In the online business, Bill Gates says the company plans to lose money for at least three more years on its Microsoft network. In the meantime, he can be expected to plow hundreds of millions of dollars into the effort. That's a drop in the bucket for a company that earned $ 2.2 billion on revenue of $ 8.7 billion last year, and already spends $ 1.4 billion yearly on research.
What it is saying to its only significant remaining rival, America Online, Inc., is that it will spend whatever it takes to take over the top spot in this business. And there's little AOL can do without sacrificing whatever pretensions of profitability it might have.
AOL, after all, deferred $ 251.3 million in marketing costs last year so that it could report a profit of $ 29.8 million on sales of
$ 1.1 billion.
Microsoft will punish those puny profits from the get-go. Next month, it cuts the going rate for access to online services to $ 6.95 a month, from $ 9.95; and all-you-can-eat access to as little as $ 70 a year, if you already have an Internet connection. AOL will respond with bravado, but the reality is that the boom is going down on AOL's business model this year, just as it went down on CompuServe Corp. and Prodigy Inc. last year." ... By Tom Steinert-Threlkeld
These are the main paragraphs from TST's article. One can draw his own conclusions (or hers, to be PC!). Hope it answers some doubts about the future of AOL and price action after recommendations from some lousy investment bankers. // CA |
