Allen,
I doubt that AOL would become a takeover target for its subscriber base. With a market cap of $3.5 billion and 6 million subscribers, an acquiring company would be paying $583 per subscriber. That's a lot of money for a subscriber base with a churn rate estimated at 50 percent. Additionally, H&R Block just sold CompuServe. I'm not sure what they got for it, but I don't think it was nearly $583 per subscriber. You would have to look at that transaction to estimate what an acquiring company would pay for AOL.
AOL's advertising will help them sign up new subscribers, no question. But with all the ISP's, AT&T, the regional telephone companies, and the cable companies all going after essentially the same people, AOL will have to spend more money to sign up people than they had to spend in the past. Additionally, I think that the telecos are in a better position to provide internet access and other services to businesses. That's where the real money from the internet will be made (i.e., high speed internet access, video conferencing, secure data transmission among businesses, etc.).
I would like to make a comment on advertising revenue. I think AOL will make some money, but not as much as they hope to make. There is a limited amount of advertising money available. Some of that money will go to AOL, but a lot more of that money will go to targeted advertising. This is already happening on the Web. If you go to the Wall Street Journal website, you will see linked advertisements for Schwab, Fidelity, Barron's, Forbes, etc. If you go to the New York Times website, you will see linked advertisements for Toyota, Ford, Home Savings, Bank of America, etc. Many websites are already supported by advertising. In fact, as far as I know, YAHOO's major source of revenue comes from advertising. So there is money to be made from advertising, but there is a lot of competition already and AOL is late to the game.
JW |
