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Technology Stocks : America On-Line: will it survive ...?
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To: craig crawford who wrote (7468)2/10/1998 6:26:00 PM
From: Andrew Shih  Read Replies (2) of 13594
 
The problems with AOL.

There are two fundamental problems to look out for in AOL's future:

1) Heightened increase in competition
2) Increase in average usage.

1) While there is currently no competitive service for new users, AOL
is probably one of the worst ISP as far as connections and quality of
service. In the next year, Cable modems and xDSL will begin to
emerge and become the connections of choice. Thus, the Baby Bells
and cable companies are going to become the ISPs of note.

In the next two years, AOL will need to slowly transform itself into
a pure content player. There will no longer be any need to connect
via modem.

2) The other fundamental problem is the cost of servicing 10+ million
accounts. The average user usage rose from 21 minutes to 41 minutes a
day. I can only see this increasing as AOL's user base becomes more
mature and finds more uses for the Internet. What if this rises to 60
minutes a day? AOL's gross margins will fall greatly if this happens.

Is $19.95 even a profitable price point?
Mindspring is now posting profits, but obviously AOL can't support
this price point. I personally use IBM Global Net and they will soon
be moving to $19.95 for 100 hours a month.

When cable modems and ADSL is common, and video/audio is broadcast
over the Internet, who is going to stay with a 56K connection?

-Andrew
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