Back To Facts/DD... And Not Things About UNIX Operating Systems...
Very interesting Market Insight column in today's (you can guess) New York Times. The column features an interview with Henry Blodgett, a senior analyst at Merrill Lynch & Company; and is entitled, "America Online Is No Longer Invincible."
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Q. Beyond profit-taking, are there fundamental reasons people have been selling America Online stock?
A: .... AOL is faced with the introduction of free Internet access in Europe as well as bundled access, where companies are bundling personal computers and access to the Internet for a single price. Finally, there is the broadband issue and the threat posed by cable companies.
Q: And Microsoft might offer either free access to the Internet or access at a much-reduced rate. How serious a threat is that?
A: It is potentially serious. America Online derives about 75% of its revenue from Internet access, and Microsoft can afford to provide access much more cheaply because it is not their core business. They will be prepared to do that because they want to insure they have a role in the post-personal computer world. As the most powerful technology company in the world, Microsoft presumably could lose a significant amount of money to gain market share.
Q: Could competition from Microsoft jeopardize America Online's existence?
A: No, I am not concerned that AOL will be put out of business. But, the danger is that the new users they get as a result of this battle with Microsoft will be less profitable for them than the subscribers they have now.
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[My analysis:
** Remember that AOL has an investment in Wave Systems. And that according to the Bloomberg article, AOL invests in companies where it sees some kind of strategic tie-in.
** The pressure "to zero" on ISP service, hits AOL right where it lives--and to quote Blodgett, "the danger is that the new users they get as a result of this battle with Microsoft will be (my emphasis) LESS PROFITABLE THAN THE SUBSCRIBERS THEY HAVE NOW.
** Remember that AOL has an AOL Anywhere initiative--that is contemplating the release of various FREE or low-cost devices in exchange for subscription commitments.
** Question: With the pressure to zero--the whole FREE devices and now FREE service movement--how can AOL find a new source of ongoing revenues that goes beyond their subscription services?
Answers to come... We will see...]
Best Regards,
c m |
