A few thoughts on AOL risks and opportunities:
Steve Case has always had the unwavering vision of AOL Everywhere. Bob Pittman brings a strategic marketing and operational mind and is working at building up the distinctive brand identities in the AOL family of services. The sum of the parts may prove to be very powerful. The ability to offer turn-key advertising and e-commerce capability across any or all of the AOL brands/services has to be very appealing to a mass merchandiser trying to build a web delivery channel.
Look at the way Pittman describes his company's brands:
"We are extremely pleased with our aggressive entry into the smaller value segment of the market," Bob Pittman, AOL president and chief operating officer, said about CompuServe.
"At the same time, AOL's flagship brand continues to attract at a record pace the mass-market consumer who wants a premium, full-service
answer to their Internet online needs," Pittman added.
AOL's youth-oriented online communications network, ICQ, has more
than 38 million members.
Its AOL Instant Messenger, an Internet messaging service, has more than 25 million members worldwide.
Another unit, Netscape Netcenter, an Internet media network aimed at business and home users, has more than 17 million users.
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If there are any profits to be made in the online business, I believe Bob Pittman will find a way to draw them out. Powerful, long-term, industry-changing initiatives are underway at AOL. Their existing member relationships and the fact that they have a registered credit card on file for their online accounts gives them cross-sell, up-sell, and platform implementation power that is greater than their competitors.
It is a mistake to measure their power and position only in terms of the AOL Classic service.
If a price war leads to zero (or worse) profits for the online services industry, my bet is that AOL will be standing at the end of the war with the largest market share (and no profits).
If no one is making any profits as an independent provider of web services, then AOL will wind up as a takeover candidate. The user base will have significant value to a larger company that can use their channel and their eyeballs to market products with bigger profit margins. Who knows, maybe AT&T, Microsoft, or WorldCom buys them out. Maybe Amazon :-)
I have the strongest feeling of deja vu. So do Steve Case and Bob Pittman. AOL will not lose a market share war. The question for us as investors is will other investors look at a price war and see that AOL will be the biggest beneficiary in the long term.
If you are a momentum investor, there are better places to be. If you are a long term investor, AOL is a diversified, blue chip holding in the internet space.
Good luck.
Brian
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