To all longs and newbies,
A really good poster named AugustWest79 on Yahoo! has some good posts. Really shows some great researching. It also shows why some of us longs don't intend to sell for quite a
while. Here's one of his posts...
"In the May 10 issue of Fortune, there is an article which discusses the state of the ERP software co's like ORCL, PSFT and so on. Part of the article presents a perspective on the ERP vendor pricing model which makes an interesting case for a recurring revenue business model versus large upfront licensing fees. Article states that while this would hurt their revenue picture in the short term it would be beneficial in the long term. IMO this can be
applied to the e-commerce software market and helps to explain the future potential of OMKT."
pathfinder.com
"At the end of 1997 they only had 1000 merchants live and a year later at the end of 1998
OMKT derived very little recurring revenue as a result. At the end of 1998 they had 6,500 live
(annual growth of 6x!) so by the end of 1999 OMKT will get that much more recurring revenue
(range is $600 to $10,000 depending on their sales). At the end of 3Q99 OMKT had 30,000
licenses sold and 12,000 live. In 2000 those additional licenses will generate even more
recurring revenues, and so on. OMKT has many more merchant licenses sold now but each
are at a much lower upfront cost so the true benefit won't be realized until later when the
annual recurring revenue stream kicks in from these licenses. Run some numbers for an
indication."
"6500 merchants x $2,000 each = $13 million. This revenue is at NO COST to OMKT. So
with time they will derive more and more revenue at lower and lower cost. This is what is so
attractive over the long haul. Compare to an enterprise e-commerce systems vendor like
BVSN for instance. As their revenue base increases so must their infrastructure to support it
(reportedly their software is very labor intensive) and eventually they can only grow as fast as
they can fill the positions. And the margins (cost as a percentage of revenue) will remain
relatively constant. This is also why a stock like EBAY has soared whereas one like PPOD
has not. As EBAY's business grows all they have to do is add servers. As Peapod grows
they have to add people to fill the orders, increased shipping and delivery etc. They can only
grow so fast. The ability for the business to scale at low cost is obviously a very attractive
business model."
"As a further example, OMKT made a revenue sharing deal with Lycos in Feb 1998 whereby
Lycos new "e-mall" would be running on OMKT's Transact. I suspect that this deal involved
little to no initial license fees when consummated back in 1Q99 (and no contribution to
revenue growth then) but it is estimated to kick in 10's of millions in revenues annually (as
stated by OMKT) beginning next quarter (1Q00). OMKT likely gave up the immediate
gratification of maybe $1 - $1.5 million in license revenues, and the growth they could have
shown as a result, for the sake of $10's of millions annually down the road. If you low ball that
estimate at say $20 million annually that comes out to be a mere $5 million PER QUARTER.
They have sacrificed near term results for the sake of future benefits. Isn't that what Internet
Co's are supposed to be all about?"
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