Seidman reveals why CUC deal is a sign of AOL's manifest weakness:
CUC Goes Shopping on AOL
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America Online and CUC International agreed to a deal Tuesday that wilgive CUC's properties -- Shoppers Advantage, Travelers Advantage and AutoVantage -- high visibility to AOL's 8 million members.
AOL will receive $50 million from CUC over three years, and potentially more with revenue-sharing.
Now, it wasn't all that long ago that AOL was pushing a vision of many, many electronic merchants that it could share in the revenue stream with. While this deal doesn't preclude AOL from doing additional deals, it does point to a shift in vision, and it seems unlikely that a similar deal would be cut with a merchant that sells products or services similar to CUC's. AOL Networks president Bob Pittman is pushing location, location, location. Between this deal and the Tel-Save deal, AOL will bring in $150 million over the next three years in return for heavy promotion of the companies' products on AOL.
There's only so much "prime" real estate available to sell, and Pittman seems to be committed to selling all of the real estate. I think this up-front cash may drive down AOL's potential for revenue-sharing. CUC makes most of its money on the membership fees for its various services. As David Simmons, managing director of Digital Video Investments, pointed out to me recently, there probably won't be much revenue to share on actual products sold, since CUC's profit margins on the products themselves are already so slim.
But, as mentioned in the bandwidth piece above, growth of first-time PC purchases appears to be slowing down, and that dramatically affects AOL's and the whole online space's ability to grow quickly. With a lot of growth, the opportunities for online sales of products and services might provide AOL with a bundle in revenue-sharing if it did straight revenue-sharing deals with merchants, but in a period of slow growth, cash in the hand probably seems much more attractive than the promise of revenue-sharing on products sold. Everyone hopes that will turn around over the long term, but, in the meantime, $50 million over three years guaranteed is a lot better than a maybe!
Copyright (C) 1997 Robert Seidman and CMP Media Inc. All rights reserved. May be reproduced in any medium for noncommercial purposes as long as attribution is given.
- If that $50,000,000 is an advance (loan), I'll bet AOL won't earn it. Analysis really shows how weak AOL is.
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