"Enough now. Bring me down to reality, you cynics and pessimists!"
Although I disagree with several points and assumptions, I'll focus on just one. You seem to think that AOL will be able to develop some sort of market power based on their position as a 3rd party service provider. I couldn't disagree more. They haven't had any pricing power, don't currently have any pricing power, and won't ever have any pricing power. The net itself is just too much competition. Charge for online gaming?--just ain't gonna happen. . . The minute they start charging per hour for this stuff it will move directly onto the net (this is already happening, go back a few posts for some interesting comments on this issue). Charge for acting as a 3rd party in financial exchanges?--ain't gonna happen. . . Right now almost ever credit card company limits potetial loss to $50 for internet and all other types of fraudulent use. Some credit cards have now reduced that number to $0 for internet transactions. Then there is CyberCash and other more universial systems that are developing. AOL just isn't in the game. And then there is the advertising issue. I'm convinced that the following will happen: 1) as the net moves from fad to functional tool, users will surf less and use the net to get information they can easily locate and which is useful, such as bank account info, credit histories, social security information, etc. 2) This information will mainly be provided as a service by institutions for their existing customers or related parties, 3) I expect a few successful business models to surive, such as book selling, travel reservations, etc., but this will be limited to certain types products and services, 4)as this occurs, I expect the focus to shift from proprietary content providers to direct web access, 5) this access will ultimately be provided by phone companies, cable companies, and maybe current access providers like AOL if they can get it together (AOL still isn't advertising, as far as I've seen, 56k access). Where is advertising going to come into play? I just don't think that the web will ever be the advertising magnet that TV is--its just not passive enough, among other things. I think the web is going to develop into a tool for staying in touch with friends (e-mail, etc.) and getting things done, not playing around and clicking on fancy-looking ads. Consequently, AOL is going to have to find some other ways to make money. OK, enough rambling. Now for the real issue--even if everything you say is true, AOL is just too damn expensive. Even assuming they could make $2/share this year, they're overpriced. Maybe I'd buy this stock at $30. . . |
