PAL and all: Winning companies usually have competitive advantages/ impose barriers to entry in growing markets with attractive margins this is not the case with AOL. Following is a list of AOL compatitive disadvantages: [needs a bit of editiing but you will get the points acroos]
1. AOL is a high cost producer in a low margin price sensitive business. Not the recipe for market share/profit growth.
AOL is a $2.5 billion company growing at more 40% per year. Of course, anyone can set up a few boxes and call themselves an ISP. Getting to the scale of AOL and its millions of subscribers is another thing. Currently there is no other "ISP" that comes close to AOL's subscriber numbers.
2. AOL intends to obtain a premium price over prevailing IS rates while offering mediocre service. Busy signals, low speeds, annoing ads. Not precisely my idea of value.
Mediocre service is your opinion. While people complain of busy signals, I have never had to dial in more then twice ever to connect. The lowest speed I have ever connected at was 26400. As for the ads, here are some examples -
AOL and J. Crew posted a "20% off for AOL Members!" button on the service's Welcome screen, 3-4 members per second clicked through to the J. Crew store. The AOL J. Crew store was the No. 2 store in J. Crew's chain. When N2K ran a front-screen promotion for the Titanic soundtrack, it sold 750 copies in 20 minutes. The pop-up marketing screens that everyone thinks are so annoying work: 22% of AOL users admitted to "impulse" buys, and 33% responded to promotions.
3. The ISP market is getting increasingly more competitive with large and small providers offering excellent service at low prices. Moreover, low cost producers such as ATT and MCI/WCOM can offer the service, even at a loss, just to get big long distance bucks. i.e., they can use IS as a promotional device since this is not their cash cow.
If they can, and some do, where are the millions of members? Bears often bring up the argument that if MSFT, MCI, Sprint, etc. WANTED to bring down AOL they could do it with a wave of their magical wand. Well, if they could wouldn't they want to and move on? Guess not.
4. Cable companies are jumping in with a very attractive cost/performance VALUE strategy.
Yes, I would love a cable modem to be connected 24/7. Problem is it is not on a national scale, and has yet to be adopted by the mass consumer market. Again, we won't get into the scope of how xyz cable co. will respond to millions of request to install the network card, configure someone's computer, etc. As for cable and AOL, they work fine together.
5. Well, of course AOL will no longer depend on IS fees instead they are building a model based on ADV./elec. commerce revenues. This is yet to be seen. plus if ad revenues ever become a big thing in the net, there is plenty of competition: YHOO Netscape, INTU, MSFT, LYCOS, etc. And IMO these companies may do a better job than the mediocremanagement at AOL [sure, I forgot, the new president will fix everything!]
Your opinion. As the market continues to consolidate, you will begin to see less and less players. There can only be so many search engines on the WWW. Perhaps AOL will buy a few? Speculation of course. The competition has been there from the beginning - and AOL has still managed to continue to grow.
6. And I almost forgot! MSFT also wants a piece of the action and they are starting to wake up! and they have a lot of cash!
So MSFT is just starting to wake up? They have a lot of cash? What are they planning to do with the cash is the key. MSN is a bust - and has been close to folding several times. Luckily, MSFT does have the cash to keep it afloat. Guess they will bank on couch potato WebTV...
In sum this is the same bear arguments we bulls have been reading for the past few months (at least, as long as I have been reading this thread). Hey, you said you wanted some contrarian arguments! :)
S. |
