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Technology Stocks : Internet Analysis - Discussion
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To: MaryinRed who wrote (173)2/14/1999 11:24:00 AM
From: Steve Robinett  Read Replies (1) of 419
 
Mary,
You comment, the dollars of the future...will not be predominantly from subscriber fees...but from advertising and content partnerships.

I've heard this "leverage the subscriber base" argument as long as I've been messing with AOL but please look at AOL's 10-Q. There is no evidence yet to support the idea, just the assertions of true believers. What AOL can do is increase the dollar amount of the higher margin advertising and e-commerce, as opposed to the low margin subscriber fees, and consequently increase cash flow.

As for the addictive quality of AOL, I agree. Evidence for this shows in the lack of elasticity of demand for AOL when they raised prices. But as people spend more an more time on line, it costs AOL more to have those customers, maybe not immediately, but eventually. Still, since AOL's profit margin is about the amount of the price increase from 19.95 to 21.95 and they lost few customers, can they raise the price to 24.95 and more than double their profit margin? Maybe.
Best,
--Steve
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