Monopoly Crumbling or Blessing In Disguise?
(NASDAQ: NSOL)
April 23, 1999
by Jeffrey Howes
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Shares of Herndon, VA based Network Solutions Inc. have been battered
lately over fears of competition entering the Internet name registering
business. On April 25th, five other 'test bed' companies, AOL, France
Telecom's Oleane, the Internet Counsel of Registrars, Melbourne IT and
Register.com, will begin offering domain name registrations, with 28
others to join in late June.
What does this mean for NSOL? Investor fears of competition driving down
rates and cutting NSOL profits had hammered the stock down to $59 a
share, from a recent high of $153. On April 21st, as news was released
on the arrangement the stock rebounded to $92.
Is it possible that these events are, in fact, not bad news at all for
NSOL? That's what Prudential analysts are concluding as they, right in
the face of the competition rumors, raise their target price to $188
from $125 saying that NSOL shares "have been unfairly pushed around" by
inaccurate media reports and short sellers.
Under the new arrangement, Network Solutions will still maintain the
only database of Internet domain names. Other companies will pay NSOL a
one time fee of $10,000, and $9 per year per domain name registered.
Although much less than their current $35 direct price, there are also
fewer costs associated with the 'wholesale' registrations. The large
customer service related expenses for resold registrations would be
shifted to the registering companies, essentially reducing NSOL's
cost-of-goods to a tiny automated entry on a DNS server.
Also overlooked, sales of new domain names are expected to increase
dramatically as the new players in the registering business, like
America Online, leverage their existing marketing infrastructure to
promote 'vanity' name registrations. Network solutions will continue to
collect it's $9 per year per name on each and every of these
registrations, regardless of who sells it, and without a penny in sales
costs. That doesn't sound like such a bad deal after all, does it?
Should it be a surprise that Network Solutions insiders are rumored to
be grabbing up all the shares they can get their hands on at current
prices?
Want to learn more about the real Internet economy? We suggest reading
Accidental Empires : How the Boys of Silicon Valley Make Their Millions,
one of the most insightful books into the amazing world of technology. |
