Updated: 27-Apr-99
H&Q Conference: Internet Stocks
Monday's presentations at the H&Q Technical Conference were dominated by internet stocks. Nearly every major internet company presentation was crowded, with seats hard to find, while the giant software companies like Microsoft and Oracle had plenty of seats available. The focus is unquestionably on the internet area, with both skeptics and believers eager to hear what the companies are saying about themselves and the internet's future.
Here are summaries of five presentations made on Monday by internet companies: Inktomi, Yahoo!, Infospace.com, @Home, and CNET.
Inktomi (INKT)
Inktomi gave essentially the same presentation that they gave at the Goldman Sachs Technical conference in February. Very little elaboration was made on Monday's announcement that Inktomi will make the traffic server an open API, allowing others to develop new applications for the server.
Inktomi's entire business plan has been based upon their proprietary software scaling technology. First exploited in their search engine technology, then in their traffic server products, and now in their ecommerce engine services, the scalable factor is pointed to as a barrier to entry. Scalability refers to the ability of a software product to continue to function as more and more users access it simultaneously.
But it is Inktomi's business model that makes the company so appealing. Their portal services products, the search engine and ecommerce engine, are both "per-transaction" models. Inktomi gets paid for every "hit" delivered as part of a search request. With Yahoo and AOL as clients, the number of hits is dramatic in absolute numbers.
Inktomi claimed 2.2 billion queries were served up by its search engine in Q1 99. However, with 1.8 billion queries served up in Q4 99, this is only 22% sequential growth. While normally that would be impressive, if Inktomi is to be the "platform" of the internet, its growth pattern should more closely match that of the growth of the internet. Exactly what that is, we don't know, but the phrase "traffic doubling every 100 days" is certainly in wide use.
Nevertheless, Inktomi's ecommerce engine, with a 5-7% commission on total revenue, is a simply astonishing model. Inktomi will provide the complete "back-office" processing for ecommerce transactions, with no upfront fee to merchants. They have already signed up 20 portals as customers, including the GO Network, Snap.com, CNNfn, GeoCities, ZDNet, and Fox Sports Online.
The only new wrinkle in Inktomi's presentation was the concept of tiered services for their caching product. The caching product is currently sold under a software business model: initial license fee, with a recurring maintenance fee. Pushed at this presentation was the concept of tiered services for ISPs, with basic delivery costing one monthly fee, personalized content costing additionally, extra fees for pushing that content to other net-devices (cell phones, etc.) , and another fee for filtering the data. With ISPs and content companies as the principal customers for the traffic customer, it appears that Inktomi is trying to squeeze a transactional based model into its traffic server product. However, since no ISPs currently sell internet access on this kind of tiered basis, this is only wishful thinking for Inktomi now. Traffic server products make up 56% of their total revenue.
Yahoo (YHOO)
Yahoo's message was simple and straightforward, with two main themes. They will use their size as a barrier to entry. Long a question on the net, Yahoo presented the first truly believable answer. Yahoo will create so many new and extensive services that smaller competitors will not be able to match them. The "economy of scale" argument is usually used for manufacturing businesses, but Yahoo is making this argument for development projects.
However, Yahoo made no mention of what these services would be, and therefore, we can't judge whether anyone actually wants them.
The second major theme was that Yahoo is going global in a big way. According to the presentation the Web is projected to have 331 million Non-US users in 2003, compared to 89 million Non-US users now. But US users will only grow from 70 million to 120 million. Therefore the real growth is outside the US.
Again emphasizing the barrier to entry theme, Yahoo showed several slides showing their global operational capability. On sheer number of offices, and diversified sales staff, the map is impressive. Yahoo is building an infrastructure around the world to sell advertising. Although we aren't sure what type of operations the other portals have built internationally, it is hard to believe that anyone is close to Yahoo is this regard. With growth potential in the rest of the world still untapped, this operational capability will likely give Yahoo a competitive advantage.
Overall, however, the presentation successfully projected an image of Yahoo as a giant, with powerful resources unmatched by its closest competitors.
Infospace.com (INSP)
Infospace.com's presentation was delivered like water from a fire hose: fast paced, direct, and packed with information.
Infospace's presentation emphasized their model to provide portal-like content to other businesses on a private label basis. Called "portal-in-a-box," the content includes yellow pages directory style services, with extensive linked information with ecommerce possibilities. For example, look up John Doe's address using the directory service, and a list of hotels nearby is also attainable. Search for music by "Sting" and a complete list Sting CDs, all offered by different partner sites, is presented, with the price, and a "buy-it" link.
Infospace is clearly copying the Inktomi model of "behind-the-scenes" private labeling of content and ecommerce. Infospace's most impressive component in the presentation is the long list of partners they have signed up.
Unfortunately, no details were given about the financial details of Infospace's partnership deals, other than stating that Infospace will get paid a percentage for every transaction. The devil is in the details, of course, but these were not given.
Inktomi also announced their "Desktop Portal" on Monday, but only a cursory example was given of the product, as a blank slide was shown with the "portal" running along the bottom. The strip with five clickable links on it was neither demonstrated nor fully explained. The principal question of "why would I want this thing to be on my desktop at all times?" was totally ignored. At least AOL can explain why a user would want ICQ on their desktop at all times.
The Desktop portal will not be released until the fall.
@HOME (ATHM)
George Bell, CEO of Excite (XCIT), gave the presentation for the @Home Network (ATHM), which is the new name for the combined @Home/Excite company. The message, long on concepts, but short on details, was simple. @Home is distribution, Excite is brand. Put the two together and you have a branded media company with distribution, like Time-Warner's acquisition of Turner Cable Network.
But it sounded more like a business school lecture, and at the end, there was relatively little of substantial data presented. Although all presentations are essentially sales pitches for a company's stock, Mr. Bell's presentation came off as either high-level fluff, or excuses for @Home's numbers.
For example, Mr. Bell went to great lengths to describe the net's "reach" numbers as unimportant. While every other internet company is claiming higher and higher reach numbers, Mr. Bell clearly feels it necessary to downplay this metric. Part of this reason is obviously the fact that @Home's "reach" is only 465,000 subscribers.
Another contradiction in Mr. Bell's presentation is the brand/distribution argument. After explaining that both brand and distribution are essential for a successful media company, he went on to say that @Home is the distribution element, and Excite is the brand element. Normally, when one company is described as the distribution piece of a combination, it already has wider distribution abilities. But Excite has 28 million registered users. Becoming part of the "@Home Network" will not bring Excite more registered users immediately, which is distribution partner is supposed to do. How can it, when @Home has only 465,000 subscribers?
In fact, the more we reflect upon it, Mr. Bell's business-theory level presentation only made us ponder the synergy in the deal, not believe in it more deeply.
CNET (CNET)
CNET's presentation was another that had a single theme: the marriage of content to ecommerce. CNet is basing their entire ecommerce plans upon the concept that they, CNET, are a "trusted intermediary." Since they already do product reviews, CNET readers "trust" CNET to make good decisions for them.
But CNET is now making the transition to selling products as well as reviewing them. They are concentrating on PC technology products, which make up 45% of all web commerce, according to CNET. Because PC technology purchases are generally "considered" purchases, requiring a lot of information gathering, CNET feels that their dominant position as an information resource will allow them to easily become a supplier of PC products.
The principal question about CNET's approach is whether users will eventually question the "reviews." If the reviews ever so slowly morph into sales pitches, CNET's "trusted intermediary" position is not likely to be sustained. For the time being, however, CNET's financial numbers are positive enough that most investors don't appear worried about this issue, yet. |
