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Technology Stocks : America On-Line: will it survive ...?
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To: Todd Daniels who wrote (2117)3/4/1997 5:15:00 PM
From: Sam Citron   of 13594
 
Hi Todd,

Refreshing to find some original research here rather than mere hype or TA. I think your new media informants are right on the money in their concern about the teenage demographic and their billboard/matchbook cover ad analogy. I also agree that the chickies are hatching early in the hot air hype that perenially surrounds AOL.

Something does not smell quite right to me with the Tel-Save deal, and I am awaiting clarification on its terms. What seems odd is that Tel-Save would pay $100 million (5 times what TALK earned last year) to promote and bill a service that is no more attractive than the 10 cent per minute service with 6 second incremental billing that bigger rivals like ATT already offer. I know that telcos spend obscene amounts to get in front of eyeballs, because theirs is a high fixed cost business, with alot of gravy once they reach break even. But consumers are not as naive and complacent as they used to be. In fact the consumer churn in long distance has started to match AOL's own churn rate lately as we are offered a series of lucrative $50 switching bonuses and ever lower prices.

I suspect that Tel-Save may think AOL is set up for them to outsource alot of cost centers for them including promotion, customer service and billing. If so, I think they will be sadly mistaken. I think AOL was driven to do the deal by desperation as it thrashes around for a business model that might work. I have to hand it to them for trying, though.

The devil is in the details, as they say, and I somehow doubt that Tel-Save will be AOL's resurrection, or the gravy train of dollars that many seem to expect.

SC
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