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To: Glenn D. Rudolph who wrote (75034)	8/22/1999 12:27:00 PM
From: Eric Wells	Read Replies (1) \| Respond to of 164684

Glenn - thanks for your message. >>I can't give a number regarding the costs to >>provide ISP service but I know it is not that low. I admit to having a high level of ignorance when it comes to estimating the average per person cost of ISP service. My previous statement estimating that it was "pennies" was based on the simple logic that internet access is a simple local phone call - and that the additional hardware costs to connect my phone call to the internet should be small (when spread out over millions of users). Of course, this is all pure conjecture on my part. >>I do know that selling a product or service below >>cost will not be tolerated and that would be far >>easier to prove than the current investigation. I'm not a legal expert - nor do I have any strong knowledge of anti-trust laws. Again, my comments on this area were based on conjecture. But I wonder if Microsoft could argue that the profits for ISP business are actually calculated as follows: Advertising Revenues + Subscription Revenues - Service Costs. With this model, Microsoft would indeed be offering subscription at below cost - but they would be making costs back through advertising. Isn't this the model employed by Yahoo - not mention a number of other internet companies? >>This is a lot of hot wind by MSFT due to their >>prior failures in this space. I try to never underestimate the power of a 300 pound gorilla (Microsoft) that has $22 billion in cash. Don't lose sight of the fact that Microsoft has a track record of failing in certain businesses for years - and then after years of trying, finally doing it right. You are right that AOL is winning today - and AOL is the first name that comes to mind when new users think about getting on the internet. Despite MSN's failings to date, I still view Microsoft as a real competitive threat to AOL. >>Did you know that AOL did $1.2 billion in e-commerce in Q4 of 98? I just looked at AOL's most recent earnings release on Yahoo's finance site - and according to the release, AOL had $306 million in revenues for "Advertising, commerce and other" for the quarter ending June 30, 1999. And according to the year end income statement posted on the site, for the year ending June 30, 1999, AOL's revenues in this area came to $1 billion. >>My money is on AOL in this space and I plan on leaving it there. I have been long AOL in the past - and have both made and lost money through long positions. I don't own AOL now - and I don't plan to go long - for the following reasons: 1. High market cap ($105 billion) combined with high PE (154). 2. Continued competitive pressure from Microsoft - and other ISPs. 3. Recent insider selling (it can be argued that Andreeson is just trying to diversify his portfolio - but $88 million seems like a lot stock to be selling). 4. My rather bearish outlook on stocks, especially internet stocks, over the next six months. Thanks for your comments - and I wish you the best with your AOL long position. -Eric