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To: Eric Wells who wrote (75063)	8/22/1999 1:06:00 PM
From: Glenn D. Rudolph	Read Replies (2) \| Respond to of 164684

>>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. Eric, I am far from an expert. I use to do value investing and was lond Ascend communications for many years. I did some research then and learned a little about ISP costs. It is far less than $21.95/month but much more than penneys per user. I can't truthfully give you a figure. Costs are reasonably fixed when there enough RACs in place assuming time online per user does not increase. >>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? I do not have a clue here although YHOO is not an ISP. I do know MSN would need to add RACs via lease or buy so do not know how the Justice Deapertment would perceive this. As you can see, there is more I do not know than I do know. 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. There have been numerous times when a firm was viewd as a competitive threat to AOL and it was not a problem. The past performance for both MSFT and AOL may not be indicative either way. I can't tell. >>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. The $306 million is AOL's cut. The $1.2 billion is the amount of sales through the AOL site in Q4 of 98. My point is AOL has a lot to offer an ecommerce site now to be and AOL approved retailer. MSFT has not proved this as of yet. Given a choice now, which service would you prefer to link to your ecommerce site? 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. Andreeson confuses me a bit. That is a lot of stock. I cannot explain that away. On the bullish side, AOL has yet to do a good job in many foreign markets. That could mean they never will or they have a lot of growth in front of them. The other is the coming broadband and AOL has a lot of contracts in that area. MSFT is focusing on dial=up only at present according to their hype. Finally, AOL is far from cash strapped. I did wish to point out that AOL's focus is no longer on being an ISP. It is on content and ecommerce. That is why they sold their susidiary that had their RACs but I can't recall its name to WCOM. AOL prefer to lease the ISP part and focus on their new core business. The high PE is a problem I guess but not any more than that of AMZN, YHOO or EBAY;-) I really was hammered last year shorting AMZN so my new approch is to never take large positions in any one firm. My AOL position is 5% or my portfolio and is the only net position I presently own. I sold YHOO and AMZN too soon recently. That is a typical error for me:-( Glenn PS You are a pleasure for the discussion of the pros and cons of fundamentals.