Old news.......
AOL Will Handle New Challenge
September 24, 1999 6:07 AM EDT
By Emily Burg
Correspondent
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Although Thursday's merger between Internet
service providers (ISPs) EarthLink (quote,
chart, profile) and MindSpring (quote, chart,
profile) will create the country's second
biggest ISP, analysts don't think that top ISP
America Online (quote, chart, profile) has
much to worry about.
"Much has been made of the speed of the
switchers of EarthLink and MindSpring," Ulric
Weil, analyst with Friedman, Billings, Ramsey
told worldlyinvestor.com.
"But AOL's content has maximum stickiness,"
he added. "They have a lock on their
subscriber base, and they keep adding new
subscribers because they appeal to newbies.
AOL is like Internet access with training
wheels."
However, some detractors of AOL think that
the company is too basic for Internet savvy
users, and think that as Internet penetration
and usage increases, users won't need the
handholding that AOL offers. But Abhishek
Gami, Internet analyst at William Blair,
couldn't disagree more.
"AOL is actually more Internet savvy now than
it ever has been. Netscape and ICQ were
considered to be among the most Internet
savvy properties and AOL owns them both,"
Gami said.
Although the combined EarthLink/MindSpring,
to be known as EarthLink, will top AT&T's
(quote, chart, profile) WorldNet and Microsoft's
(quote, chart, profile) MSN in terms of
subscribers and market share, EarthLink will
still be one-sixth AOL's size, with only 16%
the number of customers AOL has.
EarthLink will have approximately three million
subscribers; AOL has recently announced that
it's topped 18 million subscribers. Plus,
although EarthLink and MindSpring's services
cost less than AOL's, analysts think that the
content offered can't compare with AOL's.
Another reason why analysts think AOL will
stay on top is because of its broadband
strategy. The desire to harness and master
broadband capabilities has been one of the
driving forces behind consolidation in the
industry, and is one of the reasons why Gami
thinks EarthLink and MindSpring decided to
merge.
"You can't run 7000 ISPs over the same
network, it's just not feasible," Gami said. "To
become a real player in broadband, you have
to have a bigger brand name. Consolidation
among the smaller players in the industry
becomes necessary."
Although Sprint (quote, chart, profile) already
has a stake in EarthLink, neither EarthLink nor
MindSpring has much of a broadband
strategy. But as it has with most challenges
that the ISP industry has had to face,
including the free ISP access debate, AOL
has met broadband head on, and, according to
Gami, has one of the strongest broadband
strategies out there.
AOL has already conquered broadband
access through DSL service and satellite
service, although Gami says that he wishes
that AOL had moved faster with DSL. But
Gami expects that AOL will really shoot to the
forefront of the field when it rolls out AOL
version 5.0, the newest version of its software,
which Gami says, "is designed to optimize the
broadband experience."
In the end, the merger may actually be good
news for AOL.
"Actually, from a PR perspective, the merger
is very good for AOL," Weil said. "AOL
welcomes a strong competitor. It's better to
have one significant other than many."
Gami agrees. "AOL is secure in the number
one spot. I can't see any scenario in the
foreseeable future that would cause AOL to
lose its spot."
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