Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : America On-Line: will it survive ...? -- Ignore unavailable to you. Want to Upgrade?

To: John Albert Moro who wrote (6297)	12/10/1997 2:18:00 AM
From: Sowbug	Respond to of 13594

<<1. Problems with AOL in providing good service to its customers given its huge subsriber base, eg. server and E-Mail problems during peak usage.>> Yeah but probably 9.9 million of the people who subscribe to AOL are amateur computer users. They think that the crashing, freezing, busy signals, lost e-mail, disappearing files, and confusing commands are all just part of using a computer. Thus they're as likely to cancel their AOL subscription as they are to throw out their computer. So even AOL's problems won't cost them much.

To: John Albert Moro who wrote (6297)	12/10/1997 8:36:00 AM
From: John Kratus	Read Replies (2) \| Respond to of 13594

Built into AOL's stock price is the assumption that ad revenues will grow dramatically as more and more advertisers use AOL as an advertising medium. The problem with this strategy is that AOL must attract an ever-increasing number of subscribers in order to generate new advertising revenues. Granted, that new computer owners are attracted by AOL's brand name. But I think that it's safe to assume that there will be more of AOL's current subs that will be switching to other ISPs (as they become more sophisticated) than there are non-AOL internet users that will be switching to AOL. Long-term, AOL is going to have to figure out how to attract more experienced computer users to its service. Given AOL's strategy to try to make most of its money from advertising to its captive audience, I don't think that AOL has a prayer of doing so. Brokerage analysts are using the metaphor of television to estimate AOL's future earnings (subs plus advertising). I think that a better metaphor is Apple Computer. (Even though I love my Mac, I think the metaphor fits.) Apple was the "computer for the rest of us" at a time when using a personal computer was considered to be too complex for most people. Apple initially pitched its computers to the uninitiated: school children and homes. And Apple initially had the lion's share of the personal computer market. But it didn't take long before Microsoft and others imitated Apple's ease of use and stole the market Apple created. In the late '70s and early '80s, no one could have predicted the success of competitors like Compaq, Gateway 2000, or Dell. And no one could have predicted that Apple, whose Apple II was once the best-selling personal computer in the world, would fall on such hard times. Similarly, I think that AOL's ease of use for the newbies will only take it so far, and other new competitors will come and eat AOL's lunch. Watch out for companies like Hot-mail, who are on track for beating AOL in number of e-mail users. Just a few morning thoughts from a disgruntled bear. Any responses? John

To: John Albert Moro who wrote (6297)	12/11/1997 12:53:00 AM
From: Investor-ex!	Read Replies (2) \| Respond to of 13594

Hi JAM, I agree with all your negatives. :-D As for the positives: 1. Large and increasing subsriber base. Yes, its large and appears to be increasing though we're getting signals from management that this is slowing. I'd really like to see an audit of the subscribers, how many are actually paying and not getting freebies when threatening to quit, how many are actually active month to month, and the average time spent at AOL as opposed to surfing the Internet when logged on. 2. AOL as the premier player in its role as an ISP. Well, they're the largest ISP, for now. Last week's customer satisfaction survey really calls into question the "premier" adjective. Though I don't know as this matters in any event, as they appear to be selling the ISP function to Worldcom. They'll still be taking in the $ but passing it to Worldcom for services rendered under some sort of long term service agreement. With the coming popularization of higher bandwidth Internet access, one has to wonder how long this agreement will be sustainable, and whether to AOL's advantage. 3. Increasing ad revenues. For the last quarter, quarter to quarter, this is not true. Ad and e-commerce revenues combined actually decreased 15% over the previous quarter. The year to year comparison was good. However, since this is supposed to be AOL's "emerging" revenue source, and a currently small source at that, the drop quarter to quarter does not bode all that well. 4. Increasing revenues as subsriber base grows. Well, one would hope so, though not generating earnings growth in the areas they are targeting. See #3. 5. The opportunity for further growth as network computers gain acceptance in the marketplace. Not sure what you have in mind here. Network computers are currently mostly a cost-conscious business market, not a consumer market. Actually, the cost of the fully-loaded PC is approaching that of the NC. For consumers, what's the point? Businesses are mostly interested in the NC due to lower support costs, mostly because their users can't screw up the installed, company-specific software configuration and harkens back to the older, host-centric computing model. AOL's strength is not at all in this area. If you're thinking WebTV, AOL's not involved there, either. I think when one signs up with WebTV, only WebTV can act as ISP. 6. Internet sector as momentum leader in the market. Yeah, the Internet sector is pretty strong right now, though pricey as hell. I suppose its because the reasoning is something like, "what's really hot but not likely to be affected by Asia's problems?" Well, on the surface, the Internet sector fits the bill. However, the Internet's prospects are based on expectations of increasing advertising revenues and/or increasing e-commerce. These expectations are already more than priced in for the sector. If the USA succumbs to a cyclical downturn and the general business climate turns contractionary or even fairly cautious (and it can happen), ad revenues will dry up, e-commerce will slow, and business plans will be put on hold. That would kill this sector's growth projections. If that doesn't happen, the unbridled competition to sell (or give away!) ad space, product, and services will eventually drive margins razor-thin anyway. When everyone wants to sell ad space, books, computers, stock commissions, etc. on-line, there will be a race to the bottom in pricing. Quite negative, yes? :-D