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

To: Steve Robinett who wrote (6646)	1/5/1998 5:35:00 PM
From: Christopher Grace	Read Replies (3) \| Respond to of 13594

Steve, I don't understand the basis for your statement that: << AOL has an outmoded business model, the Prodigy, Compuserve, content-provider model... >> While you also had other points I think this is a crucial one to focus on. I don't see the problem with AOL's business model. It employs conventional vertical integration by tapping multiple revenue streams (access, e-commerce, and advertising) and providing consumers with an end-to-end system that strikes a good balance between open content (Internet access for members; AOL.com for non-members) and members-only content. This maximizes consumer choice while generating significant advertising and e-commerce revenue opportunities. AOL's end-to-end service is consumer-friendly by concentrating on comprehensiveness, coherent organization/navigation, ease of use, and communications. Member growth and revenue growth substantiate that the model works. AOL's vertical integration gives it a vastly different business than an ISP. What ISP has subscribers spending 75% of their online time looking at "internal" content like AOL members do? (AOL members spend 150 million hours a month within AOL viewing members-only content and using AOL communications functions.) People tend to focus on AOL's content competitiveness and overlook AOL's competitive advantage in communications -- how important and technically untrivial it is to provide AOL-like communications capabilities like instant messaging, Buddy Lists, chat, etc., and build a system that can simultaneously host over 500,000 users. What is it you don't about AOL's business model? Whose do you like better? Suely, you don't prefer content-based web sites that can't generate subscription revenue and have anemic ad sales... or ISPs that can't generate significant ad and e-commerce revenue. Maybe you like the YHOOs of the world and the competitive challenges they face. The telcos? MSFT? cable? BTW, I think the only thing that the demise of CompuServe, Prodigy, Apple's eWorld, GEnie, AT&T's Interchange etc., proves is: (a) AOL has squarely outcompeted all other online services; and (b) running an online service is much, much harder than almost anyone thinks. AOL has withstood many challenges and has grown at a 50%+ annual rate in the process. It dominates its market and is getting stronger as the big get bigger. Tell me again why AOL is so flawed. Best regards, Chris P.S. I don't think revenues-to-market cap ratios are the silver bullet in evaluating stock prices but since you brought them up... I agree that AOL is no MSFT; AOL trades at 4.5x revenues pre-CSRV acquisition; MSFT trades at 14x revenues. AOL is hard to benchmark because of its hybrid nature but here is a mix of ratios: NSCP (post meltdown) trades at 3.5x, EGRP at 4.8x, DIS at 3x, ORCL at 3.5x, ADBE at 3.4x, YHOO at 40x. Looking at relative growth rates and AOL's competitive position, AOL's ratio doesn't bother me in the least. If anything I think AOL, especially post the CSRV acquisition, is undervalued.