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

To: Steve Robinett who wrote (6665)	1/6/1998 1:23:00 AM
From: Paul Houle	Read Replies (4) \| Respond to of 13594

It's not all about technology. Sorry, but this is too interesting a thread to stay away from. I will begin by saying I have been long on AOL for some time now. I am not in love with the stock, however, by any means. That is why I read the posts here. AOL's success has sprung from marketing and simplicity of use, and the subsequent critical mass produced. It adequately fulfills the need most people have when they get online -- to communicate. I agree that alternate providers may offer a more technically advanced or better performing means to utilize the online space -- there are other ways to chat, maintain live buddy lists, get stock quotes, etc. But AOL has aggregated (and sometimes pioneered) these services, in a way that people can actually make use of them. Until there is widespread source of and demand for high-bandwidth information, I don't see AOL crashing and burning solely due to it's reliance on a POTS-line network. A credible alternative must exist to what has made AOL attractive to the large number of subscribers it now has and continues to attract. And if this were easy, Microsoft would have done it.

To: Steve Robinett who wrote (6665)	1/6/1998 5:07:00 PM
From: Christopher Grace	Read Replies (4) \| Respond to of 13594

Steve, high-speed access will not implode AOL. Thank you once again for your comments. I understand your point on how high-speed access could necessitate changes in AOL's business model but I think your concerns are overstated. The analysts say they are not too worried about the impact of high-speed access (cable or telco) on AOL because: (a) it's not here yet; (b) when it does arrive, it will be slow to catch on because of unresolved cost and technical issues; (c) high-speed access will initially appeal to technically saavy users rather than to AOL's core market; (d) AOL as a content provider also benefits from high-speed access because high-speed access improves the medium and its mass audience appeal; and (e) AOL has shown adaptability to date -- it will figure out this challenge as well. I generally agree with this analysis and would add that I think AOL has a lot to offer the cable companies (assuming high-speed access actually materializes) in converting dial-up AOL members to high-speed AOL members. Most AOL members aren't going to just one day say 'I need to convert to high-speed access so I'll drop everything and do it' -- they will need prodding and handholding. AOL will need to use its marketing muscle to help convert its members. I'm sure we'll see some creativity in these deals such as cable companies using AOL as the billing mechanism for cable services, similar to what has been done with AOL and Tel-Sav on long distance telephone billing. Additionally, if high-speed access does arrive for the masses (not a sure thing w/i 5 years) it certainly won't happen all at once. AOL will have time to react, although I think its general strategic direction is already in tune with people accessing AOL and the Internet through multiple means (LAN, high-speed cable, telco xDSL, dial-up, wireless) using multiple devices (PC, PDA, TV, I-Phone, etc.). This strategy generally relies on AOL being the premier dial-up provider (the world will still need one) and broadening its viewership base by: (a) expanding AOL's Internet presence through AOL.com; (b) developing original content through AOL Studios and AOL's Greenhouse companies; (c) turning Buddy Lists/Instant Messenger into a communications platform for both AOL and the Internet (an Instant Messenger bundling deal was recently announced for Navigator and I believe MSIE); and (d) expanding AOL's international presence. Given its brand value, its 12M+ members (including CSi), its far-reaching tenacles into most areas of the Internet, its international assets, its strategic partnerships, its cash on hand (over $750M), its track record in defining this industry, its position to benefit as low cost PCs bring more people online, I don't think AOL is going to implode simply because high-speed access starts to phase in over the next 2-5 years. Lastly, even if one believes the scenario where AOL has trouble competing in a high-speed access world, this doesn't necessarily translate into a stock price disaster. AOL's value, which I think has yet to be fully realized, could be harvested as a part of a larger company. I don't know if you saw that PaineWebber today released a list of the 31 companies it thought were potential takeover targets in 1998. AOL was on the list. I don't have the link but here's the relevant excerpt: "Kerschner identified dozens of potential acquisition candidates in a report released this week and singled out 31 PaineWebber rated as "attractives" or "buys," including America Online Inc, Digital Equipment Corp and Schering-Plough Corp. Best regards, Chris P.S. I don't want to quibble about numbers but I don't agree with your conclusion that AOL had fewer paying members last quarter than the quarter before. Pardon me for saying this but I don't think your methodology is sound; you have no way of knowing several critical facts, such as the distribution of member acquisition within the quarter, the distribution of members among payment plans, AOL's rules for saying when a trial member is actually a member, and AOL's rules for saying when an existing member is no longer a member for failing to pay his bill. One cannot assume that everything is comparable to previous quarters because AOL's member policies are evolving and there are both trending and seasonal factors at play. The company has added 3 million members a year for 3 years in a row and (almost) everyone acknowledges that it is growing, so let's assume it's growing until something reliable indicates otherwise. As to "Other Revenues," AOL showed a slight sequential quarter to quarter decrease but said that it was caused by changes in how they book multiple quarter deals and the lumpy nature of big e-commerce deals. Given that AOL has over $250M in guaranteed future ad and e-commerce revenue under agreement or already paid-in and waiting to be booked, I am not too concerned about what happened last quarter. Deals have tended to be big so a smooth percentage increase quarter to quarter isn't going to necessarily be seen this early on. Let's see what the December quarter number is before drawing any conclusions.