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

To: PAL who wrote (8239)	2/25/1998 9:28:00 AM
From: Pancho Villa	Read Replies (2) \| Respond to of 13594

PAL and all: Winning companies usually have competitive advantages/ impose barriers to entry in growing markets with attractive margins this is not the case with AOL. Following is a list of AOL compatitive disadvantages: [needs a bit of editiing but you will get the points acroos] 1. AOL is a high cost producer in a low margin price sensitive business. Not the recipe for market share/profit growth. 2. AOL intends to obtain a premium price over prevailing IS rates while offering mediocre service. Busy signals, low speeds, annoing ads. Not precisely my idea of value. 3. The ISP market is getting increasingly more competitive with large and small providers offering excellent service at low prices. Moreover, low cost producers such as ATT and MCI/WCOM can offer the service, even at a loss, just to get big long distance bucks. i.e., they can use IS as a promotional device since this is not their cash cow. These companies are in an excellent position to grab market share while subsidizing the service using long distance revenues. ATT & MCI/WCOM can afford to consider IS as a cost of providing service to their clients, instead of a source of Cash Flow. Moreover, MCI/WCOM are indeed the low cost provider they own the backbone. AOL has contracted with WCOM at favorable rates through 2000+ but these rates are variable [depend on network usage] while AOL clients want unlimited service rates and use the service more and more by the day. All this spells a tremendous squezee to margins that are already low. 4. Cable companies are jumping in with a very attractive cost/performance VALUE strategy. In Cambridge MA you can get unlimited service for about $50 without the need for a second line at speeds which I understand are 10-100X the 52K analog phone line limit. Even faster than ISDN lines! [I may jump in when they fiber wire my block, about 2 months away] 5. Well, of course AOL will no longer depend on IS fees instead they are building a model based on ADV./elec. commerce revenues. This is yet to be seen. plus if ad revenues ever become a big thing in the net, there is plenty of competition: YHOO Netscape, INTU, MSFT, LYCOS, etc. And IMO these companies may do a better job than the mediocremanagement at AOL [sure, I forgot, the new president will fix everything!] 6. And I almost forgot! MSFT also wants a piece of the action and they are starting to wake up! and they have a lot of cash! So the AOL advantage is being market leader [for how long?] in a rapidly growing BUT UNPROFITABLE market. Unlike other markets for which the growth phase is characterized by few competitiors and attractive margins. Presumably they are moving big time overseas. Well so are MCI, ATT and MSFT plus lots of local competition from small guys in these low-barrier to entry business. Pancho Comments, particularly contrarian ones are appreciated!