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To: damniseedemons who wrote (22777)	10/24/1998 6:31:00 PM
From: Glenn D. Rudolph	Respond to of 164685

The Internet Capitalist SG Cowen Internet Research 6 vast majority of these vendors' revenue came from straight search and directory, employing these figures made some sense. Now, however, (and increasingly in the future) the portals are deriving revenue from any number of disparate sources, including sponsorships, commerce, merchandising, direct marketing, and promotion to name a few of the bigger opportunities. Not all of them are priced simply on a CPM basis. To address this limitation, the industry moved beyond CPM and started measuring “reach”; that percent of Web users that a portal had contact within the last month. And though a combination of CPM, inventory utilization, and reach has helped the Street better understand the relative differences in these businesses value, it does have its own weaknesses, not the least of which is that reach alone tends to treat all of the portal players' inventory as equal, when indeed, there are substantive differences. After all, what's to explain the difference in market caps between Yahoo! ($13 billion) and Lycos ($420 million) when their “reach” is but 9% different according to Media Metrix. Clearly, the market is valuing some other measure of influence than raw “reach”. So what metric gets at the strength of the relationship between the portals and their users? Which gets to the heart of these company's influence on Internet users? In our view, influence is a function of two factors: breadth (e.g. the sheer number of users Excite reaches per month) and depth (e.g. the strength of the relationship between Excite and its users). Reach has been a helpful in determining the breadth of a portal's influence on Internet users thanks to its commonality, its easy measurement, and its third party verification. However, it doesn't get us any closer to understanding the depth of these portals' influence on the eyes and ears of the Internet population. Why is depth important? A metric that quantifies depth will give investors a better understanding of how influential, for example, Yahoo! is to a Yahoo! user, that is, how much Yahoo! can “guide” that user to a certain merchant, a certain content provider, or a certain brand message. This, in turn, will be very valuable to advertisers and merchants. Ultimately, some measure of depth (Yahoo! management has used the term “effective reach”) will help the public markets gauge the right relative valuations between these portal companies. So some measure of Internet influence (both depth and breadth), when coupled with a CPM and utilization figure, would better explain the valuations differences between these portal companies and, perhaps more importantly, give us insight into how those relative differences could change with time. Recall that part of the manifest for “The Internet Capitalist” is to identify sources of above-market returns and “determine the commonality among them, and suggest how shareholder value will be impacted and where it will flow.” We share Yahoo!'s frustration at the uni-dimensional view forced on us by adherence to CPM or reach alone. So that leaves us with the prickly task of actually getting to some measure of depth of influence that meets the three important criteria laid out above: commonality, easy measurement, and third party verification. Admittedly, “depth” of influence will be difficult to measure with any precision, but for our part we think it may well have an important cousin in usage (the amount of time spent on the site) and utility (a measure of a consumer's reliance on the site). Intuitively, portals have already recognized this; their efforts to date to make their sites more “sticky” to consumers is a means to this end. As investors we are somewhat limited by the fact that we cannot directly measure “depth”, since it is a factor of (at least) these two