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To: Peter Greenhill who wrote (36323)	1/24/1999 7:41:00 PM
From: Glenn D. Rudolph	Respond to of 164684

The Internet Capitalist SG Cowen Internet Research 3 Though we are squarely in the XCIT/ATHM camp on the many potential benefits of just such a merger, we think it is important to keep in mind that broadband is not a technology shift that takes place overnight. Hundreds of millions of dollars in plant upgrades, thousands of truck rolls, and millions more in consumer marketing are necessary before broadband becomes a mass market phenomenon. Will the @Home/Excite merger speed up adoption of broadband? Perhaps, but not drastically so in the next 18 months, since the gaiting factor to adoption today is deployment, not marketing. We've spent a fair share of our time over the last handful of months speaking and writing about broadband and its impact on the major online players. Investors have felt for some time that AOL is somehow in a precarious position in a broadband world, that their leverage with content providers and consumers won't necessarily translate beyond simple dial-up access. This thesis has gained even more currency over the last week as investors have attempted to handicap how the @Home/Excite merger impacts the rest of the Internet universe. For our part, we believe AOL, and to a certain degree and by extension Yahoo!, may actually be in the driver's seat relative to the broadband opportunity. Speed Is Important…But It's Not Everything. To this end, we'll make the perhaps too-obvious assertion speed is only important if (1) there's something on the other end of the pipe worth seeing and (2) if there is someone there to see it. Otherwise, you're just having a bad online experience much faster (which has its own benefits, since time is money). AOL's strength derives primarily from the 15 million accounts (which equals 35 million consumers) worldwide that call AOL their online home. No one else has the sheer size of online mindshare and market share AOL has; as importantly, it is estimated that AOL now lays claim to more than 70% of all new Internet users going onto the Internet. AOL's influence, on online customers, is real and it is today. The question is, will future Internet users bypass AOL altogether and get right onto the Internet via their cable set-top box? Well, if the experience, content, and value proposition were the same, of course. If all things were equal, surely the speed advantage would create enough of an incentive for consumers to go directly to the Internet without using AOL. But, in our view, all things aren't equal, and won't be for some time. Consumers Make Their Online Decisions Based On A Portfolio Of Factors… The underlying reasons are complex, but they revolve around the importance of community (humans tend to be pack-followers and want to go where their friends are, and online, that's on AOL), the stickiness of the relationship AOL has built with their current 15mm subscribers (who wants to give up their buddy lists, email address, and “favorite places”?), and the content and commerce relationships that AOL has struck (recall that many are exclusive and multi-year in nature). What, we find ourselves asking, would be the incentives for either new Internet users or existing advertisers and merchants to leave the AOL community? Will consumers be willing to forgo AOL's chat rooms, their instant message technology, buddy lists, and accept a Excite@Home service? Some will, most certainly, but many will wait, for ease of use, for the safety of numbers, or for customer service guarantees. Surely a certain online user values speed above all else. But there is no data to suggest that speed is enough of an incentive for either current or future Internet online users (mass market users, not folks in the top 1% of the median income /education bracket) to not want the AOL service. Remember, at these subscriber levels, AOL just has to be “good