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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: Steve Robinett who wrote (5746)	2/25/1999 10:59:00 AM
From: Ed Forrest	Read Replies (3) \| Respond to of 41369

Anybody besides myself notice that when AOL is down there are few posters? Posting begins when it is up.Interesting. Ed Forrest

To: Steve Robinett who wrote (5746)	2/25/1999 5:08:00 PM
From: RTev	Read Replies (1) \| Respond to of 41369

Thanks for the response, Steve. I agree that Pittman seems to be doing just about everything right at the moment and the the future looks bright. Still though, I don't think its quite as rosy a future as that painted by some analysts. I'll express my misgivings by way of analogy with the ol' widget. Let's say we've got a few widget makers out there in the market. Traditional Widgets, Inc. has the lion's share of the market. They're noted for having an incredible sales team and good design sense so that they are able to produce just the kind of widget that buyers want and they can sell the things -- oh, can they sell them. Over in the other corner is New Widgets, Inc. They make very good widgets too and seem to be doing a fair job of selling them. They don't have nearly the market share of TradWid but they're at least holding their own. An analysis that stopped right there would probably give TradWid a much higher valuation than NewWid. But a traditional valuation would not stop there. It would look deeper. It would note that NewWid makes its product in a brand new factory on a line developed in-house that is super-efficient. It would note that TradWid makes their product in an old factory next to now-abandoned train tracks and uses a line developed in the days of Grampa Joe. Sure, they've added a new wing onto the side and brought in some new equipment, but it's still Grampa Joe's line, maintained by a team of machinists who know how to keep it running but would be lost if asked how to design and build a new and more efficient line. A consideration of the value of the two companies would now note that TradWid has considerable problems ahead and faces high costs to overcome them. While NewWid is saddled with debt from the buildout of their line and factory, it's ready for the future. TradWid, on the other hand, has those costs to look forward to. And it also has an internal problem. While NewWid was created by folks who know all the intricacies of modern widget production techniques, TradWid has very little of that knowledge in-house. Any development of new techniques is outside the core competency of the company. AOL is a TradWid of the internet. No matter what they do in the future, it's going to cost them a lot of money. And there are big risks. Do they repeat what they seemed to try to do with the Netscape purchase and try to add technological knowhow that's outside their core competency? Do they just forget about "running the line" and contract out the process to someone else? It certainly looks like AOL is in a position to move in their market, but any move they make will cost the bottom line, and threatens to destabilize the business model they've built. I'm not saying they can't do it, but rather that the risks and costs seem to be higher than many admit.