Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: BomboochaBoy who wrote (49603)	4/8/1999 9:21:00 PM
From: Glenn D. Rudolph	Respond to of 164684

At Merrill Lynch, we view the growth of the internet and e-commerce as a global mega-trend, along the lines of the printing press, the telephone, the computer, and electricity. We believe it will affect dozens of industry sectors in the world economy over the next decade. This e-commerce report was designed to help investors think through the impact of the internet and e-commerce on a variety of different industries and provide some recommended strategies for investing around it. One of these strategies, of course, is to invest directly in the trend—in the seemingly absurdly priced stocks of the companies that are most directly exploiting it. Given the valuations and volatility involved in “direct” internet/e-commerce stocks, investing in the sector clearly isn't for everyone. In the rest of this section, however, we will describe how we view the different types of companies sector and lay out an investment philosophy that helps us come to terms with the extraordinary valuations. n Overview of Our Internet / e-Commerce Coverage We cover the internet and electronic commerce industries from a broad perspective, including companies from a diverse group of industry subsectors in our full-coverage universe. The overarching theme of the industry is, of course, “convergence”—of publishing, television, radio, telecom, cable, computers, and software. All of the companies we cover facilitate online communication and commerce. As the industry develops, it may prove more sensible to focus exclusively on one or two subsectors—“online content,” for example, or “online retailing.” In the current world, however, we find that there is so much cross-pollination of the various business models and so many inter-sector relationships and transactions that we believe we can gain a greater understanding of industry dynamics (and, therefore, add more value) by viewing it as a whole. America Online, for example, is not only the largest dial-up access provider but the largest content provider and a major internet retailer as well. Amazon.com not only sells books but also rents virtual real-estate from Yahoo!, buys access from UUNet, buys electronic-commerce software from Sterling Commerce, and aggregates proprietary content from dozens of publishers. We segment the industry into five main species of business model. An interesting and unusual aspect of the industry is that a number of the leading companies (AOL, for example) take advantage of more than one business model. The five business models are: 1. Access. Companies that sell dial-up and/or dedicated network connections or other network management services. The typical business model is based on monthly fees, which are determined by the speed of the connection and/or the volume of data flowing through it. 2. Content. Companies that provide the stuff you see when you go online. These include both “portals,” which organize and provide access to content created by other companies, and “destinations,” which create specialized content (news, sports, etc.). The typical business model is based on advertising and, in some cases, subscription fees. Note: A portion of this report was previously published on March 9, 1999 as “Internet/Electronic Commerce”. 8 April 1999 The Epicenter “Convergence” Is the Key Concept Author Henry Blodget Merrill Lynch & Co. Global Securities Research & Economics Group Global Fundamental Equity Research Department RC#30209832 One industry's five main business models.