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

To: Dom B. who wrote (10092)	4/9/1999 5:11:00 PM
From: Dustin	Read Replies (1) \| Respond to of 41369

Michael Parekh, Goldman Sachs Internet Analyst- Oh man Monday is gonna be ugly (cpq & dell news). Anyways this is an article with a conversation of this analyst talking about AOL and YHOO. Please distribute this freely, and credit any excerpts to The Internet Analyst™ by Multex.com. Copyright 1999. 24 Hours With AOL and YAHOO! Michael Parekh, Internet Analyst & Managing Director, Investment Research, Goldman, Sachs & Co. Interviewed by Lauren Keyson Michael Parekh started in institutional research sales at Goldman, Sachs in 1982, only to end up as the head of the Internet Department. This was inevitable, since technology, online and PCs had always been a passion of his. He lived through the lifestyle that has now been mainstreamed by the movie "You've Got Mail" in the context of the then-online Internet world in the late 1980s and early 1990s. Over pasta and sandwiches in Harry's at Hanover Square in downtown New York City, we discussed two of Mr. Parekh's favorite companies: AMERICA ONLINE (AOL) and YAHOO! (YHOO). [Lauren Keyson] What do you think about AOL trying to trademark the voice message? "You've Got Mail"? [Michael Parekh] In these early days of the Internet it makes competitive sense to trademark every advantage. Certainly they've had the message for a while, and it's been a landmark feature of their service for a long time. [LK] I keep reading conflicting reports from you — at times you say AOL is your favorite, other times you say YAHOO! — which is it? [MP] AOL and YAHOO! together represent the leading evening and day-time Internet/on-line services respectively; as a result, we've asked investors to think about them as a package of the two leading consumer portals from an investment perspective. YAHOO! is younger than AOL, and has a higher valuation; this is partly due to the fact that they do not provide connectivity, which is a capital intensive business. Although it's a relatively younger company (we lead the Yahoo! IPO in 1996), management as executed very well in terms of being the leading company that aggregates traffic and users in the daytime; they've also done a very good job of obviously migrating the brand into the evening hours, becoming the number two after AOL. For both companies, the long-term opportunity is really about building very sticky relationships with tens of millions of users, essentially on a 24-hour cycle, because you want to catch them in everything they are doing. This user time can then be monetized in a very scalable and leveraged way with advertisers, marketers and commerce partners. As a result, we have long recommended that investors capture both pieces by investing in both both companies in a long-term context. [LK] Can you talk a little about the "Six Cs" of online service and what they mean to investors? [MP] The Six Cs originally were outlined by AOL; they represent the various sets of features and functionality that need to be integrated to build a completeconsumer online service: You need to provide a context for users - whether they're business or consumers - such as search, navigation, directory. You either need to provide or help them get connectivity to the Internet; so AOL provides the connectivity as an ISP. You provide them with communication features, such as e-mail, chat, instant messaging. Then you need to have community, home pages, content, etc. Then you need to have content, whether its editorial content that you produce or other people produce and you aggregate it. Then you have commerce. So, to build a comprehensive online service on a global basis, you need to blend all these features seamlessly in an easy-to-use manner that aggregates tens of millions of users, hopefully under one brand. Today AOL provides all of the six circles, and have the largest business in that context. But different companies can start in different ways. AOL started with providing connectivity. YAHOO! started with a search and navigation directory. That was 100% of their business. Today it's less than one- third. But they don't provide connectivity directly, which is why their business model is much more attractive for investors. It's 90% gross margins, and 36% operating margins because they don't have to spend hundreds of millions of dollars to build that piece - they ride on every one else's connectivity. [LK] In terms of subscribers, how do the Internet players rank? [MP] The Number One Internet access company in North America today is AOL: AOL (AOL), 18 million subscribers. MICROSOFT (MSFT), 1.8 million customers AT&T WORLDNET, 1.3 million customers EARTHLINK (ELNK), 1 million customers MINDSPRING (MSPG), 1 million customers After them are over 5000 ISPs, most of whom being small ISPs with a few thousand subscribers. AOL has been rated our favorite stock for the past four years now.