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To: Chuzzlewit who wrote (333)	4/21/1999 1:03:00 PM
From: Steve Robinett	Respond to of 419

CTC, You comment that among the most important of e-tailers' advantages is the phenomenal cash flow provided that the top line is growing, presumably due to the lack of overhead compared to traditional retailers. The last time I figured it out, it cost AOL about $17.46/month to provide subscribers with an ISP connection, for which they receive the handsome sum of $21.95. That cost figure has probably gone up since on-line usage per subscriber has gone up. The ISP business will not give AOL healthy margins or phenomenal cash flow. Advertising with its 95% margins gives AOL (and even more so, Yahoo) good cash flow growth. The e-commerce partners are essentially advertising-type revenues, lump sums for a certain time period of partnership. But both advertising and e-commerce grow proportionally to subscriber growth, a lower growth rate than enthusiasts are currently pricing into the stock. I agree that many people are assuming regular retailers will simply fold their bricks and mortar and go away. I also agree that advertising is more important and brand names are less important when the competition (and comparison shopping) is only a click away. This argument suggests a diminished importance for a brand name competition strategy and more importance for price competition, the weakest kind of competition. It also suggests that the portal business alone is better than the ISP/portal business due to cost considerations. (Note, for example, that though AOL makes $388,700 in revenue per employee and Yahoo only $322,700, AOL nets only $30,235 per employee while Yahoo, on its lower revenues, nets 60% more at $49,006 per employee). (I trade AOL options, both puts and calls, though it's been several week since I did an AOL trade. The March/April run-up made AOL look just a tad overvalued, compared to those rock-solid, blue-chip, brand-name, widows-and-orphans fundamentals.) Best, --Steve