============================================================================ Seidman's Online Insider ============================================================================= Weekly Summary of Major Online Services and Internet Events ----------------------------------------------------------------------------- Vol. 3 No. 8 February 23, 1996 =============================================================================  Copyright (C) 1996 Robert Seidman (robert@clark.net). All rights reserved. May be reproduced in any medium for non-commercial purposes, so long as attribution is given.   IN THIS ISSUE ============= -Notes from the Editor -CompuServe To Spin Off -Sears to Bail Out of Prodigy -Stock Watch -Disclaimer -Subscription Info   Notes from the Editor =====================  Vacation was GREAT!    CompuServe to Spin Off ======================  As had been long expected, H&R Block announced plans to spin off CompuServe as a separate company. The plan, unanimously approved by the Block board, involves an initial public offering of less than 20% of CompuServe in April. In the press release, Block said it intends to complete the separation of the companies in a distribution of H&R Block's remaining ownership of CompuServe through a tax-free spin-off or split-off within approximately 12 months.  These are tough times for H&R Block who incurred a net loss of $5.5 million dollars (or $.05 per share) for the quarter ending 1/31/96. Block reported that CompuServe had pretax earnings of $22.1 million for the same quarter on revenues of $203 million for the quarter. While the $22.1 in pretax earnings is down 46.3% from a year ago, some analysts, myself included, had predicted that the service would lose money once they lowered their rates. Clearly, their earnings and revenue were impacted by the rate decrease, and they admitted as much in their press release, but it could have been worse.  Remember, the days when CompuServe charged $9.60/hr. for access at 14.4 Kbps were not all that long ago. As CompuServe completed its transition to a full-fledged consumer service, gone are the days of high margins. Now it seems to be about access and access is a low margin business.  "What the numbers say, I believe, is margins in the online services business are getting squeezed as companies add products and services but drop prices to attract new customers and hang onto old ones. Apparently, H&R Block feels it's in the best interest of its shareholders not to be in such a high-risk, low-margin biz anymore," a respected online analyst told me.   *Too Little, Too Late?*  As someone who long advocated selling or spinning off CompuServe, I now wonder if it will have much of an impact. Had a CompuServe spin-off occurred in July of 1995, I'd be singing a different tune, but in April of 1996, I'll be humming "Too Much, Too Little, Too Late," under my breath.  We've been marveling at Wall Street's reaction to some of the Internet/Online stocks for quite some time. I've written that I think H&R Block's stock got snubbed because people don't see H&R Block and think high tech. You think taxes, accountants, strip malls. I'd even gone as far as recommending H&R Block change their name to CompuServe so that the stock would get its fair share of the attention. Pulling CompuServe out will give it visibility. But a lot has been lost by waiting so long.  For starters, in spite of revenue growth and the corporate line by CompuServe that they're foregoing short term gains to invest in the long term, CompuServe seems to be on the down turn. At this point, America Online has about 40% more subscribers in the US than CompuServe does. While CompuServe currently has a strong presence in the International market, they're about to face stiff competition from AOL and others.  Also, if you use Netscape as your "hysteria meter" benchmark, they're down to a share price of $61 after a high of $87 (these numbers reflect the 2-1 split). While that leaves Netscape with a market cap of almost $5.2 billion, which is still probably insane, it's down $2.2 billion (BILLION!) from the $7.4 billion value at its height. Even if it's all paper money $2.2 billion is a lot. While anything can happen, and usually does, I believe that CompuServe has missed the height of the hysteria and potentially lost some paper money as a result.  What waiting cost CompuServe has been the ability to ride the wave of hysteria and turn the "paper money" stock into a tool for making strategic acquisitions in exchange for stock. America Online has made several key acquisitions this way. In fact, America Online all but bankrolled CMG with the purchase of Booklink Technologies. CMG made a bundle on the stock and has since invested their earnings by purchasing several Internet related companies. While the spin-off will likely allow CompuServe to make acquisitions in exchange for stock, they've missed out on a lot by not doing it sooner.  CompuServe is placing a lot of emphasis on the project named Wow! A service they say is aimed at new users and non-technical people. While I applaud CompuServe for trying to offer an easy to use service aimed at the non-technical crowd, I question their strategic positioning of the service and I question whether they have a clear vision of what they want the service to be.  *Wow! Doesn't Wow Me*  When you talk to CompuServe, they say, "Wow! is aimed at new users." When you ask "how will you keep the subscribers once they're not NEW anymore", they tell you that they will strive to keep the subscribers by offering a valuable service. Okay, I buy that. Here's what I don't buy: coming up with the separate brand. I mean, CompuServe has over 4 million subscribers, America Online has over 5 million there's no way that all of these subscribers are technophiles as it is. With over 4 million, CompuServe definitely has some mindshare. Why not sink the money into improving the overall CompuServe service. If Wow! has a better interface, is easier to use, etc., why not just make it the front end for CompuServe, sell the thing as CompuServe and work on a marketing campaign that says, "This is not your father's CompuServe" (okay, Genie tried that and it didn't work, but you get the picture!)  CompuServe may be the grandfather of online services, but when it comes to a GUI front-end, America Online is the king. They have over 10 years experience with GUIs, and that experience has started to pay off over the last few years. While I think the AOL interface is the easiest to use and the most elegant (in spite of the annoying artwork downloads, which will go away in the 3.0 version of the Windows software) and the best positioned of the online services to take on the Internet services, if I'm going to start from scratch and throw $100 million in development at something, I'd throw it at the Internet. America Online isn't starting from scratch. CompuServe is.  Scott Kurnit, who as expected, resigned from the MCI/Newscorp Joint Venture during my vacation to return to the MCI mothership (and we can expect that he'll be leaving to "pursue other career interests" soon) has a vision which to me boils down to: "build AOL on the Net". If someone could simply recreate the simplicity of America Online's chat (and Prodigy's too, for that matter since they basically looked at what AOL had done) on the Web, the possibilities are amazing. If it were my money, I'd be spending it on that sort of thing instead of throwing it at Wow! Wow!, according to CompuServe is on schedule for a March launch. Stay tuned.  *Some Nice Milestones for CompuServe*  (clipped straight from the press release)   -- CompuServe added a record 490,000 new members during the third quarter, increasing its number of worldwide subscribers to more than 4.3 million.  -- CompuServe's growth in Europe increased 179 percent over the same period last year, bringing total European membership to 588,000 subscribers.  -- The Network Services Division continued to attract a diverse group of customers, adding 65 new corporate accounts. As of January 31, 1996, CompuServe had 928 corporate accounts, a 32.8 percent increase compared to the same date a year ago. Network revenues for the third quarter increased 33.7 percent to $51.2 million.  -- CompuServe now has 450 points around the world where subscribers can get access via a local phone call. The company supplemented its European network expansion through an agreement with France Telecom Network Services to deliver surcharge-free access in 17 European countries. Total network hours through nine months are more than double the same period last year.   -- The company launched SPRYNET, a service designed to offer a cost- effective alternative for those subscribers who want Internet access only. By January 31, 1996, SPRYNET had approximately 100,000 subscribers, making it one of the largest Internet access-only providers in the world. SPRYNET is capable of providing local Internet access to more than 93 percent of the U.S. population and to most major cities throughout the world -- broader coverage than any other Internet access- only provider.  -- WOW!, the new consumer on-line service designed expressly for the home market, is on schedule for a March, 1996 launch.  -- Although CompuServe currently offers the broadest on-line service content in the industry, it continued to expand its offerings with the addition of two major providers, Time Magazine and National Geographic. In addition, CompuServe invested in EDRIVE, the world's largest interactive and entertainment magazine, and expects to benefit as EDRIVE expands onto the Internet and other on-line services.   Sears to Bail Out of Prodigy ============================  As had long been expected, Sears announced that they're seeking a buyer for their 50% share of Prodigy. IBM has made no public comment on what their plans are. As an IBM employee, you might expect that I'd have some good skinny on this, but you'd be wrong. As an IBM employee who writes a newsletter about this industry, I've more or less gone out of my way to say "DON'T TELL ME ANYTHING!"  Sears chairman Arthur Martinez told analysts that Prodigy "does not fit into Sears' long-term strategy for growth."  Martinez had been questioning, in public, where Prodigy fit into Sears' plans, so the move is no surprise. Though we wonder, if the service were growing, say at the rate of America Online, what the position would be.  If selling stuff online/on the Net is ever going to be the big deal that some predict, then there is still a play. Sears probably sees it the way I do, though. That selling retail on the Net is still a ways away, and that it can be done for less than they've invested in Prodigy. Other than software and perhaps small items like music CDs, it remains to be seen what will sell well on the Net.  In a recent story by Newsbytes, < http://www.newsbytes.com/ > they quote catalog consultant Maxwell Sroge of the Maxwell Sroge Company who says the process of shopping on the Internet is too mechanical and not fun. Sroge says that part of the problem is that the sites are "designed by software engineers and not retailers."  "Engineers approach things logically on an orderly prescribed basis. But consumer shopping is a random and emotional experience," said Sroge in the Newsbytes piece.  A story on Ziff Davis' ZD-Net PC-Week web site < http://www.zdnet.com/pcweek/news/0219/o21pprod.html > said that IBM will not have any veto power over the sale and quoted Jupiter Communications' analyst, Adam Schoenfeld as saying, "If IBM had wanted to buy it, they would have done it by now." As a side note, Jupiter Communications plans to grapple with an online world in flux at this week's Online Services III conference at the New York Sheraton Hotel and Towers. For info on registration call 800-488-4345 or visit their Web site, at < http://www.jup.com/ >  The story also says that general manager of the consumer business in IBM's Personal Systems Division, Jim Firestone indicated that IBM may eventually have to chose between the IBM Global Network, a large Internet provider, and Prodigy.  Amazingly, what the story DOESN'T tell you is that in the US, the IBM Global Network is handled buy a company called Advantis. Advantis is a joint venture between IBM and, you guessed it, Sears. It's a wild and wacky world.   Newsworthy Notes ================  24 HOURS OF DEMOCRACY! Celebrate free speech with HotWired columnist Dave Winer's 24 Hours of Democracy site on the HotWired site at < http://www.hotwired.com/staff/userland/24/ >. Essays from the likes of Bill Gates and more. -- SPEAKING OF FREE SPEACH Last week U.S. District Court Judge Ronald Buckwalter temporarily blocked enforcement of penalties for transmitting "indecent" material to minors over the Internet. The block, however, did not include the portions dealing with obscene ("patently offensive") materials or information about abortion. This week, the Dept. of Justice reportedly reached an agreement in principle to delay prosecution of individuals violating all of the "free speech" provisions (including abortion and patently offensive materials, as well as the "indecent" provision) until at least April.  20 groups, including the ACLU have filed suit to block the provisions saying the provisions violate the First Amendment and Privacy rights. At the end of the week, there was no word on whether the deal had been finalized. -- ESTHER DYSON, chairwoman of the Electronic Frontier Foundation and president of EDventure Holdings Inc. will be discussing the impact of the provisions of the Communications Decency Act on CompuServe this Thursday at 9PM ET (GO: CONVENTION ). While I'm slightly to the right (okay, perhaps that is an understatement) of a lot of Ms. Dyson's positions, anyone who'll stand up and say "content isn't king" in the online world is okay in my book. Dyson did just that recently, in front of the audience who probably least wanted to hear it: newspaper publishers, according to the Cowles/SIMBA Media Daily < http://www.simbanet.com >  "Intellectual property is dead. Long live intellectual process. Long live intellectual performance," Dyson told the crowd in attendance at the Interactive Newspaper '96 conference in San Francisco. Dyson said that content wasn't as important as hiring people who could perform well. Dyson also said during the Q&A session that she supported a "talk radio" approach to online services and said that such a format might not be one that publishers would be in favor of.  Dyson said that the types of advertising that will work would be retail, yellow page style and local. "There's going to be a lot of infomercial type of stuff," she said, adding that "this is never going to be a great medium for advertising ketchup. People are just not involved in ketchup."  Personally, I'm very involved in ketchup. But enough about me... -- VOLUNTEER TO GET A SCHOOL hooked up to the Net. If you're in California, you can help. Find out more about NetDay96 whose goal is to help wire all California schools by the end of 1996. This project hopes to serve as an example of how every school in the country can get wired. They'd like to get all volunteers lined up by March 9. Even if you're not in California, look at how they're managing this massive effort using the Web.  "Totally decentralized information is updated locally, but visible globally. Our goal with NetDay is to mobilize tens of thousands of volunteers from high technology firms to wire the schools; the longer term implications of how we do this, using the Web, may point out how business organization may change in the future," John Gage, Science Office director at Sun Microsystems told me via e-mail. --  MICROSOFT ANNOUNCED it was realigning its "Platform's" group of four divisions into three divisions. One of the new divisions will be the Internet Platform and Tools division. The goal of the realignment is allegedly to allow more focus on developing Internet tools and Windows applications. In December, Microsoft said they would not create an Internet division which makes me wonder if part of the reason they did this was to quiet the continual cries that Microsoft lacks an Internet strategy. Microsoft SVP Brad Silverberg will head the Internet Platform and Tools division. According to the press release, the consumer division was dissolved and SVP Patty Stonesifer who headed up the consumer division will head up the newly formed Interactive Media Division. MSN will fall into this division as will games, Kids titles and all the information businesses that were under the consumer division. -- I'M NOT MAKING THIS UP! UPI reported on Friday that a Connecticut woman is suing Prodigy because she wound up HIV positive based on a relationship with a Prodigy employee. Apparently, the woman was seduced via the computer by the employee and cybersex led to real sex. The suit basically alleges Prodigy is responsible because the "seduction" occurred while the Prodigy employee was AT WORK and Prodigy should've known he was HIV positive and prevented him from starting an affair with a customer. "The person involved in this lured someone vulnerable into a sexual relationship through the Prodigy service, on Prodigy time, with Prodigy equipment," the woman's attorney told the UPI. -- THE USA TODAY reported that a Princeton researcher found a security flaw in Netscape's Navigator 2.0 software when the software interacts with Java applets. After downloading the Java applets, apparently they were able to look at other computers on a network besides the Web/Java server. Sun and Netscape said that software would be issued within a week that corrected the flaw. -- STEP RIGHT UP: The world famous Ringling Bros. and Barnum and Bailey circus is throwing its ring into cyberspace on America Online at keyword: RINGLING . Given Ringling's world headquarters proximity to America Online's headquarters (more or less right next door, literally) we're surprised it took so long for Ringling to do this. I know there's a sucker born every minute, but this area is very nicely done. Really! -- WHEN YOU WISH UPON A STAR makes no difference what kind of an Internet connection you are. Disney's online at < http://www.disney.com/ > and on AOL at keyword: DISNEY . -- NETCOM REPORTED Chief Technology officer and board member Robert Rieger resigned from his position and from the board. Rieger will be replaced in his CTO role by Rick Francis, who in his role as VP of software development is credited with the Netcruiser software. Michael Kallet joins Netcom as VP of software engineering. -- IS THERE A DOCTOR IN THE HOUSE? SilverPlatter announced the launching of Physicians home page at Whether you're a doctor, or just a hypochondriac in search of an ailment, you'll want to check out the free preview at: < http://www.silverplatter.com/physicians/ > . -- A NEW STUDY from Killen and Associates confirms predictions from a couple of weeks ago that MCI's alliance with Microsoft is really more about electronic commerce transactions than online services, per se. T  "MCI is thinking way beyond the commodity long distance business," stated Michael Killen, president of Killen & Associates. "It has challenged banks, telcos, and other EFS companies. Its focus is high-profit, value-added EC/EFS opportunities and relationships." (EC=Electronic Commerce, EFS= Electronic Financial Services.) The Killen study forecasts that by the year 2,005, revenue projections for EC/EFS are $28 billion or 35% of MCI's total corporate revenue for the year 2,005. For more info see: < http://www.killen.com >. -- ORACLE AND VERIFONE announced plans to form a strategic alliance "to create an integrated end-to-end Internet payment system for safe and open electronic commerce. The system, which is currently expected to ship by the third quarter of 1996, would enable businesses and consumers around the globe to purchase products and services quickly and securely over the World Wide Web," according to the press release. -- PC MAGAZINE debuted its new Internet User section on its ZD Net Web page. Internet User is designed to be a one stop source for "designed to be the complete source for news, reviews, and links to the most important Internet software." It's worth a look at < http://www.zdnet.com/pcmag/IU/iuser.htm >. -- MANY GENIE CUSTOMERS have expressed their dismay over rate changes when the service recently was sold and changed management. The new monthly rates of $23.95 a month ($18.95/mo. if you were a member before 2/1) include 9 hours of service. I'd be mad too. Advice: pay a buck more and get CompuServe's SPRYNET which will get you unlimited access to the Net. Sure, you won't have access to the wonderful forums on Genie, but at $9.95 Genie was having trouble luring subscribers. At $23.95 for 9 hours, even if they do find a way to reinvent Genie on the Web, there won't be anyone left but the forum moderators. --  See you next week!   Stock Watch =========== Notes: General Electric Deleted, CyberCash Added (don't have last week's closing price for CyberCash).   $ % 52 52 Week's Change Week Week Company Name Ticker Close 1 Week High Low  @Net Index IIX $248.33 5.2% $259.85 $185.76 America Online AMER $55.88 7.7% $55.88 $16.75 Apple AAPL $29.88 8.6% $50.94 $26.84 AT&T T $66.38 1.0% $68.88 $47.88 BBN Corporation BBN $33.00 1.5% $48.75 $15.63 CMG Information Svcs. CMGI $45.63 21.7% $50.25 $ 5.50 CyberCash Inc CYCH $56.75 *** $64.50 $24.50 FTP Software FTPS $13.38 5.9% $40.63 $10.38 H&R Block HRB $40.38 1.3% $48.88 $31.50 IBM IBM $125.63 6.5% $125.63 $73.75 MCI MCIC $29.25 -1.7% $31.00 $19.09 Mecklermedia Corp. MECK $11.75 14.6% $24.38 $ 3.25 Microsoft MSFT $103.50 5.7% $109.25 $61.13 Netcom NETC $29.25 -4.5% $91.50 $19.00 NetManage NETM $11.75 2.7% $34.00 $10.00 Netscape Comm. Corp NSCP $61.00 -3.6% $87.00 $22.88 News Corp. NWS $22.38 2.9% $25.13 $17.63 Oracle Corp. ORCL $53.63 2.1% $54.63 $28.00 PSINet Inc. PSIX $12.75 -8.9% $29.00 $12.00 Sears S $47.88 12.0% $47.88 $23.72 Spyglass Inc. SPYG $30.00 -7.7% $61.00 $13.25 Sun Microsystems SUNW $54.00 13.4% $54.00 $14.94 UUNET Technologies UUNT $37.25 -7.5% $98.75 $21.75   Disclaimer ========== I began writing this newsletter in September 1994, at the time I was working for a technology company that is now owned by MCI. In March, I began working for International Business Machines Corporation. As of July, my management has agreed to allow me to do some work on the newsletter during business hours (probably about 6-8 hours a week). I speak for myself and not for IBM.   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