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============================================================================= Seidman's Online Insider ============================================================================= Weekly Summary of Major Online Services and Internet Events ----------------------------------------------------------------------------- Vol. 3 No. 4 January 26, 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 ============= -The Queen of Analysis and the King of the Fools -Online Vs. Internet Revisited -Does an AOL/Netscape Deal Make Sense? -Microsoft Gets Aggressive -Newsworthy Notes -Stock Watch -Disclaimer -Subscription Info The Queen of Analysis and the King of the Fools =============================================== When the Internet Report by Morgan Stanley came out, I was quite ecstatic. The report authored by PC Software/New Media analyst Mary Meeker, along with some of her cohorts at Morgan Stanley said some very nice things about my newsletter endeavors. "Check out this business model," it said. It went on to say that its think it's very possible that I could soon make $200K a year working about 20 hours per week with my only costs being whatever I've invested in my PC and my time. "We'll take that business model...," the report exclaims. ME TOO! Hey, I don't want to be Bill Gates or even Steve Case, but I'll take a couple of hundred thousand a year on 20 hours a week any day! Of course, I'd like to keep the newsletter free and make that kind of money anyway. But enough about me and back to the Morgan Stanley report. I didn't want you to shell out your hard earned dollars and get to the bit about me (which comes fairly early in the report) and think, "That shill!" I believe in full disclosure, but I'm telling you, even without their nice words about my newsletter, the report is an excellent piece of work. It tells you all about the Internet market. Where it came from, where it is now and where it is all going. The key players, the key products and the key strategies. Meeker's writing style takes the subject of investing on the Internet and makes it a lot of fun. If you've never heard of the Internet, digesting this report will make you an expert. If you already consider yourself an expert, the report can only help refine your expertise. Meeker may be the number 2 PC software analyst in the country, but when it comes to this report, she's definitely the queen. I can't tell you what it costs, or even how to get it. If it's $500 or less, it's certainly worth your while. Call Morgan Stanley's headquarters in NY at (212) 761-4000 and say that you'd like to purchase a copy of their recently published Internet Report and hopefully they can direct you to the right place. Recently, I received a letter from the Motley Fool's Randy Befumo. Randy advised that the Motley Fool had added an "Evening News" service that summarizes the daily trends in the stock market, showcases the heroes and the goats of the day, and includes timely industry perspectives on various industries. With my blessing, Randy set me up to have the evening news directly delivered to my e-mail box. I figured if it sucked, I'd just delete it. It didn't suck. Far from it. Like Meeker, Befumo's writing style makes what is a boring subject to some a pleasurable and fun read. A couple of times, based on Befumo's writings, I found I wanted to pick up the phone and call my broker. The thing is, I don't have a broker and that's sort of the point. It's that good. The Evening News is available off of the main Motley Fool menu on AOL at keyword: FOOL . I'd expect that some day we'll see http://fool.com, but it hasn't happened just yet. But the Fool's (mainly the Gardner brothers, Tom and Randy) don't want to just be the king of Fools on AOL. They're thinking globally. The Fools want to own the world. Someday, they just may. The Gardners are already out on tour hawking their new book. Can a syndicated column in the newspapers and a TV show be far away? You don't have to be on AOL to get the evening news. They'll deliver the darn thing each and every weeknight for a mere dime a day. Fifty cents a week. It's a bargain! If you're on AOL, go to Keyword: FOOLMART to order. Otherwise, contact MFSpeedy@aol.com for detailed ordering instructions. Currently, the Investment Perspective is running a multi-part series called the Digital Word. If you were already a subscriber, you'd know why Befumo thinks that the Internet Service Provider world is a risky business (past issues are available on AOL.) Monday, it's part five with: Online Service Providers---Mostly A Bunch Of Losers . I can't wait! Online Vs. Internet Revisited ============================= So I'd just published yet another piece on why the Internet wasn't going to kill off the online services anytime soon, and what happens? I'll tell you what happens: the Wall Street Journal runs a story saying that America Online and Netscape are talking about forming some sort of alliance. The next thing I know I have 25 e-mail messages basically saying, "eh heh! See, America Online knows they're toast!" Not a chance. *And the Benefactor is: AOL* America Online may be toast, but it's golden browned and lightly buttered - the good kind of toast. Not the charcoaled black stuff that I usually make. I've got news for the Web snobs - it's something they don't want to hear, but even Scott Kurnit, ex Prodigy #2 exec turned, "online is out, open platforms are in" spokesman knows this truth deep down inside. So here it is: while many companies have benefited from both the truth and the media hysteria over the Internet, no single company seems to have benefited as much as America Online. Give credit where credit is due to AOL's marketing team - many Americans think America Online IS the Internet. Scary, huh? But it's true. "(The) web has been terrific for AOL," AOL CEO Steve Case told me during an impromptu online interview. It doesn't take a genius to figure out that AOL has benefited from the growth of the Net, and especially the Web. If you plot AOL's growth over the time that the Web really started to take off (from my view, that was in the Fall of '94), you'll see it has been a rocket. Overall, the online services, especially CompuServe and AOL have benefited from the success of the Internet in general. Many say that if you have an Internet connection, you don't need an online connection. That may be true for some, but I don't believe it's true for the masses. There seems to be this implication that an online service is somehow equal to or less than the Internet. The reality is that an online service is the Internet and more. "Far from being competitive, the growing interest in the Internet fuels even greater demand for the online services," Case told me. The Internet still is a daunting task for many, the online services simplify this and make it seamless. They have editors (call them forum moderators, channel producers, whatever) who have the task of making the overall experience easier and more useful. To a large extent, they succeed. One advantage that the online services have, which will serve them well in the coming months, is years of experience in hearing what their customers want. In that time, they've gotten to know their customers very well, and that knowledge is very valuable. *Let's Look at the Numbers, Please* On August 28, Netcom announced they'd hit the 200,000 subscriber mark. Netcom is considered to be the largest single ISP in terms of number of subscribers. Indeed, their growth has been phenomenal. By the end of 1995, according to a recent press release, they'd added an additional 107,500 accounts to roll in at 307,500. It's true, they grew more than 50% in the last 4 months of the year. It isn't shabby, Netcom grew 107,500 subscribers in 18 weeks or they were adding about 6000 accounts per week. Now let's look at America Online. On September 7, America Online announce they'd just surpassed the 3.5 million subscriber mark. On December 28, a mere 16 weeks later, they announced they'd gone over the 4.5 million subscriber mark. That's about 62,500 subscribers a week folks. In other words, America Online is growing more than 10 times faster then Netcom. TEN TIMES. Forget that the Wall Street Journal is telling you that MILLIONS of subscribers are bypassing AOL and the other online services to get on the Internet. If you read all the reports, factoring out educational and corporate connections, you'd have trouble even finding a million people who are paying for their own stand alone Internet accounts. While it's true that AOL does count trial subscribers in its numbers, they've been doing that all along, so even factoring that in, the relative growth has been amazing. *Look at it This Way* Remember the Microsoft Network? A year ago, the very words caused fear in the hearts of the online services. Then the press wrote MSN off as a non event. MSN got to the 500,000 subscriber mark in 10 weeks. Ten weeks. No big deal, right? Right! Well sort of. When you consider that MSN is only available to Windows 95 users and that it's NOT AVAILABLE to the number one operating system in the world (the DOS/Windows 3.1 combo), I think it's a pretty big deal. But if you say, "That's no big deal," to MSN, then you should be saying it even more emphatically about Netcom, the biggest stand alone ISP. What about CompuServe? They seem to think that AOL has the winning model, so much so, that they've adopted the model for themselves. AOL's edge over CompuServe is its interface. Today, CompuServe is working hard on its own easy to use graphical interface that's been code named: WOW! Somewhere along the road, CompuServe figured out that AOL was winning and has since taken the "if you want to beat them, join them" approach. *Churn This!* In an exploding market, reducing churn shouldn't necessarily be the number one focus. In the early 1980's MCI's customer base was probably turning over 100% within about a years time. The market was growing so fast that MCI still showed subscriber growth and revenue increases even in light of the churn. MCI was able to get through the periods of heavy churn and make money. The ability to make money in this period, allowed them to expand their services to the point where they became a premier carrier. While MCI is still a very distant second to AT&T, their smaller share of the market makes them a HUGE company, with over $13 BILLION in annual revenue. *Conclusion* There are many reasons for the popularity of the online services. While "easy to use" is probably the biggest reason, it's not the only thing that keeps folks there. Some other reasons that many people wrote me to discuss are: - Multiple Screen Names (e-mail addresses) on same acct. Ideal for families. - Managed message forums - Only use for e-mail - Easier to find things than on the Web Today, millions of people aren't bypassing the online services for an ISP. That day may come, but when it does, I'm not sure it will matter. All of the online services are positioning themselves as ISPs, too. And they have the resources and the knowledge to be very, very good at it. Does a Netscape/AOL Deal Make Sense? ==================================== In a word, yes. Given the right deal, it could make sense for both parties. Netscape would gain access to AOL's near 5 million, and that would be a BIG deal for Netscape, and it would strengthen their fight against Microsoft. AOL would gain the leading browser. While AOL has benefited a great deal from the popularity of the Web, purists, myself included don't like their browser. Personally, with some updates (mainly support for HTML 3.0), the Windows version of AOL's browser itself isn't a problem. The bigger problem with AOL's browser is that in spite of its "turbo" claims, unless you hit the system during off-peak hours (the Windows browser truly does fly then) it's pretty slow. There are several reasons this might be the case - one is that all of the web pages are first processed through their own servers on their end (at least if you if you have graphics compression turned on). If you run AOL's own Winsock with Netscape or any other browser, even during peak times, it's much faster than AOL's own browser. (AOL's Mac browser implementation borders on awful, so a Netscape deal there could only help.) If AOL cuts a deal with Netscape and then tries to integrate the browser into the client software as they did with the Booklink browser, the results might be similar. AOL might have to look at a redesign where clicking on a link from within the client software would launch a separate browser application (this is the approach used on most of the other online services.) "Why on earth would Netscape be interested in doing a deal with AOL," one Web snob wrote. It's simple - THEY LIKE MONEY. They may have the number one browser in the marketplace, but they all but give it away. In fairness, the shrink-wrap version is supposed to be selling very well, but we're not yet sure how much revenue it is bringing in. Netscape is probably scared. Their bread and butter was going to be their server software. Give away the browser, and sell their secure server software. It sounded like a good idea at the time, but who knew that a.) Not many people care about shopping online yet and b.) that Microsoft would wind up giving away its own server technology with Windows NT. With over $30 million invested in buying Booklink and integrating the browser into AOL's Windows version, the value of such an affiliation is more questionable for AOL than it is for Netscape. The browser is "the thing" today, but with TCP/IP, it won't necessarily be the thing tomorrow. Still, AOL could leverage the Netscape brand for both the AOL service and the separately branded GNN Internet service. Microsoft's Internet Explorer is rapidly challenging the Netscape Navigator. Once Java is in the Microsoft browser, there really isn't a lot to separate the two browsers. Putting Netscape's browser in the hands of almost 5 million AOL subscribers would better position Netscape and AOL in their respective battles versus Microsoft. It will be indeed be interesting to see Netscape's numbers when they come out (supposed to be the 1/31, I think.) It's just a guess, but I think Netscape needs AOL a lot more than AOL needs Netscape. If true, that would put AOL in a position of power, and that would "entitle" them to more favorable terms. With AOL stock up $7.00 over the previous week, and Netscape stock up over $12.00, I may be crying in my stock quotes (since I don't own any) if such a deal comes to pass. Microsoft Gets Aggressive ========================= Don't believe all of the hoopla that Microsoft is moving MSN away from its own proprietary model towards the Web. While they have big Web plans, they're not throwing the towel in on MSN by any means. If nothing else, as more and more migrate towards MSN, MSN has the opportunity to become a premier Internet Service Provider. While such a model wouldn't rely on the proprietary MSN service, having it around can't hurt. A new version of MSN was recently released, and I wrote that it offered the option of connecting to MSN via another Internet provider. I've connected to MSN, Interchange, CompuServe and AOL in this fashion. There's one huge difference between MSN's model vs. the others. With the others, if you connect in this fashion, there's no difference in pricing than if you connect in any other way. In other words, you pay your monthly subscription fee and you also pay for the time you use. With MSN, all you pay is the monthly subscription. If they continue to grow MSN, improve the client (small things like "instant messages" make a big deal) add more content, and features like Bookshelf and Encarta, plus whatever happens once Blackbird is implemented in MSN, this could steal the volume users away from the other services. For heavier users, a flat-fee subscription to an ISP, plus a $10/month or so connection for "all-you-can-eat" MSN, might make for the best of both worlds. MSN also extended their charter offer, and additionally is offering unlimited access during the first month. AOL has a similar strategy with its GNN service, but GNN doesn't sit on the desktop like MSN. Newsworthy Notes ================ THE WASHINGTON POST'S Digital Ink reported that authorities "seized" e-mail from AOL as part of a murder investigation. The victim allegedly met his killer in an AOL chat room. A search warrant was issued, and AOL complied with the request. I've seen a lot of brouhaha on this regarding seizing "private" records, but personally don't see how this is any different than other "private" records which are routinely seized as part of an investigation (phone records, charge card records, postal mail, etc.) -- GE's Genie was sold to the privately held privately held Yovelle Renaissance. Yovelle Renaissance was formed strictly for the acquisition of Genie. No financial details were reported. It's been reported that Yovelle is linked to New Jersey based IDT, a provider of Internet access. It's also reported that the service will be recreated as a Web base service. Genie's customer base had reportedly shrunk to around 50,000. -- Industry.Net, <http://www.industry.net>, which serves thousands of manufacturers, suppliers, distributors, etc., named former Lotus CEO, Jim Manzi as chairman. -- MICROSOFT has made available "pre-release" versions of its Internet Explorer for the Windows 3.1 and Mac environments at: < http://www.microsoft.com > -- NEW YORK TIMES launched an impressive Web version of their paper at < http://www.nytimes.com > . The site will be free to subscribers inside the US, but there will be a fee for International subscribers (though they will be offered 30 days free). Additional fee based services will soon be available including a searchable database of New York Times stories and a clipping service. -- GERMAN BASED T-ONLINE, a service of Deutsche Telekom, and the leading Internet access provider in Germany has blocked access to a neo-Nazi anti-Semitic Web site based on an ongoing investigation by German officials. According to a report in the San Jose Mercury News, T-Online blocked access to Santa Cruz, California based Web Communications. Web Communications doesn't condone the site, but believes in the free flow of information. In order to block access to the anti-Semitic pages, T-Online blocked access to the entire Web Communications domain. -- LINDA ELLERBEE has signed to do a monthly Internet show for Microsoft called "Encarta on the Record". The show, which will be "broadcast" from the @Cafe in New York city debuts at 9:30 PM ET on February 21 at < http://microsoft.com/Encarta > . And so it goes -- PRODIGY NAMED William Lansing executive vice president and chief operating officer. Lansing was formerly a partner at consulting firm McKinsey & Co, where he focused on their interactive media practice. Lansing will oversee the day to day operation of the company. -- INTERSTELLAR, a San Francisco based consulting firm has launched "CyberAtlas", which has a wealth of various information on doing business on the Internet, complete to links to the various market research studies and other information. The site, maintained by Michael Tchong is definitely a good starting place to look for information. They link to my newsletter, and I don't know of Tchong was taking a shot at me or not by calling my effort "formidable and free". Webster's first definition of formidable is: "causing fear, dread, or apprehension". I choose to believe he was using Webster's third meaning, " tending to inspire awe or wonder," but even if he wasn't, it's worth a look at: < http://www.cyberatlas.com >. -- Due to my formidable writing style (take that anyway you want to), my piece on CompuServe's Internet strategy is being pushed (hopefully to next week.) Stock Watch =========== This $ 52 52 Week's Change Week Week Company Name Ticker Close 1 Week High Low @Net Index IIX $225.08 $5.69 $259.85 $185.76 America Online AMER $42.00 $7.00 $46.25 $13.19 Apple AAPL $30.63 $0.75 $50.94 $29.25 AT&T T $64.75 ($0.63) $68.88 $47.88 BBN Corporation BBN $31.50 $2.62 $48.75 $15.63 CMG Information Svcs. CMGI $60.50 $3.87 $100.50 $11.00 FTP Software FTPS $12.56 $2.18 $40.63 $10.38 General Elec. GE $75.50 $1.25 $75.50 $50.25 H&R Block HRB $36.13 $1.25 $48.88 $31.50 IBM IBM $104.75 $2.75 $114.63 $70.25 MCI MCIC $27.50 ($0.38) $28.38 $17.50 Mecklermedia Corp. MECK $13.25 $1.09 $24.38 $2.63 Microsoft MSFT $90.50 ($1.38) $109.25 $58.00 Netcom NETC $37.00 $4.50 $91.50 $19.00 NetManage NETM $13.06 $1.18 $34.00 $10.00 Netscape Comm. Corp NSCP $157.00 $12.37 $174.00 $45.75 News Corp. NWS $21.50 $0.00 $25.13 $15.38 Oracle Corp. ORCL $47.38 $1.88 $49.50 $27.75 PSINet Inc. PSIX $15.00 ($0.13) $29.00 $12.00 Sears S $39.88 ($0.12) $43.63 $21.75 Spyglass Inc. SPYG $40.25 $5.50 $61.00 $13.25 Sun Microsystems SUNW $42.25 ($4.75) $51.75 $14.94 UUNET Technologies UUNT $46.75 ($2.50) $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. Subscription Information ======================== To subscribe to this newsletter by e-mail: Send an e-mail message to: LISTSERV@PEACH.EASE.LSOFT.COM In the BODY of the message type: SUBSCRIBE ONLINE-L FIRSTNAME LASTNAME Example: Subscribe Online-L Robert Seidman If you wish to remove yourself from this mailing list, send a message to: LISTSERV@PEACH.EASE.LSOFT.COM and in the body of the message type: SIGNOFF ONLINE-L . A Web version of the newsletter is available at: <http://www.clark.net/pub/robert>.