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============================================================================== Seidman's Online Insider ============================================================================= Weekly Summary of Major Online Services and Internet Events ----------------------------------------------------------------------------- Vol. 3 No. 5 February 4, 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 -About Face!? MCI Teams with Microsoft -More on AOL and Netscape -CompuServe and Prodigy Look to the Net -Newsworthy Notes -Stock Watch -Disclaimer -Subscription Info Notes from the Editor ===================== Last week I plugged the Morgan Stanley Internet Report. Some of you called the number listed and based on the e-mail I received, were told a variety of different things. Some were told the report would cost $10 per PAGE! Not so, according to my contacts at Morgan Stanley. While Morgan Stanley traditionally charged $10 per page for research reports, the Internet Report is being sold for $50. It is a bargain at that price, however, the report is actually going to be commercially published and should be available in bookstores sometime in April. While pricing hasn't been determined, it could well be that once it is in the bookstores, it will be significantly cheaper than $50. For those of you who can't wait, send your checks for $50 U.S. and a note requesting the Internet Report to: Morgan Stanley Attn.: Joel Wirchin 1585 Broadway 14th Floor New York, New York 10036 Last week, in a piece on the Motley Fool's Evening News service, I referred to the founding Fools, the Gardners. However, the Garners are Tom and David, not Tom and Randy. Randy Befumo is the Fool who writes the Evening news. My apologies to David Gardner. About Face!? MCI Teams with Microsoft ====================================== Microsoft and MCI announced a joint alliance to develop and market a variety of Internet, Online and network services. Phase one of the plan has MCI marketing a customized version of Microsoft's Microsoft Network which will run on the MCI network. MCI, who had previously licensed Netscape's browser and server software, has chosen Microsoft's Internet Explorer browser as its preferred browser (though it is a non-exclusive deal.) MCI will also package Microsoft's server software and Exchange (e-mail) server as part of its Internet offerings. Microsoft will market a variety of MCI services to users of the Windows operating system. "With this new strategic alliance, both companies will work closely together to deliver and market integrated computer and communication services to the homes and workplaces of our customers," said Bert Roberts, MCI chairman and CEO in a press release. "We believe that Microsoft's Internet strategy and its commitment to create platforms based on open standards are the perfect complement to MCI's global communications solutions." Alliances like this happen quite often, and it is not always clear what exactly they mean or whether they will pan out over time. *What about MCI's Joint Venture with News Corp* MCI said that the alliance with Microsoft will cause them to transfer the assets of an existing venture with News Corporation to a new venture that would control its own products and services. MCI will be part of that venture, but will only hold a non-controlling minority stake. The new venture is expected to be announced soon. What exactly this means for the service of the existing joint venture, which is already in beta, remains unclear, but it probably doesn't mean much. Rumors abound that the primary executives in the existing joint venture, Scott Kurnit and Anthea Disney aren't speaking to each other. For a wonderfully worded discourse on this topic, check out "Ned Brainard's" Flux column on the HotWired site at: < http://www.hotwired.com/flux/96/05/index1a.html >. Several insiders say Disney is probably leaving cyberspace to head back to the print publishing world. MCI potentially will invest up to $2 billion in News Corporation, but the existing Internet/Online, only represented a relatively small investment. $200 million was contributed to the existing venture by each company. *What's in it for Microsoft?* The support of MCI in adopting Microsoft's Internet browser may squelch some of the static that continues to plague Microsoft about lacking any clear Internet strategy. This notion has always sort of baffled me, because it isn't clear to me that Microsoft has any less Internet strategy than anyone else at this point. While it's true Bill Gates admitted that he hadn't realized the Internet would take off so quickly, Microsoft has made a lot of strides in catching up. As an IBM employee, it pains me to admit that MSN's home page on the Web is my starting page on the Web. I like that personalization thing. MCI gets a turnkey solution to market, plus they'll likely get their promotional material stuffed in the box of Microsoft software products. Microsoft gets buy in on their browser and has MCI marketing the customized MSN from MCI. More importantly though, may be that Microsoft gets MCI's marketing muscle in the Enterprise market. While Microsoft has done an outstanding job marketing to consumers, they've traditionally been weaker in the enterprise market. "Microsoft doesn't have the kind of sales structure an IBM or a DEC has in the enterprise market. MCI is very well positioned in that market," said Morgan Stanley PC Software analyst, Mary Meeker, indicating that this alliance might beef up Microsoft's might in the enterprise market and boost sales of Windows NT, which is already selling well. *Stuck in the Middle With You?* News of the MCI/Microsoft alliance led to quick speculation that MCI would pull away from its deal with News Corp. MCI recently won a bid for a direct broadcast satellite, and planned to team with News Corp to offer a new service where News Corp would pump its content, including a planned 24 hour news station, through the service. Microsoft, on the other hand, has partnered with NBC for an all news cable station which will be dubbed MSNBC. MCI's Roberts tried to quash such speculation, indicating that the potential overlap between the ventures has turned the News Corp/MCI venture in a new direction. Roberts did not give any details. But the television world sometimes seems even stranger than the online world and Roberts may soon find himself thinking, "clowns to the left of me, jokers to the right" For example, MSNBC will use the channel currently used by NBC's America's Talking cable channel. Roger Ailes, who ran CNBC and America's Talking, reportedly quit his position heading up the two channels because he was disgruntled that MSNBC was wiping out the fledgling America's Talking channel, which was Aile's baby. So what happens? Rupert Murdoch, hires Ailes to run News Corp.'s all news channel. Well I've been trying to make some sense of it all, but I can see it makes no sense at all Stay tuned. More on AOL and Netscape ======================== It was one of those weeks. Netscape announces their results. AOL announces a new President. AOL announces that they've bought Johnson-Grace, and an AOL shareholder says that AOL and Netscape are deep in talks which could yield a merger. Yeesh. *Netscape's Quarterly Report* First, let's look at Netscape's results for the quarter ending 12/31/95. Netscape chimed in with revenues of $40.6 million and net income of $2.4 million, with earnings per share of $.06. The $40.6 million in revenues represented an 85% increase versus the previous quarter. Excluding charges associated with the acquisition of Collabra, Netscape's net income would've been $4.4 million and earnings per share would have been $.10 . While Netscape reported a net loss of $3.4 million and a net loss of $.09 per share for the year, the trend is clearly in the right direction, but not so stunning when you consider the market value of Netscape stock, even after dropping down to $149 after profit taking is a whopping $5.6 BILLION. *AOL and Netscape to Merge?* In short, based on talking to a lot of people, I don't think an AOL and Netscape merger will happen. More on that later. Thomas Middlehoff, who's on the board of Bertelsmann, a media conglomerate that has a stake in AOL (and is AOL's partner for the AOL service in Germany), indicated talks between AOL and Netscape were far along and could result in a merger. According to a story by Reuters, Middlehoff said "that the aim of the talks was to strengthen Netscape and AOL and marginalize Microsoft Corp. in the race for control of Internet standards." (Note: the quote is from the Reuters story, and not a direct quote from Middlehoff.) "A decision will be made within four weeks," Middlehoff said in the Reuters story. *Hello, Federal!* AOL announced that Federal Express VP, William J. Razzouk, 48, had been hired as the new president and chief operating officer. Razzouk will also have a seat on the board of directors. Razzouk will be responsible for the day-to-day operations of marketing, technology, network operations, international operations, customer support, human resources, content development and programming, budgeting and planning. Chairman and CEO Steve Case will retain responsibility for communications, business development, legal finance, and other corporate functions. This move gives AOL a seasoned executive with experience in a company that probably grew even faster than America Online. It will also free up Steve Case from the pressures of handling explosive growth and allow him to spend more time on strategy. "It's been something that the company has needed," said analyst Lou Kerner of Merrill Lynch in a story by Reuters. Some have speculated that there is also a Netscape tie-in with this announcement. Netscape's chief executive, Jim Barksdale was also hired away from Federal Express. *AOL Buys Johnson-Grace* America Online bought Johnson-Grace, a company that designed the software for graphics compression used on AOL. America Online already had a 10% stake in Johnson-Grace and now owns them outright in an all stock deal valued at approximately 72.8 million dollars. Steve Case has long understood that despite all the talk of cable modems and ISDN lines, we're still in a world where a lot of people are using 9.6 and 14.4 modems. The compression offered by Johnson-Grace yields smaller files than traditional GIF or JPEG file formats, which allows them to transfer faster. Johnson-Grace has also developed audio and slide show compression software. Johnson-Grace had hoped to leverage its ART compression format for graphics as a standard on the World Wide Web. The problem Johnson-Grace faced was that the existing standards for GIF and JPEG were all but free. Johnson-Grace licensed the ART compression technology, and as of last spring, still didn't have a solid pricing structure. Netscape had pretty much demonstrated that if you want to make something a standard quickly, you give it away. Johnson-Grace's ART format is faster than GIF or JPEG, and in most cases, the tradeoff of quality for speed is well worth it. They've been hard at work improving the technology. An industry insider, familiar with the talks between AOL and Netscape said that access to the Johnson-Grace technologies was a key consideration for any Netscape deal. It might boil down to the old "he who owns the standards" makes the money theory. *What about a Merger?* Last week, I wrote about why I thought a Netscape/AOL alliance made sense. But I was talking about an alliance, not a merger. A merger though, in theory, sounds really good for both companies. But some analysts say that while the deal may make sense, it might be hard to work out once you start crunching the numbers. The problem is Netscape and their 5.6 billion dollar market valuation. It doesn't matter that the financials don't justify that amount. Netscape is viewed as one of a few pure Internet plays, and of those, Netscape is clearly the best positioned. Still, Netscape's stock seems out of whack. Here's something that might give you some perspective: MCI's stock is currently trading at around $28, giving it a market value of roughly $19 billion, or a little more than *three* times the valuation on Netscape. In the 4th quarter of 1995, MCI generated over $4.1 billion in revenue and more than $280 million in net income. So, while the market price on MCI stock is only roughly yhree times Netscape's, MCI's revenue and income are more than *ONE HUNDRED* times Netscape's. Even as AOL approaches $1 billion in annual revenue, its market price is roughly $3.6 billion -- $2 billion LESS than Netscape. Investors are betting that in the end, the revenue and income will be there for Netscape. For now, it would seem that a lofty price would make a merger, especially with AOL, unlikely. It isn't difficult, however, to envision AOL licensing Netscape's browser. Meanwhile, I've received several rumors that something is in the works between AOL and Disney. Prodigy and CompuServe Look to the Net ====================================== PRODIGY AND COMPUSERVE both are embracing the Internet. Prodigy announced plans for market trials in New York city for an Internet only access service aimed at new users and users wanting "full" access to the Net. During the trial, expected to begin in March, the service will be billed at $1/hour with no minimum fee. Nationwide roll-out plans will be announced at a later date. The software will include the Netscape 2.0 browser. At a press release on Tuesday, CompuServe will announce its Internet only service which was previously code named: SPRYTE (a play on the Spry name, CompuServe acquired Spry last year for $100 million.) The new name, pricing and availability will be announced on Tuesday. In January, I spoke with Tim Oren, a CompuServe VP who heads up CompuServe's Internet division. Oren said that the service would be offered world wide and priced at $4.95 a month for 3 hours of usage, with additional hours at $1.95 and also offer $9.95 for 7 hours and $19.95 for 20 hour options. Both options are $1.95/hour for additional hours. The service will come with software tools (web browser, e-mail, newsreader, etc.) and will offer web page hosting. Though CompuServe has now licensed Microsoft's Internet explorer, at the time I spoke with Oren, it looked as if the service would launch with the Spry Mosaic browser, though Oren was quick to point out that any browser would work with the service. Oren said the service's home page would include a "launching pad" to get users acclimated to browsing the Net. The home page would help show users, "where to go and what to do," said Oren, indicating they'd pick up on some of the notions of the organizational layout of the CompuServe Information Service. "We have another business to business service," Oren told me, "Web hosting." Oren said that CompuServe was already working with a large number of Enterprises on Web hosting (he mentioned the Baywatch site at < http://baywatch.compuserve.com/ >. Oren also spoke of the CompuServe "Connect" program which allows enterprises and other organizations to private label their own Internet service. Spry founder David Pool, now a CompuServe executive VP, first told me about the connect program last fall. I liked the program then, and I like it now. An easy and seamless way to start your own private labeled service. Prodigy likes this idea too, and announced they were getting into the Web hosting business and would also offer a partner program to private label Internet based services. We haven't heard much from America Online, who almost a year ago launched a separate venture, WebSoft Inc., and appointed former Dow Jones executive, William Dunn president of the venture. In the hosting and private labeled service arena, CompuServe is perhaps the best positioned of the online services to compete. Through its Network division, CompuServe already has a sales and support infrastructure in place. Competing with MCI, AT&T, Sprint, etc. for network services is nothing new to CompuServe. Newsworthy Notes ================ TELECOM REFORM was passed by the US Congress opening up a myriad of possibilities. "It's like the Berlin Wall of communications coming down," said FCC chairman Reed Hundt regarding the legislation President Clinton is expected to sign. "This bill unleashes a digital free-for-all. Life will never be the same," said Rep. Ed Markey (D-Mass) about the legislation. Unfortunately, the legislation contains the provisions regarding electronic transmission of "indecent" material to minors, making it a federal crime with stiff penalties. While I am in favor of protecting children, I'm not in favor of this approach. It is widely anticipated that if Clinton signs the legislation, the electronic transmission of "indecent" material provision will be heavily tested in court. As for me, I'll give the electronic finger to the indecency passage and take the Dave Barry route and only say, "Duck Shoe!" Meanwhile, China and France have joined Germany in efforts to regulate the Internet. Much to my dismay, we'll be reading more about this. -- MASTERCARD AND VISA have agreed on a standard for secure electronic purchases on the Internet. They expect the software to be available in the 4th quarter of '96. The joint standard, called Secure Electronic Transaction or SET will be made available this month for comment, with testing expected to begin in the 2nd quarter. The "reunion" of Visa and Mastercard (previously, they'd been working on separate standards) for a single standard, should help reduce fears of secure electronic transactions via the Net. -- MICROSOFT AND BLACK Entertainment Television (BET) have formed a partnership to market online, interactive TV and CD-ROM programming to African Americans. The initial emphasis will be developing content on the Microsoft Network (a "Black History Month" area is already available on MSN.) The yet to be named company will be a 50-50 partnership and will be run from BET's Washington, DC headquarters. The new company will also compete against NetNoir, an online service aimed at African Americans on America Online. NetNoir is also one of AOL's "Greenhouse" projects. -- AOL INTERNATIONAL Announced the launch of a new Canadian service (with no surcharges!). Currently, the content is all in English but insiders expect that French language services to be available with the launch of a version of AOL for France. AOL has already launched its UK and German versions. To get to the new Canadian content, existing AOL members can use Keyword: CANADA. The UK version of the service can also be accessed by existing members by going to keyword: UK and then selecting "Go to the UK". -- THE MANNHEIM STEAMROLLER (aka Mannheim prosecutors in Germany)is at it again. Last week I reported that the German based T-1 Internet service had blocked access to Santa Cruz based Web Communications under pressure from authorities because of anti-Semitic Web pages put up by German-born activist, Ernst Zuendel. Ironically, Zuendel lives in Canada. Now the Mannheim officials are now targeting America Online and CompuServe. AOL chief Steve Case said in a statement this "this could be one of the most important developments affecting our industry." Case said AOL would pursue the options with the German officials. Web Communications doesn't support the content posted, but has said they're just the "pipe" and that they don't want to be viewed as a publisher. -- In the YOU KNEW IT WOULD HAPPEN DEPT: A New Jersey man is suing his wife for divorce, according to an AP story. The charge: she carried on a virtual affair on America Online with a man she'd never met. The divorce filing included copies of e-mail messages between the wife, and her alleged online lover, (identified by AP as "The Weasel".) Stock Watch =========== $ % 52 52 Week's Change Week Week Company Name Ticker Close 1 Week High Low @Net Index IIX $233.08 3.55% $259.85 $185.76 America Online AMER $44.50 5.95% $47.91 $14.19 Apple AAPL $29.25 -4.51% $50.94 $26.84 AT&T T $64.75 0.00% $68.88 $47.88 BBN Corporation BBN $29.75 -5.56% $48.75 $15.63 CMG Information Svcs. CMGI $62.88 3.93% $100.50 $11.00 FTP Software FTPS $11.50 -8.44% $40.63 $10.38 General Elec. GE $77.13 2.16% $77.13 $51.50 H&R Block HRB $36.50 1.02% $48.88 $31.50 IBM IBM $109.63 4.66% $114.63 $73.75 MCI MCIC $28.00 1.82% $30.13 $19.09 Mecklermedia Corp. MECK $13.25 0.00% $24.38 $2.88 Microsoft MSFT $93.00 2.76% $109.25 $58.00 Netcom NETC $29.38 -20.59% $91.50 $19.00 NetManage NETM $12.88 -1.38% $34.00 $10.00 Netscape Comm. Corp NSCP $149.00 -5.10% $174.00 $45.75 News Corp. NWS $21.00 -2.33% $25.13 $16.00 Oracle Corp. ORCL $49.25 3.95% $49.50 $28.00 PSINet Inc. PSIX $14.50 -3.33% $29.00 $12.00 Sears S $41.38 3.76% $43.63 $22.47 Spyglass Inc. SPYG $36.75 -8.70% $61.00 $13.25 Sun Microsystems SUNW $47.38 12.14% $51.75 $14.94 UUNET Technologies UUNT $37.50 -19.79% $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>.