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============================================================================== Seidman's Online Insider ============================================================================= Weekly Summary of Major Online Services and Internet Events ----------------------------------------------------------------------------- Vol. 3 No. 6 February 9, 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 -Corrections -AOL Hits 5 Million Mark, Earnings Rise 3-Fold -CompuServe Launches SPRYNET -More MCI News Corp.? -Stock Watch -Disclaimer -Subscription Info Notes from the Editor ===================== Really, I'm not just trying to prove that I can complete this newsletter by Friday, though it's interesting to learn that yes, it can be done. Unfortunately, it has come at the expense of waking up at 4 a.m. and since I don't like waking up at 4 a.m., you shouldn't expect to see the newsletter on a Friday again anytime soon! I don't like the cold either though, in fact, when you get right down to it, I'm pretty much a wuss about the cold. So, I'm heading to a warmer climate and my first real vacation in many years. I'll be gone for a week and I'm not taking my ThinkPad! c|net chief Halsey Minor suggests I'll go through withdrawal systems. He's probably right, but I'm hopeful that it's nothing a sunburn and a bottle of rum can't kill. Next week there will be a newsletter, but unless AOL and Netscape actually do merge while I'm away, it will mostly be a compilation of stuff that other people have written. You can also read my c|net column at < http://www.cnet.com/Content/Voices/index.html > Things will get back to normal the following week (week ending 2/23) when you'll probably find me coming into your e-mail box late on Sunday night. Note to Steve Case and Jim Barksdale: please, please, please don't announce a merger, alliance or any other sort of deal before 2/20! Corrections =========== Speaking of Jim Barksdale, last week in reporting that AOL had hired Federal Express Exec William Razzouk, I said that Barksdale had left Federal Express to join Netscape. WRONG! While Barksdale did work at Federal Express, several of you reminded me that Barksdale was in fact the CEO of McCaw, and then of AT&T Wireless Services after the companies merged. Barksdale headed to Netscape direct from AT&T. While not exactly a correction, I left out a significant piece of data with regard to the MCI/Microsoft announcement and how it affected the MCI/News Corp. deal. I neglected to mention that Oracle was reportedly stepping in to fill the void left by MCI, who significantly reduced its stake in the online venture. More on this below. AOL Hits 5 Million Mark, Earnings Rise 3-Fold ============================================= America Online announced that revenues for the quarter ending December 31, jumped to roughly $249 million, tripling the results for the same period one year previous. Net income was $10.6 million or $.10/share vs. an almost $39 million loss for the same period last year (when they took a $43 million charge for acquired research and development.) From Oct 1.-Dec. 31, approximately 877,000 members were added, making it a record quarter. AOL also announced that they'd reached the 5 million subscriber mark, which all but seals another record for the Jan-Mar period. On December 28, they announced they'd reached the 4.5 million mark. Forty days later, they'd added another 500,000 and they aren't even halfway through the quarter yet. Looks like AOL got the Merry Christmas rush they'd hoped for. Some interesting statistics were reported in their press release announcing the financial results: -Total hourly use for the quarter was over 77 million hours -Over 28 million Web "hits" per day processed -Web accounts for 11% of total usage -Over 4 million pieces of e-mail delivered daily (half is Internet mail) -Access is migrating to AOL's own network, AOLNet, with 40% of total usage coming in via AOLNet "Having gained new members at the rate of 10,000 a day, on average, over the last quarter, America Online is now firmly at a billion dollar run-rate," said AOL chairman and CEO, Steve Case in the press release. He added, "Entering 1996, we're more enthusiastic than ever about our market position and the momentum in our business." CompuServe Launches SPRYNET =========================== As reported last week, CompuServe this week officially launched the service formerly code named SPRYTE this week. SPRYNET, an Internet only solution launched, as predicted with pricing of $4.95/3 hours or $9.95 for 7 hours. The real kicker however, is that they wiped out the $19.95 for 20 hour plan and replaced it with a $19.95 UNLIMITTED USAGE plan. That made me say, "Wow!", and I'm not talking about the service for newbies and non-technophiles that CompuServe said it planned to launch next month that goes by the code name "Wow". I listened to the conference call announcing SPRYNET and it went a long way, so far as I'm concerned, in justifying that some members of the press are still clueless. One person asked if this signaled the big shift that equals the death of CompuServe. We'll forgive the guy and cut him slack because he probably allows his mind to be totally shaped by whatever the papers are saying. Nobody asked what I thought was the interesting question, which I'll get to in a minute. Why didn't I ask? Honestly, after hearing the questions that had been asked, I figured why am I going to give an idea to someone who is PAID to think? I wasn't in a very giving mood. Does SPRYNET signal the death of CompuServe? No! Does SPRYNET signal the death of AOL or any other online service? No! Does SPRYNET signal bad news for Netcom and the local ISPs? Well, let's be gracious and suppose that there are 2 million subscribers of local ISPs (I haven't been able to find enough data to even come up with a million, but what the heck). My current provider charges $30/mo. for unlimited access. My plan at ClarkNet, when I was a SLIP/PPP customer of that service, was $33/for 6 hours of SLIP/PPP a day (they recently bumped it to 12). Netcom offers unlimited shell access for less than $20 a month, but when you get into SLIP/PPP it's more. If you're looking for flat-fee access, the CompuServe plan sounds really good. With the SPRYNET unlimited plan for less than $20 a month, CompuServe is waving a tantalizing nugget under the noses of a lot of users of stand alone IP access services. Twenty-four hour customer support. Nationwide access. Worldwide access! If I'm in the ISP biz, I'd be a little antsy. That goes for Netcruiser and AOL's GNN, too. The good news for people who like to use a lot of service, this move by CompuServe will probably drive down the price of other services. The move also puts an exclamation point on something that's been coming for quite some time. Access is now a commodity. Through its existing partner deals and sign-ups for Internet access that have resulted from the sales of SPRY's "Internet-In-A-Box" kits, CompuServe already boasts 100,000 subscribers on their SPRYNET network, even before it was officially launched. Will there be a mass exodus from the stand alone IPs like Netcom, ClarkNet, Concentric, etc.? Where service is more expensive, I suspect yes, people will switch. Especially those who are spending many hours a month on the Net. How many people that represents is unknown. If CompuServe is good about reporting subscriber numbers, several months down the road we may get our first glimpse into how people want to access the Internet. If, after time, they report numbers based on the $4.95, $9.95 and $19.95 plans, we'll be able to see where the growth is coming from. After the initial ramp up of Internet "gluttons", I predict that most of the growth will be in the $4.95 and $9.95 plans. I think CompuServe is probably counting on it to work out that way. The pricing plans will earn CompuServe some good will, which is good for them. The truth is CompuServe has the better infrastructure to support a high growth Internet access service. Better than Netcom. Better than the local ISP. At the end of the day, when all is said and done, the CompuServe Information Service is still CompuServe's bread and butter. With SPRYNET, CompuServe has positioned itself as a premier stand alone ISP. Today, like it or not, the ISP biz isn't as big as the online service business, but it is still a growth market, and one CompuServe should do very well in (really, with 100,000 already, they are doing very well). If and when the ISP business gets bigger than the commercial online service business, CompuServe is well positioned to be a major player. "The essence of the announcement is that we own the network......paid for.....that's the magic and that's why we can!," exclaimed CompuServe executive VP and former head of SPRY, Dave Pool. We also know how to manage, service and support a ton of IP accounts....pushing 2 million. (CIS 2.0 is based on IP and winsock)," Pool added. As an aside, CompuServe said that until a solution with the German prosecutors could be worked out, they'd also be blocking the 200+ newsgroups the German officials have problems with on SPRYNET. MCI/News Corp. Venture ==================== As it turns out, my failure to mention Oracle's involvement in the venture previously known as "MCI/News Corp.", last week hasn't turned out to be a big deal. It had been rumored that Oracle would announce its participation in the venture shortly after the MCI/Microsoft announcement regarding MSN last week, but as of yet, there's been no announcement. Insiders at News Corp. have indicated the deal would still be done. The venture also laid off about 200 people, or 40% of its staff, mostly in the technical areas as well as customer support personnel, which is unfortunate, but not surprising at this point. Several people have asked me what would be in it for Oracle because they don't seem like they fill the role of an "access" company. I think that's probably right, but Oracle sees itself as an Internet company. News Corp. has content, and Oracle wants to pump content through its databases and video servers. If you look at the @home model, where they basically plan to "cache" a vast part of the Internet so that the high speed cable access will actually mean something, there's possibly a market for Oracle in conjunction with News Corp. to package up a parallel or cached high speed Internet solution and then sell it to the access providers. In a recurring subscription model a la cable or America Online, there's potentially an attractive revenue stream to share. But we're at least a few years away from seeing a payback on anything like that. Truth is, in the best of business models, the venture was a couple of years away from seeing a payback. Would Oracle be willing to wait? MCI wasn't, and that's not all that surprising. With deregulation there are a whole lot of possibilities for a company like MCI. Stock price has always been important in the MCI world, but it's especially important now. There are a lot of lingering questions regarding MCI's involvement in the venture. They've reduced their stake in it, but what's their role? Clearly, it isn't access, as they'll be selling access to their own customized MSN. I'd thought that access might be a part of the play, but the venture, which appears to finally have a name, (I-Guide) is launching its content service next week as a "free" advertising supported Web site. Plans for a complete service, bundled with access and software, appear to be on hold. "In this case because we're in the Web environment we can quickly shift our strategy based on market conditions and unplug the content from the platform," said Scott Kurnit in a telephone interview. "An advertising supported service won't pay out in the short run," said Kurnit, but it will put the venture in a position "that brings flexibility to migrate to an aggregated content or content/access subscription model." Still, MCI's role in the venture must be a factor for Oracle or any other company looking at buying into the venture. It would seem MCI really wanted the deal with Microsoft, because it caused them to reduce their stake in the venture. On the other hand, I don't see how MCI can have it both ways. I mean, you can't make Mr. Gates happy by competing with his service, and MCI still owns a piece of the venture. So why didn't they just pull out? I'd asked myself that question, because I couldn't figure it out. Then it dawned on me that much of what MCI had contributed to the venture wasn't cash. They contributed other assets, like the company I used to work for, FYI Online. Like web hosting. Like MCI Mail. You can't just yank that stuff back out. But, I'm guessing they want to do just that. Ain't it fun? It looks to me like MCI wants no part of the deal, and if that's the case, I'm guessing that whoever buys in doesn't get the Holy Grail of MCI - their sales force. To me, that's a big deal and without the sales force and the marketing muscle of MCI, it spells problems for the venture. That's why I think the venture yanked the content piece out and put the access and software pieces on hold. No distribution channel or support. I've taken a sneak peek at the content scheduled to debut next week, and the folks have done a very, very nice job. It's a nice Web design, and I'd really like to see them have the chance to see the vision through. It takes time though, and months ago I wrote that if MCI had patience, it might pay off. In the end, they didn't have the patience, and I can't help wonder if that's the final nail in the coffin for the venture and what was once Delphi. You can read this week's Flux from the poison pen of "Ned Brainard" and see Scott in Anthea Disney in a friendly pose at http://www.hotwired.com . Too many people were laid off for me to make jokes about this, and in the end, whether Kurnit and Disney got along or not, that seems to have had no bearing on how things have gone. As for Kurnit, the New York Times reported that he was rumored to be resigning. I didn't press the point with him, but I don't think that's exactly how it will happen. It must be an uncomfortable position for him. He heads the venture, and his parent have seemingly all but pulled the plug. If Oracle, or anyone else comes in, they will likely insert their own person and Kurnit gets a well deserved vacation. Like Arnold, he'll be back. I've been listening to what he has to say for a long time. If you listen to him, you'll hear how the Web is the way and that the proprietary services are a dead model. If you listen between-the-lines, you'll hear a modified version of that vision. A best of both worlds vision. You'll hear that Kurnit wants to develop easy to use, functional services on the Web. Like easy to use chat. Like easy to use bulletin boards. Like AOL, but on the Web. Bye-Bye, Blackbird ================== It would have been much better if Microsoft had codenamed their development tool, originally planned for the Microsoft Network, and now aimed at the Web, Blacksheep instead of Blackbird. Then I could've said Bah-Bah Blacksheep, have you any wool (to pull over our eyes?), to which Microsoft could've replied, "Yes sir, yes sir..." This week, Microsoft announced that they were abandoning their previous Blackbird strategy - they were supposed to have released a version this quarter - and waiting to release the product, now dubbed the Internet Studio, until it strictly adhered to the open standards of the Internet. Now, I know that some of you are thinking "You see, you see, they really are totally pulling the rug out from under the existing proprietary MSN and headed to the Web. YOU WERE WRONG, ROBERT!" I'd have to admit, it sure looks that way. This surprises me somewhat and it shouldn't, but I think it really means two things: 1.) The product wasn't going to be ready this quarter anyway. 2.) Microsoft is concerned about their stock price too, and they've suffered at least to a degree over a perceived lack of an Internet strategy. I don't necessarily agree with that perception, but you know what they say. Is the proprietary MSN model dead or does it have another life? I sent MSN chief Russ Siegelman this question via e-mail, but as of this writing I have not received a response. It's beginning to smell pretty dead to me. Can Microsoft compete with AOL as a stand alone access provider only? It's possible, but it looks like it will take some time. I estimate MSN now has somewhere between 750K to a million subscribers and if they repackage MSN as an Internet only connection, I don't see them competing with AOL anytime soon. I like the MSN home page, and even if they move everything available on MSN to the Web, I don't see it having the added value of a CompuServe or AOL. Meanwhile, Netscape didn't miss a beat. They immediately went after the developers Microsoft has left high and dry with an offer some will likely not refuse. Netscape is offering a migration plan for developers who were working with Blackbird. Free memberships and software for the Netscape Development Partners Program will be offered to existing Blackbird developers through March 31. Newsworthy Notes ================ ImagiNation, formerly owned by Sierra Online, and now owned by AT&T plans to open a 3-D "Cyberpark" on the Web which will also be available from other online services and cable TV. The stand alone gaming service hasn't fared well versus other online services, and this move should definitely get the service more exposure. -- In the DEJA VU ALL OVER AGAIN department, the US Dept. of Justice is investigating Microsoft's acquisition of Vermeer Technologies, the Cambridge, Ma. Company that produces Web publishing software. The Justice Dept. isn't saying why they're investigating, but I guess we're to the point where "because they're Microsoft" seems to be reason enough. -- NETCOM Reported revenue of $19.7 million for the quarter ending December 31, and that revenue for the year, $52.5 million quadrupled vs. the previous year. A net loss for the quarter of $5.4 million, or $0.55 per share, was reported compared to third quarter net loss of $4.4 million, or $0.49 per share. The loss included $4.1 million in depreciation and amortization compared with $2.8 million in the third quarter. -- UNLESS YOU'VE BEEN hiding, you know that President Clinton signed into law the sweeping telecommunications reform, including the bit making "indecent" material on the net, including discussions of abortion, potentially illegal. How'd the sneak that in there? Lot's of folks are protesting by turning their Web pages black. Too much, too little, too late. A lawsuit by the ACLU and other groups seeking an immediate temporary injunction to block the provisions on the basis they are unconstitutional might prove to be interesting. U.S. District Judge Ronald Blackwater decided to give government lawyers time to file a written argument before ruling. Judge Blackwater has given the government until next Wednesday (2/14) to respond. -- MICROSOFT AND UUNET announced a strengthening of their relationship. UUNet will market some of Microsoft's Internet products. UUNet will step-up the pace of deploying the network for Microsoft Network both in the US and internationally. Stock Watch =========== CMG Information Systems and Netscape reflect 2-1 Stock Split $ % 52 52 Week's Change Week Week Company Name Ticker Close 1 Week High Low @Net Index IIX $244.08 4.72% $259.85 $185.76 America Online AMER $51.63 16.02% $51.63 $16.19 Apple AAPL $27.75 -5.13% $50.94 $26.84 AT&T T $66.50 2.70% $68.88 $47.88 BBN Corporation BBN $30.38 2.12% $48.75 $15.63 CMG Information Svcs. CMGI $32.75 4.17% $50.25 $5.50 FTP Software FTPS $12.50 8.70% $40.63 $10.38 General Elec. GE $79.38 2.92% $79.50 $51.88 H&R Block HRB $38.88 6.52% $48.88 $31.50 IBM IBM $113.50 3.53% $115.13 $73.75 MCI MCIC $28.88 3.14% $30.13 $19.09 Mecklermedia Corp. MECK $14.00 5.66% $24.38 $3.19 Microsoft MSFT $100.13 7.67% $109.25 $59.50 Netcom NETC $30.38 3.40% $91.50 $19.00 NetManage NETM $11.88 -7.76% $34.00 $10.00 Netscape Comm. Corp NSCP $65.50 -12.08% $87.00 $22.88 News Corp. NWS $21.25 1.19% $25.13 $16.50 Oracle Corp. ORCL $49.13 -0.24% $51.00 $28.00 PSINet Inc. PSIX $15.88 9.52% $29.00 $12.00 Sears S $44.63 7.85% $44.75 $22.94 Spyglass Inc. SPYG $36.50 -0.68% $61.00 $13.25 Sun Microsystems SUNW $48.13 1.58% $51.75 $14.94 UUNET Technologies UUNT $41.50 10.67% $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>.