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=============================================================================
Seidman's Online Insider
=============================================================================
Weekly Summary of Major Online Services and Internet Events
-----------------------------------------------------------------------------
Vol. 3 Number 13 March 31, 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 Grammar Police
-MSN Hits the Million Mark
-AOL Enterprises: Own Your Own Online Service
-Phone Wars Continued: MCI vs. AT&T
-NewsWorthy Notes
-Stock Watch
-Disclaimer
-Subscription Info
The Grammar Police
==================
Whoa Nellie! You know the saying, "what goes around comes around"? Well,
I believe it's true. Last week, my newsletter went around and the e-mail
from the grammar police came around. To be honest, I have plenty of
excuses (like the lame, but true, "I sent out the unedited version of my
newsletter.") I don't have any defense to offer though. I did a baaaaad
thing.
On a serious note, poor grammar tends to undermine one's credibility. One
never wants to lose credibility, especially not this one. I'll make a
sincere effort to do a better job with my editing.
MSN Hits the Million Mark
=========================
Microsoft announced earlier this week that the Microsoft Network had
reached one million subscribers.
I hear a lot of folks claim that having an icon on the desktop doesn't
mean squat. I have a question for those folks: What drugs are you on and
can you send me some. That way, when I read the comments those folks
make, I can read them with a glazed eyed smile instead of thinking,
"SHEESH!"
Being on the desktop is important. Microsoft hit one million users in 7
months. Seven. One, two, three, four, five, six, seven. A most
impressive feat really.
Some of my antagonists would say, "Seidman, YOU are an idiot! I mean, AOL
is growing faster than 1 million in 7 months, so why is MSN hitting 1
million in 7 months any big deal at all. Idiot."
I actually got a piece of mail like that this week. It amazes me how some
people think. What can you do? AOL would be in great despair if they
weren't outpacing MSN's growth. AOL is available to EVERY win 3.x and
above PC, plus the Macintosh world (plus, if it matters, the DOS only
world). MSN is only available to PCs with Windows 95. Period. Microsoft
claims 20 million copies of Windows 95 have been sold. Analysts claim
that there are over 115 million Windows 3.1 PCs. Throw in another 20
million or so for the Mac environment, and you see that AOL is playing in
a much bigger space.
Truth is, some of Win 95's 20 million are still sitting on the shelves or
pre-installed on PCs that have NOT been sold yet. Some copies went to
businesses, where it isn't likely that there is a modem hooked up to the
PC. We could probably knock it down to 10-15 million copies where there
was even an opportunity to sign up for MSN. But, we'll play with the 20
million figure. That means a 5% conversion rate. Nothing to write home
about really, but it's 5% conversion with VERY LITTLE expense involved in
customer acquisition.
I suspect that once Microsoft has sold 40 million copies of Windows 95,
they'll start doing heavy duty direct mail to registered owners of Win 95.
"Hello there Robert! Did you know that on your PC there is already a
gateway to the entire WORLD!? It's called the Microsoft Network and we
think you'll like what you see. We're offering you a free month of
unlimited usage to check it out. If you already have a modem installed in
your PC, you don't have to do anything special. Just click on the MSN
icon on your desktop. That's all there is to it!" This would take no
more than a postcard. They could send one to you every day for a month,
and it would probably be cheaper than sending you a DISK. And such an
approach might knock their conversion rate up to 10%-15%.
Don't knock MSN for only hitting a million subscribers in 7 months. No
other online service reached their first million that fast. If you want
to knock something, knock Microsoft in general for not convincing the
public that they needed Windows 95. Don't worry about that though, by
this summer I think we'll be getting THAT message loud and clear.
Think of it this way: if Win 95 were on as many desktops as Win 3.1, and
MSN maintained the same conversion rate, then they'd have at least 5
million accounts. That would put them at 5,750,000 and make them the
biggest of online services. Okay, so they wouldn't be THAT much bigger
than AOL (and we expect AOL to announce new subscriber figures sometime
soon). That's true, but to date, it appears Microsoft has spent very
little in the way of customer acquisition.
America Online, Prodigy, CompuServe, etc., pay big customer acquisition
costs. Advertising costs them. Direct mail costs them. Bundling disks
with magazines costs them. Bundling the software with new PCs costs them.
It can get pretty expensive. America Online is said to pay $45 for every
customer acquired and we have reason to believe that their net $/customer
acquired is even higher.
I figure that America Online is at least at 5.5 million subscribers now.
If you do the math, they've spent almost $250 million to acquire those
customers and perhaps they have spent much more. If Microsoft decides to
shell out a quarter billion dollars to promote MSN, I think it is
reasonable to expect they'd have a lot higher conversion rate than 5%. Of
course, Microsoft probably isn't going to spend that money on MSN. At
least not yet. More likely they'll spend it on Win 95 in general.
MSN has one thing going for it besides the fact that it's on the desktop.
It has a $4.95 price plan. While you don't get much with that plan, I'd
imagine that the biggest percentage of the one million subscribers is on
the $4.95 plan (unfortunately Microsoft won't release such statistics.)
AOL got its wish a spot on the desktop in forthcoming versions of the
Windows 9x OS, but you can bet the others (CompuServe, WOW!, etc.) will
wind up there as well, though not in as prime a spot as MSN. Last week,
AOL Services President Ted Leonsis eluded to me that AOL would have to
compete on price and it seemed to me that AOL is definitely considering a
$4.95 price plan at some point.
While it is true that some people considered that MSN would have more of
an overall impact on the industry than it has had, don't minimize what
MSN accomplished by getting to a million users in 7 months. There seemed
to be a "mood" in all the hysteria over Windows 95 that there would be a
lot more Win 95 desktops than there are by now. But, if the percentages
were to hold, and Microsoft actually would've dumped 60 million copies of
Win 95, there would be 3 million MSN subscribers in 7 months, and we'd all
be talking about how they're charging fast. All things considered,
they're charging pretty fast anyway. Congratulations, MSN.
AOL Enterprises: You Too Can Own Your Own Online Service
========================================================
When it comes to making money on the online services or the Net, I often
rue the day when I decided to write about Online Service and the Net. The
way I look at it, my life would've been a lot different if I had chosen
another subject to launch a newsletter on. I mean, if I would have
started a newsletter on PCI and Cellular services or telecommunications
deregulation, I'd have gone all out to get my own forum on AOL, because I
believe there are $$ to be made there.
Let's say that you're running the National Association of Widgets, an
organization that is made up of 75,000 people in the Widget industry. You
charge them say, $200 a year in dues, and in return you provide them with
information to assist them in building better Widgets. Additionally, you
spread the gospel of Widgets and probably, once a year you host a big
Widget convention that you charge even more money for.
But your association members are clamoring for "online access" to
information and they want to communicate with their Widget brethren. Your
problem isn't an easy one to solve because you have a diverse membership
which is spread all over the country. Since the members aren't all from
the same company an "intranet" solution is impossible. You could set up a
Web site and provide all your members with a password, but you fear, given
the current state of the Net, you wouldn't be able to support all the
inquiries from the members on how to hook up to the Net.
Enter AOL Enterprise, a recently announced offering from America Online.
For relatively small start-up costs (probably about $50,000), they'll set
you up with your own private area on America Online. Your members will
gain access to the private area and have access to information, message
boards, chat areas, etc. It's up to you whether you want them to have
access to the rest of AOL or not. They'll get some amount of time "free"
based on their Widget association dues. You can either have it set up so
that when their time runs out, they either can't access for the rest of
the month, or they can charge it to their own credit card, or even back to
you. A nice, solid, easy to use, one disk solution, that provides message
boards and chat. If you want them to have access to the rest of AOL, they
can have access to that, too.
That's exactly what Century 21 has done for its very disparate work force.
The Harvard Business School Alumni association has had a similar scheme in
place for their alumni. I think the opportunities here are very big for
AOL. There is nice potential for an additional revenue stream and more
customers. I think AOL Enterprises will strike several major deals in
the coming year. The potential for companies who want to market online
services is big. Basically a private labled AOL. Everyone will know it's
AOL, but it can be set up to default to YOUR welcome screen instead of
AOL's welcome screen.
As for me, I envision a world where I'd started In, Around and Wireless
which later became Seidman's Wireless Insider. I'd start out abstracting
the news and injecting just the smallest bit of opinion. After gaining
some credibility, I'd be a pitbull and be after the muckity-mucks at MCI,
AT&T, Bell Atlantic, Southwestern Bell, Cellular One, etc. for information
and quotes. I'd transform myself from a pundit wannabe to a pundit. I'd
grow the list high enough until I got to the point where I could sock it
to 1,000 of them and charge them $600 a year for the newsletter. You
laugh, but it could work!
But there's more. Not only would the elite 1,000 or so who were willing
to fork over $600/year get the newsletter. NO! That's not enough of a
differentiation between the other newsletters in that model. The elite
1,000 would also get FREE (I learned this trick from AOL) access to the
online service of the newsletter. Bell Atlantic could rag on AT&T
Wireless in the message forums. Online debates with the presidents from
all the companies could be held in the conference rooms. The best part
would be that much of the content of the newsletter would actually get
driven from the forums and conferences held online. And I would use AOL
Enterprises to set this up.
You're probably thinking, "Big deal! $600,000 a year in revenue, so
what!" So what? Most of it would go to me! I could even set up to take
the subscriptions via AOL. Oh sure, they'd want a cut. So what, I
wouldn't have to handle billing and collections.
I don't write the Wireless Insider, I write the Online Insider. It's free
and I'm damn proud of it. Still, if anyone wants to come forward with the
$50K AOL Enterprises would want, I think I could become pretty
knowledgeable about the wireless industry in a few short months...
Phone Wars Continued: MCI vs. AT&T
==================================
Last week I said something like, "Make no mistake about it, MCI is chasing
AT&T" with regard to their respective Internet services. Ah, the power of
AT&T marketing. Hell, even I bought into it.
This week, I had the opportunity to speak with Brian Brewer, a Sr. VP at
MCI. He did an admirable job convincing me MCI is ahead of AT&T.
Brewer suggested that MCI was "a long stretch from following AT&T," when
it comes to the Internet. "We have been focused in the business market,"
said Brewer, pointing out that there is "nobody close to us in the
business market."
Indeed, when it comes to connections to the Internet and Internet
backbone, MCI is indeed in the lead. AT&T does not yet have their own
Network, though Brewer felt that was only a matter of time. Brewer
suggested I could run "traceroute" on an AT&T site, and that if I did, I
shouldn't be surprised to see a lot of the packets traversing the MCI
backbone to get there.
According to Brewer, the demand for circuits to connect to the Internet
has been so overwhelming that they've actually stopped adding any
additional lines from customer sites to the Net until they expand network
capacity. Brewer said they know the delays were causing some grief, but
they didn't want to degrade network performance. They'll start adding
connections again on April 15, according to Brewer.
Brewer said that while MCI plans to compete in the consumer side with
dial-up access, business was their focus.
"I'll guarantee there's no money to made if you look at where AT&T is
focused," Brewer said, speaking of AT&T's plan to provide 5 free hours of
access for a year. Brewer conceded that AT&T may be making such an offer
with the thought of reducing churn, but outside of that possibility, he
didn't see it as a business.
I asked Brewer about the $19.95 unlimited access price model and he said
that he felt such services could be marginally profitable. But, he added
that he wouldn't start-up a business with a $19.95 all-you-can-eat
Internet access service as the primary product.
I also asked Brewer about "Internet Phone services". "We don't see it is
an immediate threat," said Brewer, but he indicated they are very
interested in Internet Telephony and are following the technology
developments closely. Brewer seemed to feel that the software issues
could be overcome to make telephone by Internet almost as ubiquitous as
the regular telephone. However, Brewer pointed out that MCI has one of
the largest Internet backbones and that it was "infinitesimal" compared to
their switched network for voice.
In order for there ever to be widespread use of Internet Telephony Brewer
said that, "Internet networks will have to be orders of magnitude bigger
and it won't be free." Indeed, somebody has to pay for the network.
NewsWorthy Notes
================
THE COMPUSERVE IPO shares are scheduled to be available the week of 4/15,
according to the Wall Street Journal. The initial offering consists of 16
million shares, which represents a 17.7% stake in CompuServe. The shares
expected to be priced between $27 and $30, giving CompuServe a market
value at about $2.5 billion or about half of the market capitalization of
America Online. For all the praise I bestow on AOL, CompuServe was a cash
machine until recently and something isn't right if the value of
CompuServe is half that of America Online. CIS will surge past the 30s,
or AOL has to come down. Of course, as we know from our Netscape
experience the market value at the actual time of the IPO can be MUCH,
MUCH lower than the market value at the end of the first day of trading.
And it's legal to boot! Sheesh.
--
BAD COFFEE. Princeton Researchers found yet another security bug in
Netscape's implementation of Sun's Java language. Sun & Netscape plan a
fix soon.
--
IT'S ALL RIGHT AS LONG AS YOU DON'T KNOW. German justice minister Edzard
Schmidt-Jortzig said that a new law being planned regarding indecency on
the Internet will make it clear that Net access companies aren't expected
to police the Net. According to a story by Reuters, Schmidt-Jortzig said
that the companies would not be prosecuted unless they KNEW illegal
material was available via their services and did nothing about it. You
have to love this. It brings new meaning to Sgt. Schultz of Hogan's
Heroes favorite catch phrase: "I KNOW NOTHING!".
"Someone who opens a door cannot know what the people who
walk through it are going to be carrying," he said. "And if
there were body searches for everyone going through your door,
people would simply choose to go through another," said Schmidt-Jortzing.
"The provider could only be punished if he had the ability
to take action but did not do so," he said.
--
POINTCAST IS HOT. Some love it, and some don't really care, but everyone
seems to agree PointCast's "custom" news and screen saver software is
slick. Now the Canadians want in on the action. The Toronto Globe and
Mail Company want Pointcast to develop a Canadian version of the software
that will have Canadian content. PointCast Network Canada is expected to
be available in the summer. In the meanwhile, you can check out the US
Beta at < http://www.pointcast.com >.
--
UMI & MAID LAUNCH Business Services on the Web. In an effort to take
advantage of the business desktops with Web access, UMI and Maid have
launched versions of their business information services on the Web. UMI
is offering its ProQuest Direct service at < http://www.umi.com > and the
UK based MAID is offering a Web based version of its Profound service at
< http://www.profound.com >
--
NETCOM HAS DONE AN OEM DEAL with Individual Inc. to provide Individual's
Personal Newspage Direct at no cost to Netcom subscribers. It's a smart
move by Netcom, who is trying to differentiate itself as more than just
another Internet access company. It is especially critical for them to
establish such differentiation in light of the consumer Internet war being
played out by MCI and AT&T.
--
NETSCAPE CLOSED UP $3 on Friday to end the week only slightly down over
the previous week. Allegedly the jump on Friday was attributed to deals
with 5 of the Web search sites. Reportedly Yahoo!, InfoSeek, Lycos,
Excite, and the McKinley Magellan directory are in deals with Netscape to
have their services showcased on Netscape's home page. According to
recent SEC filings by those who are about to IPO (Lycos, Yahoo!) they may
pay Netscape as much as $5 million a year for the right to be showcased on
Netscape's home page. Of course if you'd read "Ned Brainard's" FLUX
column on Hotwired a couple of weeks ago, you'd have known this on March
18th. Ned's posion pen thoughts on the subject can be read at
< http://www.hotwired.com/flux/96/12/index1a.html >. Netscape expects a
newly designed home page with all the services to launch in the second
quarter, according to the Cowles/SIMBA media daily.
--
@HOME AWAY FROM HOME? According to the Cowles/SIMBA media Daily, the
@home high speed Internet access service, a venture of Tele-Communications
Inc.-Kleiner Perkins Caufield & Byers, will be delaying the launch of
their service until "later this year". The service originally was to be
launched in Sunnyvale, Ca. in February, but was pushed back to later this
month. Now they're delaying until sometime later this year. The reasons,
according to the Media Daily, are technical problems, higher demand than
anticipated and a shortage of cable modems.
--
THE WORLD ACCORDING TO BILL. The Wall Street Journal and New York Times
reported that Microsoft will unveil plans for a new consumer appliance on
Monday. The appliance, dubbed Simply Interactive Personal Computer, or
SIPC will be more than just a computer, and more than just an Internet
access device, but include a TV, Stereo and VCR. We're pretty sure it
won't be $500, but it makes more sense to me in the consumer space (though
not with businesses) than the much hyped, but yet to be delivered $500
network PC for accessing the Internet. The question is will it be the
Swiss Army Knife of home appliances or the Ginsu Knife? Whatever kind of
knife it is, it appears to be pointed at Larry Ellison.
--
NEWSCORP'S 20th Century Fox and IGUIDE have teamed to bring you the
FOX.COM web site which provides a consolidated web home for all that is
FOX. Koombaya indeed. Check it out at < http://www.fox.com >
See you next week.
Stock Watch
===========
New this week: VocalTec
This % 52 52
Week's Change Week Week
Company Name Ticker Close 1 Week High Low
@Net Index IIX $220.60 -0.5% $259.85 $185.76
America Online AMER $56.00 3.6% $60.00 $16.75
Apple AAPL $24.56 -3.2% $50.94 $23.00
AT&T T $61.13 -0.2% $68.88 $47.88
BBN Corporation BBN $25.38 -10.6% $48.75 $16.50
CMG Information Svcs. CMGI $39.50 5.3% $50.25 $5.50
CyberCash Inc. CYCH $34.00 -2.2% $64.50 $24.50
FTP Software FTPS $12.25 -3.0% $40.63 $10.38
H&R Block HRB $36.13 -4.0% $48.88 $31.50
IBM IBM $111.25 -2.6% $128.88 $81.38
MCI MCIC $30.25 -0.4% $31.00 $19.09
Mecklermedia Corp. MECK $12.00 21.5% $24.38 $4.94
Microsoft MSFT $103.13 2.0% $109.25 $68.75
Netcom NETC $24.00 2.1% $91.50 $19.00
NetManage NETM $10.88 -2.2% $34.00 $9.38
Netscape Comm. Corp NSCP $41.50 -2.9% $87.00 $22.88
News Corp. NWS $23.00 -3.2% $25.13 $18.13
Oracle Corp. ORCL $47.13 -3.6% $55.00 $28.00
PSINet Inc. PSIX $9.69 -6.6% $29.00 $8.75
Sears S $48.75 -4.4% $51.88 $25.25
Spyglass Inc. SPYG $21.63 -13.1% $61.00 $13.25
Sun Microsystems SUNW $43.75 -2.5% $57.13 $16.94
UUNET Technologies UUNT $25.50 -1.0% $98.75 $21.75
VocalTec LTD VOCLF $12.00 -9.4% $17.00 $11.75
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. I speak for myself and not for IBM.
Subscription Information
========================
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