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============================================================================= Seidman's Online Insider ============================================================================= Weekly Summary of Major Online Services and Internet Events ----------------------------------------------------------------------------- Vol. 3 Number 16 April 21, 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. This issue has been edited by Felix Kramer. IN THIS ISSUE ============= -Notes from the Editor -CompuServe IPO -Will AOL Buy Prodigy? -CompuServe Loses Microsoft Forums to the Net -August and Everything After -Advertising on the Web -CompuServe Loses Microsoft Forums to the Net -Stock Watch -Disclaimer -Subscription Info Notes from the Editor ===================== Check out Morgan Stanley's Web page at < http://www.ms.com/ > for some content from the Internet Report, as well as the Technology IPO Yearbook (in PDF format.) This isn't an advertisement, I just liked the data (okay, so they DID so nice things about me). Besides, it's free! Now this next item is sort of an advertisement, but it's for the folks who pay the rent, and something I and quite a few others have worked very hard on. So, I hope you won't have a problem with my saying, "Be sure to check out IBM's infoSage at < http://www.infosage.ibm.com >." CompuServe IPO ============== The CompuServe IPO went much like the stereotypical perception of the CompuServe online service itself -- reliable, steady, predictable. In other words, boring. CompuServe did not have a bad day, they just didn't have an incredibly fantastic Netscape or Yahoo! kind of day. Friday was definitely a CompuServe kind of day. The stock had an IPO price of $30 and got as high as $35 on the open market before ending the day at $33. Hey, a 10% gain in one day is great, it just isn't as great as some other Internet offerings. H&R Block spun off about 18% of the company and raised about $460 million in the process. H&R Block plans to make the other 82% or so available over the next year, and if the price holds, stands to raise about another $2 billion. CompuServe plans to use the $460 to pay down debt, and poor money into marketing, as well as research and development. The CompuServe IPO did about what I thought it would do. Over time, I think that the value will go up, and many analysts are predicting it will go as high as about $40 a share in the coming year. But if you need a reason why CompuServe's IPO didn't soar to the heights, you need look no further than Vienna, Virginia and America Online (though soon they are moving to Sterling, which really isn't as sterling as the name indicates!) America Online is winning. Period. Investors are wary about whether CompuServe can compete with AOL. Many of the letters that come to the e-mail box ask, "Why do you LOVE AOL and HATE CompuServe?!" Well, I don't hate CompuServe. But, if AOL and CompuServe were women, AOL would be the smart, funny, well-educated woman who is very stylishly dressed. (I won't go into great detail here for fear of being slammed as a sexist!) CompuServe on the other hand, is a smart woman, not quite as funny, and dressed in a mu-mu. If online services were like the group "The Mama's and the Poppa's", AOL would be Michelle Phillips and CompuServe would be Mama Cass. Go ahead, call me a sexist, but it's a valid comparison (except that Mama Cass is dead, so perhaps that would be a better comparison for Prodigy.) Underneath, CompuServe has a lot going for it, but it's not easy on the eyes. Plainly put, the interface is awful. CompuServe loyalists, please spare me the rants. I know you love your service. But let's talk about the non-geek set here, because that's the space that really matters. AOL has a very sexy interface. CompuServe is, well, kinda homely. More and more I think that they really botched WOW!, too. WOW! is easy to navigate, and a little more exciting than CompuServe, but in the end, WOW! is a lot closer to Mama Cass than Michelle Phillips. I try to look at things from the "everyman" point of view. In doing that, I think CompuServe succeeded in making WOW! easy to use, but they failed in making it exciting to use. Both AOL and CompuServe are working on 3.0 versions of their client software. But here, AOL is once again ahead of their curve. The 3.0 product has been in beta for a while, and while it is not the most stable client at present, it's flashier than ever. CompuServe's client is allegedly in alpha and near beta. I hope to see it soon, and I really do hope that is a stunning piece of work. I want CompuServe to succeed. In fact, I want all of the services to succeed. To underscore why, I am turning to some words from Steve Case. Recently, I forwarded Case a pretty well-thought-out e-mail message from an AOL member who questioned AOL's dealings with both Netscape and Microsoft. I wasn't all that surprised when Case actually responded to the member. Nor was I surprised by his stance on competition in general: "Lastly, we believe competition is the best way to stimulate innovation. We don't want any one company to have too much of a lead or advantage, whether it be Microsoft in operating systems or Netscape in web software. So by working with Microsoft, we even the playing field a bit more and stimulate a more competitive market," said Case. I feel the same way as Case, except I'd add that I don't want any one company having too much of a lead in the Online Services either! On Friday, I spoke to Peter Krasilovsky, Sr. Analyst at Arlen Communications, about the CompuServe IPO. "Everyone gets so caught up on the interface," said Krasilovsky, who pointed out that some analysts don't look deeper at the fact that CompuServe has a good international and a great network business. Krasilovsky is absolutely correct to voice this opinion. CompuServe is fairly well established in the international space and their network business is very well established. But Krasilovsky admits that the interface isn't very good. In the international space, if CompuServe doesn't get its interface up to speed, in the end, AOL can and will beat the pants off them overseas, too. Hopefully, CompuServe's new interface will be so much better that AOL's superior interface will no longer dominate comparison between the two services. As for the network business, CompuServe is very well established here, and this is perhaps CompuServe's pot of gold. "They're poised nicely to do very well in the Intranet space," said Krasilovsky. He's right, and I can't help but wonder whether the IPO might not have gone better if H&R Block had spun off just CompuServe's network division. Unfortunately, all the good things the network division has done have been overshadowed by the CompuServe online service. Hopefully, with several hundred million in hand, CompuServe can by a much prettier dress for its online service. Until then, CompuServe is just a "good friend" with a nice personality... Will AOL Buy Prodigy? ===================== This piece is just a result of some "what-if" thinking I began doing based on a conversation with someone I respect tremendously. My first reaction was, "no way!" But then I thought on it some more. AOL is pretty public about the fact that they spend about $45/subscriber in acquiring subscribers. However, many analysts believe AOL's actual acquisition costs for net subscriber are double (in other words, for everyone who signs up for the service, one cancels and one stays), which would put their cost per net subscriber at around $90. Well, we have seen the $250 million price tag for Prodigy floating around, and while I think it is low in the Internet space, a lot of people seem to think it is a reasonable price. So, for argument's sake, let's say it is. Further, let's say Prodigy really does have 1.4 million subscribers. Simple math says that even if all 1.4 million subscribers would stay on AOL if AOL bought them, the acquisition costs at $250 million would be around $179, or at least twice what AOL is paying for net subscriber added. Now Prodigy has some other assets. They have a network, and they have quite a bit of equipment. What couldn't be integrated could be sold off (who knows for how much.) Still, it sounds rather expensive when you look at it and figure that many of the 1.4 million are probably already AOL subscribers, and of the rest, many of them WANT to be on Prodigy or they would already be somewhere else. Some would surely stay on AOL, but some would surely not stay. America Online would be willing to pay some price for Prodigy. If nothing else, just to kill it off. Thus, it would not surprise me to find "America Online Buys Prodigy" in the headlines. Though Prodigy has not done well recently, they still have some top-notch employees. Prodigy wanted to make sure I understood that, so they took me out to lunch to meet with their dynamic duo of content production, Josh Grotstein and Lisa Simpson, both veterans of NBC's digital publishing unit. I was very impressed with both of them, but still have many questions about content's ability to single-handedly save Prodigy. Besides, the truth is, AOL doesn't have to buy Prodigy to get their people. They can just buy the people. That doesn't sound very nice, but imagine we're a few months down the road and Grotstein and Simpson are still floundering in the sea of Prodigy. Let's face it, they probably have a better chance of making their content visions a reality with America Online -- though I'd admit, they'd probably have a "smaller voice" within the bigger AOL. August and Everything After =========================== Author's Note: Felix Kramer is off-the-hook for this piece which I had to rewrite at the last minute. In many editions of this newsletter I've run a "more fun with numbers" section, taking a look at some of the Internet statistics. One survey from CommerceNet and Nielsen got a lot of attention when it reported that there were 22 million adults in the U.S. using the Internet last August. I didn't believe it then, and I don't believe it now, but who really cares? I care. Vanderbilt Professor Donna Hoffman cares, too. Last December, Hoffman, who along with fellow Vanderbilt professor Thomas Novak had initially supported the findings of the CommerceNet/Nielsen study, pulled her support of the findings. The conclusions were wrong, according to Hoffman, because the sample was skewed. Last week, The New York Times ran a story by Peter Lewis on the ongoing debate over the Nielsen study. The story included the following lines: "But in a departure from the normally staid realm of academic debate, Professor Hoffman in December publicly disavowed the Nielsen report, saying that its conclusions were invalid. She said her own analysis of the survey data indicated that that there were fewer than 10 million Internet users in the United States and Canada combined," said the story. The story went on to report that now Hoffman and Novak, along with University of North Carolina researcher William Kalsbeek, have published their own findings based on the original CommerceNet/Nielsen data for August. Not 22 million, not 10 million, but 16.4 million adults using the Internet in August. I went sort of ballistic and wrote a mildly inflammatory piece on Professor Hoffman's new findings. But I've always found Hoffman somewhat of a kindred spirit, someone who wants REAL numbers, so I forwarded the piece to her before I published it. Turns out this was a good thing because I've saved myself from posting a correction. According to Hoffman, Peter Lewis incorrectly quoted her. She had done no estimates in December. "I never calculated a number in December - or any other time - that was 10 million. The NYT reported that inaccurately and has issued or will issue a correction. On December 12 we posted a conceptual note which argued using publicly available data that the CommerceNet/Nielsen weighted sample was not adequately adjusted to the population it was intended to represent," said Hoffman via e-mail. "If you go look at that note you will see that we make no estimates as to Internet size," Hoffman added. "We didn't even have all the data then in order to do a complete analysis," exclaimed Hoffman. Still, I was confused about where the 10 million number came from, and Hoffman was kind enough to agree to an impromptu phone interview to clear it up. Hoffman said that the first red flag regarding the Nielsen survey was when they saw data saying that there were FORTY million online service users. Not Internet users, mind you, but users of commercial online services. Hoffman believes this is where the 10 million figure came in, because she had used that figure based on research reports and the number of subscribers the online services were reporting themselves. Hoffman forwarded me the abstract of the new findings, which are available at: < www2000.ogsm.vanderbilt.edu/baseline/1995.Internet.estimates.html >. According to the abstract the original findings were flawed because: "1) the weighted sample is not adequately adjusted to the population it is intended to represent, and 2) the estimates lack logical consistency in their definitions of what an Internet user is." Based on re-weighting of the data, Hoffman, Novak and Kalsbeek have come up with 16.4 million Internet users, 11.5 million Web users and 1.51 million who have ever used the Web to purchase something. And these numbers are not for last August, they're projected through December 1995 based on census data. Nielsen, clearly on the hook for this one, did its own recalculating after the recent Hoffman/Novak/Kalsbeek paper and said something along the lines of, "22 million? Did we say 22 million? What we really meant was 19.4 million. Yeah, that's the ticket!" Sheesh. But at least they sort of admitted the numbers were wrong. Nielsen came up with the revised numbers by using a different approach to weighting the data. The abstract from Hoffman also contained this paragraph. "As the Internet is characterized by tremendous uncertainty, we submit a recommendation for all who must evaluate the results of Internet research. In essence, we argue that the time has come to insist on a higher standard for such research; a standard that will not only advance our understanding of the Internet experience, but contribute to the population's education of this important societal phenomenon." Here, I agree entirely with Hoffman. The fact are this: Web usage is growing like a weed, at least at a lot of sites, and the Internet population in general is still growing. But the most important fact is this one: If you're looking to get rich quick, forget about it. For all the growth and popularity of the World Wide Web and online services, there is not enough revenue pouring in to sustain the amount of money being spent. It's changing, but we're still a ways off from a break even world (unless you're Pathfinder and CompuServe bails you out by giving you millions of dollars.) A few of the major sites are probably already breaking even, or will be soon. They're a minority though. One benefit of Hoffman's, Novak's and Kalsbeek's recalculation is more FREE data for us, and some of it is useful! Especially the segmentation data. To come up with 16.4 million, they calculated 3.1 million "hard core" users (use every day), 6 million "regular" users (at least once a week, but not every day), 3.8 million "lapsed regular" users (this is kind of tricky, these folks said they use the Internet once per week, but last used the Internet two or more weeks ago), and 3.6 million "infrequent" users (use the Internet a couple of times a month.) That's Internet use, and coming in with 9.1 weekly users (the regular plus the hard core) sounds reasonable to me and jibes pretty well with the FIND/SVP research < http://etrg.findsvp.com >. The FIND/SVP research indicated 9.5 million Internet users overall, but, they defined an Internet user as one who uses at least one Internet application besides e-mail. The FIND/SVP study found that there were 7.5 million total Web users in the U.S. vs. 11.5 million users in the U.S. 16 or older found by the Hoffman & Company recalculations based on the Nielsen data. While that's quite a difference, if you look at the breakout of the Hoffman data, it seems pretty reasonable. The Hoffman & Crew re-weighted data shows 1.8 million "hard core" Web users, 2.4 million regular Web users, 4.2 million occasional Web users and 3 million infrequent users. If you throw out the infrequent users, the FIND/SVP data is pretty similar. It is also possible that there are some Web users who claim they don't use e-mail, and those would not have been captured based on the FIND/SVP definition of an Internet user. A lot more data is available at Web sites (FIND/SVP's and Hoffman's) mentioned above. Advertising on the Web ====================== According to the Electronic Marketplace Report, advertising revenues on the biggest sites were up slightly for March. According to the newsletter at 16 top Web sites, advertising revenue was up to $6.6 million. The top four sites were InfoSeek ($1.7 million), ZDNet ($856,000), c|net ($555,000), and Netscape ($541,000). The figures are calculated based on average ad rates multiplied by number of advertisers. I'm not sure about the approach, and the bigger concern I have is the funny money currency of the Web known as "trading ads", i.e., Yahoo! will give Netscape $10,000 worth of advertising in return for $10,000 worth of advertising. Based on how Electronic Marketplace calculates revenue, the "funny money" would be included. At some sites, there's less chance for these trades, because they would push out "real revenue". But search sites like InfoSeek and Yahoo! have more opportunity for such trades because they are serving up more pages. Editor's note: It's also generally known that many advertisers are paying deep discounts on the quoted rate or agreeing to deferred payment schedules. Author's Note: Felix is correct, but some sites (like c|net) have "no discount" policies. These 16 top sites may be on a run-rate of close to $80 million in annual revenue. That sounds good, until you start figuring that expenses for these 16 sites combined are likely nearer $160 million to $200 million a year. CompuServe Loses Microsoft Forums to the Net ============================================ Microsoft has pulled its vendor product forums off CompuServe and has launched its own news server now publicly available via the Net. CompuServe says it will continue to staff Microsoft forums and offer product support, even though they will no longer be official Microsoft forums. The new Microsoft newsgroups (about 200 of them) are available via NNTP server news.microsoft.com . If you're on a TCP/IP connection (SLIP/PPP, etc..) you can point your news reader at news.microsoft.com to read the files (both Netscape and Internet Explorer allow you to specify a news server, so if you're using Netscape or Internet Explorer, you can set this up.) If you're using CompuServe's winsock-enabled Internet connection, you can access these groups by setting your browser software or Newsgroup reader to the Microsoft news server. If you're on America Online, and using Windows, you can set up to use America Online's winsock.dll to get a TCP/IP style connection (for more info on that, you can go to Keyword: WINSOCK on AOL.) I'm sure someone at AOL is furiously working to make the Microsoft Newsgroups available via their own (sort of pathetic) Newsgroup reader. And if they're not, they're missing an opportunity. I have to give Microsoft credit for opening this stuff up to the public for free and for being very forthcoming that the demand has been high and strained their news server (though they claim they're working quickly to increase capacity.) Their heart and head seems to be in the right place on this one. Scary! NewsWorthy Notes ================ ...takes a week off. See the following Web sites to get your necessary doses: c|net < http://www.cnet.com > Media Daily < http://www2.simbanet.com/simba/m_daily/media.html > Edupage < http://www.educom.edu/web/edupage.html > Scout Report < http://rs.internic.net/scout/report > Stock Watch =========== This % 52 52 Week's Change Week Week Company Name Ticker Close 1 Week High Low @Net Index IIX $230.50 5.1% $259.85 $185.76 America Online AMER $59.50 14.4% $60.00 $16.75 AT&T T $61.00 -2.6% $68.88 $47.88 BBN Corporation BBN $26.75 12.6% $48.75 $16.50 CMG Information Svcs. CMGI $27.50 -13.4% $50.25 $5.50 CompuServe CSRV $33.00 -- $35.38 $32.75 CyberCash Inc. CYCH $30.25 -4.7% $64.50 $24.50 Excite Inc XCIT $13.88 -2.6% $21.25 $13.13 FTP Software FTPS $9.13 0.0% $40.63 $8.13 H&R Block HRB $37.13 4.9% $48.88 $31.50 IBM IBM $105.38 -5.5% $128.88 $83.13 Lycos Inc. LCOS $14.75 -13.2% $29.25 $14.00 MCI MCIC $27.88 -1.1% $31.13 $19.09 Mecklermedia Corp. MECK $15.75 14.5% $24.38 $7.50 Microsoft MSFT $109.75 8.5% $109.75 $74.88 Netcom NETC $30.50 13.0% $91.50 $19.22 NetManage NETM $13.69 38.6% $34.00 $9.38 Netscape Comm. Corp NSCP $55.25 9.4% $87.00 $22.88 News Corp. NWS $22.75 2.2% $25.13 $18.13 PSINet Inc. PSIX $10.50 12.8% $29.00 $6.75 Sears S $51.38 -1.2% $53.25 $25.88 Spyglass Inc. SPYG $22.88 -6.2% $61.00 $13.25 UUNET Technologies UUNT $44.50 23.6% $98.75 $21.75 VocalTec LTD VOCLF $10.63 25.1% $20.75 $8.50 Yahoo YHOO $28.88 -12.5% $43.00 $24.00 Disclaimer ========== I began writing this newsletter in September 1994, at the time I was working for a technology company now owned by MCI. In March 1995, I began working for International Business Machines Corporation. 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>.