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============================================================================= Seidman's Online Insider ============================================================================= Weekly Summary of Major Online Services and Internet Events ----------------------------------------------------------------------------- Vol. 3 Number 17 April 28, 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 ============= -AOL Launches Web Chat -Click Here for $$$? -Netscape: Can You Hang on for the Ride? -Update on Microsoft Support Newsgroups -Newsworthy Notes -Stock Watch -Disclaimer -Subscription Information AOL Launches Web Chat ===================== Once again, I find myself having something nice to say about AOL. Before getting to that, in the interest of balance, here are some nuggets which may soothe those who hate AOL. Nugget #1. Growth may be slowing down. On December 28, 1995, AOL announced it had surpassed the 4.5 million member mark. About 40 days later, on February 6, AOL announced it had eclipsed 5 million. Since then, we've heard nothing, but I believe we'll hear shortly that they've eclipsed the 6 million member mark. The thing is AOL was growing at a run rate of about 1 million every 80 days. By that logic, if AOL was still growing at that pace, they'd have announced the 6 million mark on about April 26. I expect we'll see this announcement sometime in the next 2 weeks, and it really isn't a big deal because the tremendous growth from December 28 to February 6 was fueled heavily by the rush of Christmas PCs, and provided that they do announce within the next couple of weeks, that will still mean growth is extremely excellent. Still, they couldn't keep up with the million every 80 days, and for some of you perhaps that's a nice thought to hold on to. Nugget #2. This is courtesy of the poison pen of "Ned Brainard" at < http://www.hotwired.com/flux >. According to the psuedonymed one, The Robertson, Stephens and Company financial report on AOL issued in March highlighted an interesting trend. AOL deleted 250,000 accounts in the fourth quarter. While the report indicates that some of the accounts may have been removed for bad credit cards, the "bigger cause of forced removal appears to be antisocial behavior" (a.k.a. violating AOL's terms of service.) If true, this puts them on a pace to delete almost a million accounts per year. That's a lot of TOS violations. Still, "The Happy, Happy Joy Boys - Steve Case and Ted Leonsis" (Ned's term of endearment) are getting filthy rich, and well, Ned and I aren't. On with the show... America Online this week announced the beta of their Virtual Places software which leverages what they bought when they bought Ubique last fall for $14.5 million. Virtual Places is essentially an AOL version of IRC chat coupled with the premise of virtual (graphic) chat. Also included is the ability to take people on tours of the Web and chat about the sites as you visit them in real time. This is the same premise as AOL's "Road Trips". My first creative thought was: here is a good opportunity for "Doctor Bob" Rankin, a Boardwatch columnist, and Patrick Crispen who together run a nice mailing list called "The Internet TourBus" < http://www.worldvillage.com/tourbus.htm > to do some nice things in real-time. I downloaded the Virtual Places beta, installed the software and was up and running in minutes. I like how it attaches itself to the "virtual" (graphical) Web space, but I also liked the fact that I didn't really have to look at the graphics if I didn't want to. The instant message facility works very well, and you don't have to be on a "Virtual Places" page to take advantage of the instant messages. Of course, that isn't a problem with other IRC clients either. The Virtual Places client is very easy to use, in fact, the only complaint I could find was that I wished it was entirely HTTP based, so that I could use it through the firewall at work (for testing purposes only, of course!) It was so easy to use that I wondered if this was a smart thing for AOL to be putting it out for free on the Internet. I spoke to AOL Services Company president Ted Leonsis by phone. I candidly asked if he wasn't worried that the chat meisters of AOL would blow the $9.95 a month plus $2.95 an hour popcycle stand for the free Internet version. "People using the service 20,30,40 hours a month for chat and other features are less than 10 % of audience," said Leonis. "They might be willing to buy an ISP, use Yahoo, use Eudora for e-mail and Virtual Places for chat," said Leonsis, but he added that he's not worried about a mass exodus. Leonsis commented that if they'd had to do things over with Booklink, they would have licensed the technology separately (which means they would've given it away), and got it into as many people's hands as they could. "We learned a lesson with Booklink, where you have some hot technologies waiting to be freed," said Leonis. "The market moves so fast that you can lose leadership in something quickly." There is definitely advertising potential for Virtual Places, but Leonsis didn't think that was necessarily the correct route to take, and believes that people might be turned off by that. I told him that I had heard that AOL was working on technology to simulcast AOL "Center Stage" events on the Net via Virtual Places and that I was sure they would advertise for those events. "Advertising is more acceptable for events like that, it's like the broadcast model," said Leonsis. While I agree that the heavier user in the 20-40+ hour range represents a small part of AOL's audience, it does represent a bigger chunk of AOL's revenue stream. So there has to be something in this for AOL, and I sort of wondered what it was. Leonsis was pretty candid in admitting that they haven't got it all figured out yet, but he seemed to think that licensing the technology may be the best bet. He also saw a situation where they gave the client software away and kept the servers and AOL would "have the tollbooth." Leonsis felt the model may work because the chat software could stimulate usage AND draw people to a site. I didn't ask for an example, because several came to mind immediately. Imagine AT&T's Lead Story page at <http://www.leadstory.com >. Now slap chat on top of it (well, literally, the chat is actually on the bottom of the Web browser), so people can actually discuss the lead story with each other. I like this model and I could see where AT&T might be willing to pay a small toll for the right. The "Road Trip" feature that allow you to create tours of Web sites and discuss them via chat as you tour is also very nice, and I could see where AOL would be successful in licensing this technology to others. Leonsis told me he had come up with a new meaning for URL. "Ubiquitous now, Revenue Later," he joked. And while Leonsis sees that disaggregation of content and access may come, he isn't optimistic about existing advertising models on the Web. "There is no proven business model today on the Web, anywhere, and it appears that the business of advertising in Web sites will not happen in most of the Web executives vesting lifetimes," said Leonsis, taking a jab at sites like Yahoo and Excite who have recently done initial public offerings (which have been well received to date.) You can test drive Virtual Places, but don't bring your Apple, because for now, it's a Windows world at: < http://gnn.com >. Click Here for $$$? =================== Regardless of whether there are 10 million or 15 million users of the World Wide Web, there is growth. The advertising community seems to be settling in on a concept that many web based services relying on advertising don't want to hear: the advertisers want to pay only when someone actually clicks on a banner and visits the advertiser's site. Recently, I was advised of a story running in some advertising magazines that said Proctor & Gamble is starting to play hardball and only want to pay when somebody clicks on the banner. I don't think selling soap on the Web is going to be a very lucrative business. Also, just as there is some value for having billboards and banner advertising (buses, race cars, stadiums) there must be some value for banner impressions on the Web. No matter how small. However, the one argument I seem to hear time and time again is the one that says "Why should the Web be any different than print media? Advertisers don't really know who will see their ads in print." I take issue with that notion for this reason: when people do see the advertisements in print media, the process of "glancing" is more natural than the process of clicking on a banner. Also, there is much more information on the printed page ad than there is on a banner. Still, the banners have value. In the end, the advertisers may be shooting themselves in the foot by requesting to pay only on the click-through, because it seems reasonable to charge a LOT for that. However, some of the Web sites that sell advertising will be forced to change their model. Rosalind Resnick wrote an excellent piece on some of the advertising issues for her Interactive Publishing Alert. You may read the piece on the Web at: < http://www.netcreations.com/ipa/excerpts.htm > (at least for the next couple of weeks or so). In her piece, Resnick tells the tale of Songline Studios spending to advertise for their Ferndale soap-opera site at < http://www.ferndale.com >. According to Resnick, Songline advertised on a variety of sites, including Hollywood Online, HotWired and Web Crawler. HotWired delivered the best click-through percentage (2.8), but it also delivered the lowest number of impressions (111,740). Resnick goes on to say that this meant Songline paid about $4.76 per click-through via HotWired (which I assume means they spent about $15,000 on the impressions.) Resnick comments that for that kind of money Songline could've taken everyone who clicked on the banner out for a burger and fries. They could've "super-sized" for that matter! Clearly, that's sort of expensive. I highly recommend reading the full-text of Resnick's piece. Netscape: Can You Hang on for the Ride? ======================================= Netscape reported a profit of $4.7 million for the first quarter on revenues of 55 million and earnings per share (EPS) of $.06. When I see reports on Netscape's "Eye-Popping" ten-fold sales growth over the last year, I stop, glare, compose myself and say, "why the big deal?!" A year ago Netscape was just really coming into its own with revenues of around five million. While I would maintain that ten-fold growth in revenue is a very nice thing to have happen, this is not exactly astounding news if a.) you were minuscule a year ago, and b.) you're Netscape. The hysteria over Netscape was predicated on the supposition that they WILL GET BIGGER. So they did get bigger and they beat the street earnings per share by a few cents. Netscape's first quarter revenues rose $15 million over the $40 million or so generated in the fourth quarter. It is impressive growth, but not necessarily all that impressive in light of the high value placed on Netscape stock. Netscape is now on a run rate for a quarter billion in annual revenue. The market capitalization on Netscape's stock (roughly $5.25 billion) as of the close on Friday was 21 times that of their current revenue run rate. I'd call blackjack, on that for sure. Yeesh. Microsoft who had a fairly outstanding quarter, too, is on a run rate to hit about $8.8 billion in annual revenue. As of Friday's close. Microsoft's market capitalization was roughly $67.4 billion. That means they're market cap is only about 7.7 times that of their current annual revenue run rate. Netscape has to have and is expected to have outstanding growth. Everyone's betting on it. Why make a big deal of it. Remember that Microsoft's market cap is only about 13 times that of Netscape's. That sounds like a rather large number. Until you consider that Microsoft's net income for their last quarter was $562 million or almost 120 times Netscape's $4.7 million. According to Morgan Stanley New Media/Internet analyst Mary Meeker, Morgan Stanley has upped its annual revenue estimates for 1996 up to $257 million from the $207 million that had been forecasted earlier. "Netscape's revenue growth rates (for a software company) are unprecedented and potential stability/predictability for the company's financial model (given NSCP's relative toddling status) is just beginning to become clear," said Meeker in the "Earnings Review" on Netscape. "We believe that our estimates are conservative, but it's important to note that the `scapers just cut server prices in March and new server software isn't expected to begin shipping until June/July, so we believe it's prudent to be conservative about Q/Q revenue growth rates for CQ2 and CQ3," said Meeker. Morgan Stanley maintains its "outperform" rating on Netscape and has increased its operating EPS estimates for the calendar year 1996 from $.20 to $.27. Additionally, Morgan Stanley increased its forecasted operating EPS for 1997 from $.31 to $.40. "While the company's valuation level and share volatility are high, and we believe the stock remains risky, especially after its rapid run-up in the last two months, it is one of the few public pure play (and real revenue/profit bearing) investment opportunities in the rapidly growing Internet market," said Meeker. Perhaps the most telling comment in the Morgan Stanley earnings report by Meeker was this comment on the Netscape stock, "Our view? Just hang on for the ride, but don't expect it to be without bumps...companies like Netscape don't come along very often." Indeed they don't. Netscape has the opportunity to do some amazing things, and I think they will. The only problem is that there is going to be a lot of pressure for Netscape to perform and grow in such amazing ways as to almost be impossible. But the market cap seems so out of whack with anything based in reality that I must remain a cynic. You should be cynical about my cynicism though, because I'm doing something that doesn't work very well when it comes to Wall Street. I'm trying to apply logic to something that is not logical! Still, the Netscape gang is extremely smart... Update on Microsoft Support Newsgroups ======================================= I incorrectly reported the NNTP server for the Microsoft newsgroups. The correct server is: msnews.microsoft.com . Also, there is some confusion about whether Microsoft "pulled" the support forums off of CompuServe. It's like this, the forums weren't Microsoft's to pull, they just played a big role in managing and participating in the forums on CompuServe. The forums are still on CompuServe and the "Go Words" still work. The forums are now supported by a third party group, Windows Users Group Network (WUGNET). Larry McJunkin, Online Director for WUGNET believes they will do a better job providing assistance via the forums than Microsoft did and they are commited to doing so. McJunkin may be right. Do I think everyone who signed up to CompuServe for the Windows support forums will bail? No, I don't. Do I think many of them will consider it? Yes, I do. Microsoft and CompuServe are business partners on some things, but Microsoft never made a commitment to CompuServe the way they are claiming a commitment to the Internet. I think they'll make good on their commitment to provide support via the Microsoft support groups on the Internet. I think very shortly, they will begin providing better service via these forums than they ever provided on CompuServe. Gates will insist on it. If they do provide good service for free, word will spread, and people will want to check out what Microsoft has to say about Microsoft products. Some people confused what I wrote to mean that the Microsoft newsgroups were part of the USENET feed. So far as I know, they are not. While the groups are publicly available and use the standard NNTP protocol, you must point set your browser or NNTP client to point to msnews.microsoft.com . Unfortunately, this isn't always easy, and if you're on AOL, for example, there is no way to get these groups through AOL's proprietary newsreader (because the groups aren't part of the standard USENET feed.) Miscellany ========== SPYGLASS ACQUIRED SURFWATCH Inc. for approximately $12.6 million in a stock pooling deal. Surfwatch is the popular filtering and parental control software for the Internet. Surfwatch will become a product group within Spyglass and the basis for Spyglass' West Coast R&D organization. -- FREENETS ALL OVER THE WORLD? I recently received correspondence advising of a new FreeNet service in Bavaria. The system is currently available only in Munich, and it does have an up-front one time charge of 30 DM, but other than that, it seems to be free. There is more information available at: http://www.muenchen.org , but it's in German. -- ARE YOU A DOOM FANATIC? If so, you'll want to check out id Software's new home on the Web at < http://www.idsoftware.com >. -- GTE TO PROVIDE NETSCAPE with encryption services. The GTE service will provide digital certificate that authenticate the identity of those using Netscape (as well as other applications) on the Internet and Intranets. -- WALL STREET JOURNAL is shifting its Money & Investment Update page at < http://update.wsj.com > to the Wall Street Journal Interactive. The full text of the Wall Street Journal will be available - for a fee. The fee is a seemingly very reasonably priced $49/year, but subscribers to the paper version will only have to pay $29/year. The service will remain free to all registering by the end of May until July 31, 1996. The service will also subsidize itself with advertising. At about $4/mo., the pricing seems very reasonable, and this should give us an even better glimpse of what people are willing to pay for on the Web. Stay tuned for a lot more on this story... -- NETCOM TO TEAM WITH iCAT to provide Internet access and web hosting services which will include software for creating online catalogs and providing secure transactions. The product will be called NetCat and is planned for announcement later this week at Internet World, according to a Reuters report. Netcom recently announced it hit the 400,000 subscriber mark. The company reported a loss of $6.6 million for the first quarter even though revenues of $24.1 million for the quarter were an increase of %221 over the same period one year ago. -- THE PRODIGY CONTENT MACHINE is on the move. You can check out some of the Web sites Prodigy has recently created by going to Prodigy's home page < http://www.prodigy.com > and selecting the links to the various sites. Baseball, comedy, "Chat Soup" and more. -- MICROSOFT'S KINSLEY MAGAZINE will actually turn out to be a REAL magazine in addition to a Web site. And they plan to charge for both. Hey, they paid Kinsley a LOT of money, and the advertising thing really isn't working all that well, so you can't really blame them. The magazine called "Slate" is a "controlled experiment in how people are willing to read things. We're going to offer every possible different option and see which ones people take," Kinsley said in a story by The Seattle Times. All versions of Slate will debut this summer. -- AH SPRING, when a young man's heart turns to, well, Internet World! See you next week. Stock Watch =========== This % 52 52 Week's Change Week Week Company Name Ticker Close 1 Week High Low ====== ===== ====== ==== === @Net Index IIX $252.38 9.5% $259.85 $185.76 America Online AMER $66.13 11.1% $66.75 $16.75 Apple Computer AAPL $24.75 -1.2% $50.94 $23.00 AT&T T $61.38 0.6% $68.88 $49.13 BBN Corporation BBN $28.13 5.2% $48.75 $16.50 CMG Information Svcs. CMGI $30.50 10.9% $50.25 $5.50 CompuServe CSRV $30.00 -9.1% $35.50 $30.00 CyberCash Inc. CYCH $34.25 13.2% $64.50 $24.50 Excite Inc XCIT $16.88 21.6% $21.25 $13.13 FTP Software FTPS $10.13 11.0% $40.63 $8.13 H&R Block HRB $36.38 -2.0% $48.88 $31.50 IBM IBM $107.75 2.2% $128.88 $83.13 Lycos Inc. LCOS $18.00 22.0% $29.25 $14.00 MCI MCIC $28.88 3.6% $31.13 $19.09 Mecklermedia Corp. MECK $17.00 7.9% $24.38 $7.50 Microsoft MSFT $113.50 3.4% $113.75 $78.63 Netcom NETC $33.00 8.2% $91.50 $19.22 NetManage NETM $12.88 -5.9% $34.00 $9.38 Netscape Comm. Corp NSCP $61.75 11.8% $87.00 $22.88 News Corp. NWS $23.63 3.9% $25.13 $18.50 Oracle Corp. ORCL $34.13 6.7% $36.66 $19.81 PSINet Inc. PSIX $11.63 10.8% $29.00 $6.75 Sears S $50.50 -1.7% $53.25 $25.88 Spyglass Inc. SPYG $27.13 18.6% $61.00 $13.25 Sun Microsystems SUNW $54.00 11.3% $57.13 $19.31 UUNET Technologies UUNT $44.75 0.6% $98.75 $21.75 VocalTec LTD VOCLF $11.13 4.7% $20.75 $8.50 Yahoo YHOO $31.75 9.9% $43.00 $24.50 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>.