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============================================================================= Seidman's Online Insider ============================================================================= Weekly Summary of Major Online Services and Internet Events ----------------------------------------------------------------------------- Vol. 3 Number 24 June 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 ============= - Editor's Note - AOL's COO Resigns - Case Back in Charge - AOL 3.0, It's Better than 2.5 and Better than a Browser - What's Going on With CompuServe? - AT&T and Industry Net form Nets Inc. - Miscellaneous - Subscription Info Editor's Note ============= This issue is sort of unofficially sponsored by the wonderful folks at NetGuide magazine. Oh sure, I think they're wonderful because they're paying me, but keep in mind, the fact that they're paying me has allowed this newsletter to remain FREE!! So check out their newly remodeled Web site at < http://www.netguidemag.com >. You can even see my first column for the magazine at: < http://techweb.cmp.com/net/magazine/current/columns/insider.htm > This is a transitional week to get me back into the flow of the newsletter. Next week, the official NetGuide sponsorship begins, and so far as I can tell other than changing the copyright statement and adding some sort of NetGuide plug (which will be shorter than this one!) nothing will change. However, July 4 and 5 are official company holidays. In order to get the newsletter copy edited beginning with the next issue, distribution of the next issue will probably be held up until Monday, July 8. AOL's COO Resigns - Case Back in Charge ======================================= On Monday, AOL announced that president and chief operating officer, William Razzouk had resigned after only four months of service. Razzouk, the former Federal Express executive cited difficulties over relocating the family from Memphis, Tennessee to the Washington, D.C. area. I half expected to see that AOL board member and former secretary of state, Alexander Haig had declared himself president (hey, it happened once, right?), but it is Steve Case who will assume Razzouk's day-to-day duties. A search for a new COO is in progress. AOL estimates it will take 3-6 months to fill the position. "I leave with only good feelings for the people of America Online, and especially for Steve Case," Razzouk said in the company press release. "As the school year ended and the process of uprooting my family began, we came to realize that moving from Memphis was simply not in our best interest." I kept looking for the paragraph containing "Did you know the word 'gullible' was not in the dictionary? Check it out on AOL at Keyword: WEBSTER ." Instead I found: "It has become clear that my continued active involvement in major day-to-day business decisions would be helpful to AOL, so I have taken on a growing role in determining marketing strategies, pricing and product plans," said Steve Case in the press release. One rumor is that Bill Razzouk and Ted Leonsis had some squabbles and Ted won. I guess Bill and Ted's excellent adventure wasn't that excellent. AOL officials deny this, saying it was more a matter of things just not working out on either side after a few months. Case wanting to get back into the day-to-day running of the company makes sense though, especially during a somewhat critical phase prior to massive marketing of the 3.0 software. While Razzouk is given a lot of credit for his management skills, the Internet/Online world is extremely fast-paced, and not always structured environment. Though structured management is probably a good thing for many areas of the company, sometimes too much structure prohibits a company from being dynamic. AOL needs to be very dynamic. Here's some of what Bear Stearns & Co. analysts Jamie Kiggen and Scott Reamer had to say about Razzouk's departure in a research report entitled "Steve Case Comes Home, Bill Razzouk Goes Home, And AOL Gets Moving Toward A Strong Fiscal 1997": " In our view, a combination of Case's renewed vigor for personally directing AOL through this critical phase in the company's evolution and Razzouk's experience in more structured and hierarchical organizations led to his departure," said the Bear Stearns report. "We think investors should take comfort in Case's higher profile within AOL, as the company he founded and the industry he invented face escalating challenges that need to be met by a visionary and a leader, not just a manager," the report added. Merrill Lynch analyst Lou Kerner had this to say in a recent Reuters story: "Both Steve and Ted (Leonsis) are very strong individuals. Like those two, they are going to need someone who lives and breathes this world." I wouldn't go so far as saying Case invented the industry, but other than that, I'm very much in synch with Kiggen and Reamer. Kerner's comments makes sense too. Some have said this is just a matter of Case wanting to exert control over the company. As chairman and CEO, he could do that anyway. I asked case about this and he made it clear that for the long term he had no desire to be the chief operating officer and oversee the day-to-day management. When I asked Case if he would pull back out of the day-to-day once a new COO is in place, Case didn't hesitate in saying he'd pull back out. The best line I heard on this comes from someone who works in the online industry who wishes to remain anonymous (perhaps he wants to work for AOL someday.) "Once Case made his decision, Razzouk absolutely, positively had to get out of there overnight." Ah, a little FedEx humor... AOL 3.0, It's Better than 2.5 and Better than a Browser ======================================================= I'm sure I'll get some flames on this, but AOL's preview version of the new 3.0 software is a hit. It's come along way from 2.5. It's prettier, it's faster, the browser is better and faster. Though sometime in the next few months it will be replaced with an integrated Microsoft Internet Explorer browser, the new browser supports HTML 3.0, SSL, and more. It's pretty decent. You now can add hyperlinks and stylized text in e-mail. Finally, the annoying artwork downloads, probably the biggest knock against the software are gone. It's a big improvement. The truth is, all other things being equal, with the advent of AOL 3.0 for Windows (and coming soon, an identical client for the Mac) AOL is the best thing out there. Unfortunately, all things are never equal and AOL is number one, and people love to pick on number one. Okay, there's that 15 seconds AOL adds to every connection which they say accounts for network connection time. For anyone connecting above 2,400, that's a crock, and I think they should change it, but overall, if that's the worst thing you have to say about AOL, it could be worse for Steve Case and the gang in Virginia. But that's not the worst thing people say. People say "The Internet will kill AOL." I don't buy it. Where things really aren't equal is pricing. Pricing may kill AOL, but if AOL goes to a mode where they offer unlimited access for $20, they blow everyone out of the water. Of course, they aren't going to do that until they can figure out a way to make money on it. That day will probably come, but it isn't coming soon. The Internet killing AOL talk is somewhat crazy, and mostly seems to come from people who simply believe that all things should be free or really cheap. AOL isn't free, or in this day and age, really cheap. So for those folks, AOL sucks. But you can't downplay the fact that most people still don't seem to care about using online or Internet services on an unlimited basis. For the 5 hour crowd, which in terms of sheer numbers is most people - AOL represents a good deal. AOL has received mega press lately as a result of the drop in the stock price from a high of $70 in May to around $44 as of this writing. The growth has definitely slowed down, and the momentum investors pulled out. Not a big surprise. The growth slow down is real, but for now, this is a business with a lot of seasonality. Look for AOL to add a lot of new users and KEEP more of them once they begin the big push with 3.0 this Fall. *Is the Internet Killing Online?* Maybe someday, but not yet. Nobody is adding more subscribers per day, per week and per month than America Online. It would be one thing if Netcom was outpacing America Online. AT&T?? Please, you want a sign of what the Internet access market is like? Let's stop a minute and look at AT&T. AT&T WorldNet offered free accounts for one year to AT&T customers provided that they use the service less than 5 hours a month and at least one hour a month. After 9 weeks, AT&T was boasting 150,000 subscribers as of May 22. That doesn't sound bad, but if 2/3rds of AOL's customer base uses AT&T, you'd think that they'd just leave and go with WorldNet if the Internet were such an online killer. It hasn't happened that way. Merrill Lynch analyst Lou Kerner summed it up very nicely: "The 16k membership was disappointing (CompuServe's net subscriber growth in North America for the quarter ending 4/30), but it is really the same phenomena that AOL is experiencing," said Kerner by e-mail. "It's the 57,000 channels and nothing on syndrome. CompuServe was very successful (although not as successful as AOL) at getting new subscribers. However retention was abysmal. It's a big problem. Is it fatal?" "The major question I ask is where did people go? More people churned off AOL in the quarter than are on all Internet access providers combined. That means that not all people are churning off online services to go to the net. Some are. But the vast majority are simply disconnecting. They are finding nothing compelling on the services. However, I believe that both services are getting a little better every day. The next time those people try to go online (and they will) the improvements may be enough to keep them connected," Kerner said. *Finding New Revenue* Ted Leonsis has said he wants to get ad revenues up to the point where they're representing at least a third of AOL's overall revenue. The recent advertising deal with Netscape should help them in this effort. AOL is significantly growing staff for their advertising efforts and has partnered with Nielsen to develop tracking mechanisms. Not only does AOL have the benefit of over 5 million subscribers, they have the benefit of knowing who the subscribers are, right down to the zip code. Zip codes are very powerful marketing demographics and AOL will be able to tell advertisers not only how many folks looked at an ad, but what zip code they're from. Advertisers love that sort of thing. I think AOL would love to move to a mode where, like Newspapers, 60%-70% of the revenues come from advertising. In the face of inexpensive high bandwidth services, which are coming and easier to use Internet tools, some of which are here now, AOL will ultimately need to compete on price. When that day comes, advertising will play a critical part. What's Going on With CompuServe? ================================ I'd quickly like to wish Russ Robinson, Rich Baker, and Lex Crossett who have left or will soon be leaving CompuServe, the very best. They've been very helpful in keeping me informed. Thanks for all the help! CompuServe's earnings report for the quarter ending 4/30/96 was a mixed bag. CompuServe lost $1.2 million for the quarter, mostly attributed to expenses associated with the deployment of CompuServe's family service, WOW! In the same quarter a year ago, CompuServe posted a loss of $59 million, but they took an $85 million charge that quarter for the acquisition of Spry. Revenues were up to $215+ million. CompuServe's Network Services division continued strong performance representing over 25% of the revenue. CompuServe is now claiming 5 million plus customers spread over all of their services (CIS, SpryNet, WOW!, and they even broke out Nifty-Serve.) This represents an increase of over 400,000 subscribers for the quarter. Here's where the news gets a little dicey. They reported 8% overall growth for CIS, to 3.2 million subscribers worldwide. But most of that growth came in the international market. Growth for CIS in the US market, where CIS has 2.3 million subscribers has all but stalled. CIS added only 16,000 subscribers for the quarter ending 4/30. That's pretty bad. Here's how the CompuServe subscriber universe looks as of 4/30 CIS 3.2 million (2.3 million in North America, the rest are international) NIFTY-SERVE 1.7 million (CompuServe gets some revenue from these accounts, and while we're not sure exactly what it is, we are sure it's a lot less than the equivalent of $9.95/mo.) Sprynet 132,000 (Internet Access Service) WOW! 63,000 "We will significantly step up marketing efforts for CIS within the next month,` said Bob Massey, CompuServe's president and CEO in the press release. "We deferred marketing CIS early in the fourth quarter while we invested in the improvement of the infrastructure and navigational software and launched WOW!. With improvements to our system well under way and with version 3.0 of CompuServe Information Manager software ready to be issued this summer, we are in a position to aggressively seek new subscribers to CIS." Okay, deferral is one thing, but only adding 5,000+ accounts a month in North America? Netcom may not be beating AOL, but they sure as heck are adding more than 5,000 a month. Like AOL, in North America, CompuServe is having a terrible time with churn. Moves to the Web, an improved interface and marketing should be help some though to date, though, I'm disappointed with what I've seen in the 3.0 CIM interface. I'd hoped to see more improvements and with CompuServe's shift to the Web, I wonder if we'll ever see significant development work on the CIM interface. As for WOW!, some analysts have predicted that it will be another year before 50% of the Microsoft Windows desktops will be using Win 95. With more than half of the Windows desktops still on 3.1, WOW! has a tough road to hoe for the next couple of years. At this point, SpryNet, a very nice service, appears to be the most competitive product CompuServe has. Their Network Services division is a gem in general...perhaps it would've been better for H&R Block if they'd just spun off the Network division instead of all of CompuServe. Lehman Brothers analyst Brian Oakes began coverage of CompuServe with an outperform rating. Oakes said that "significant growth is probably a quarter or two away." Oakes too, is very bullish on the Network Services division. "We believe that CompuServe's network service business is very attractive, valued at $1.0 billion to $1.5 billion and lends support to the stock," Oakes said according to a report by Reuters. AT&T Sells New Media Group to Industry Net ========================================== If you want to know how to lose $50 million and not even blink, ask AT&T. AT&T purchased Interchange in 1995 for a cool $50 million. Then they killed off the proprietary Interchange service and said they were going to move it to the Web. The core of the Interchange group became the AT&T New Media services group, led by Michael Kolowich. To date, this group has produced a couple of sites like "Lead Story" < http://www.leadstory.com >, and AT&T Business Network < http://www.att.com/bnet/ >. Lead Story is essentially a grouping of links to a critical issue. AT&T Business Network, originally planned as a subscription service lives on the Web only as a bunch (okay, so it's one thousand) links to other site's resources on the Web. Maybe AT&T still hasn't figured out what they want to do from a content point of view. Maybe they've decided they don't want to play in the content space alone. Either way, they sold the AT&T New Media services group to IndustryNet, a company now led by former Lotus chief Jim Manzi, for a minority stake in the newly formed company, Nets Inc. AT&T's stake in the company is less than %20, but they have an option to increase the holding in the future. Both AT&T New Media Services and Industry Net were gearing for a "content hosting" business. Industry Net reportedly has 4,500 customers paying at least $3,000 a year and as much as $200,000 for hosting services. I think the goal of the newly formed Nets Inc. will be to continue this business, along with providing subscription base services and the Web. Sooner or later, they'll probably look to aggregate content and then you have, well, another online service. This will be interesting to watch... Miscellaneous ============= THE C|NET IPO COMETH: c|net goes public next week, and it will be very interesting to see how Wall Street reacts to their initial public offering. What seems to separate c|net from some of the other content production companies is their drive, long term, to leverage the Internet as a broadcast medium. They're thinking very big for the long term. One observer said "Two unique things about cnet -- the talent and the paranoia about making the product better every day..." I think that sums it up pretty well. Stay tuned. Separately, it has been reported that Intel has taken a 4.5% stake in c|net. -- THE CHECK IS IN THE MAIL: Cowles/SIMBA Media Daily reported that the MSNBC Web site < http://www.msnbc.com > was "on hold" on Thursday when visitors to the site received the message: "www.msnbc.com does not have a DNS entry. Check the location name (URL) and try again." The most plausible explanation turns out to be that Microsoft apparently didn't pay the $100 to InterNIC for the domain name registration fee. If this had happened to me, I wouldn't think it was very funny, but... -- SLATE officially launched at < http://www.slate.com >. The much hyped site so far hasn't lived up to expectations, at least mine. The biggest surprise is that Michael Kinsley, recruited from CNN has appeared to take on only an editorial role. I'm surprised that they aren't leveraging the personality they allegedly paid megabucks for. Biggest non surprise: they plan to start charging $19.95 a year for it in November. It's a good thing it is free right now... -- EXCITE BUYS MCKINLEY - Excite < http://www.excite.com > bought the apparently financially troubled McKinley, most noted for its Magellan site of Web reviews for $18 million in stock. According to Excite, this makes them the number 2 search engine behind Yahoo! Judging from the stock watch, the Wall Street is starting to get more realistic about search engine companies... -- OTHER STUFF...MASTERCARD AND VISA issued revised standards for secure transactions over the Internet. The new standards replace those from February and are expected to speed up electronic commerce on the Net...AMERICA ONLINE AND FIRST USA are offering AOL members in the US the opportunity for an AOL VISA card (keyword: AOLVISA)...MICROSOFT, NINTENDO AND THE NOMURA RESEARCH INSTITUTE are developing an Internet service to be deployed to Japan via Satellite beginning in the middle of 1997...Meanwhile BILL GATES is eyeing other Asian markets and predicting growth in Internet usage in India and China...WHILE THE NEWSLETTER WAS ON VACATION, the Communications Decency Act was overturned by a panel of US District Judges in Philadelphia. Now the US Department of Justice is gearing up to appeal the decision to the Supreme Court...PERSONAL NEWS PROVIDER FARCAST < http://www.farcast.com >, has partnered with Sony to provide wireless news via General Magic's Magic Cap operating system on Sony personal communicators. Farcast also named SCOTT KURNIT, the former Prodigy#2 and former head of Newscorp/MCI's aborted joint Internet venture. Stock Watch for the Week Ending June 28, 1996 ============================================= This % 52 52 Week's Change Week Week Company Name Ticker Close 1 Week High Low ============ ===== ====== ===== ====== ==== @Net Index IIX $252.34 0.9% $273.13 $185.76 America Online AMER $43.75 9.7% $71.00 $21.38 Apple Computer AAPL $21.00 -7.2% $49.88 $19.63 AT&T T $62.00 -1.4% $68.88 $51.38 BBN Corporation BBN $21.75 -1.1% $48.75 $20.25 CMG Information Svcs. CMGI $27.00 17.4% $50.25 $8.38 CompuServe CSRV $21.13 -5.0% $35.50 $20.00 CyberCash Inc. CYCH $54.75 19.7% $64.50 $24.50 Excite Inc XCIT $8.38 -10.7% $21.25 $8.00 FTP Software FTPS $8.25 -2.9% $40.63 $7.63 H&R Block HRB $32.75 -2.2% $48.88 $31.50 IBM IBM $99.00 0.4% $128.88 $83.13 Lycos Inc. LCOS $11.13 4.7% $29.25 $8.75 MCI MCIC $25.63 0.0% $31.13 $20.88 Mecklermedia Corp. MECK $20.25 1.3% $24.50 $8.50 Microsoft MSFT $120.13 -3.0% $135.88 $79.88 Netcom NETC $27.00 -6.1% $91.50 $19.22 NetManage NETM $11.00 -1.2% $34.00 $9.38 Netscape Comm. Corp NSCP $62.25 13.2% $87.00 $22.88 News Corp. NWS $23.50 1.6% $25.13 $18.50 Open Market OMKT $24.38 -9.7% $42.28 $24.38 Oracle Corp. ORCL $39.44 3.8% $40.38 $23.31 PSINet Inc. PSIX $11.50 -8.0% $29.00 $6.75 Security First Nat'l SFNB $33.00 -12.3% $45.00 $33.00 Spyglass Inc. SPYG $21.44 7.8% $61.00 $14.13 Sun Microsystems SUNW $58.88 -1.9% $67.13 $19.75 UUNET Technologies UUNT $66.25 -0.4% $98.75 $24.25 VocalTec LTD VOCLF $8.75 -9.1% $20.75 $8.50 Yahoo YHOO $21.00 -5.6% $43.00 $18.25 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>.