Seidman's Online Insider - September 12, 1997
<HTML><PRE>Thema: Seidman's Online Insider - September 12, 1997
Datum: 15.09.97 04:52:12 MEZ
From: robert@onlineinsider.com (Robert Seidman)
Sender: ONLINE-L@PEACH.EASE.LSOFT.COM (Seidman's Online Insider)
Reply-to: robert@onlineinsider.com (Robert Seidman)
To: ONLINE-L@PEACH.EASE.LSOFT.COM
============================================================================
Seidman's Online Insider - Vol. 4, Issue 31
Visit the Online Insider on the Web < http://www.onlineinsider.com >
============================================================================
Copyright (C) 1997 Robert Seidman. All rights reserved. May be
reproduced in any medium for noncommercial purposes as long as
attribution is given.
IN THIS ISSUE
- Editor's Note
- AOL and WorldCom Win Big With CompuServe
- Stock Watch
- Subscription Info
Editor's Note
=============
At long last, the "Insider Talk" discussions are up and running. Many
thanks to the folks at Well Engaged, and in particular, Susan Reed, for
hosting the discussion threads. Also many thanks to those of you who
were invited and already have posted. While the "Insider Talk" forums
have not yet built up their momentum, I encourage you to check them out
at:
< http://www.onlineinsider.com/html/insider_talk.html >.
If you work in the business and would like to participate in the forums,
please e-mail me information with your name, job title and company name.
In a week where Microsoft decided to pull Java from its web sites,
where the Mining Company is reportedly changing its business (to be more
focused on businesses) and the remaining Delphi customers were sold off
to Internet service provider Mindspring, the big news, once again, was
America Online.
AOL and WorldCom Win Big With CompuServe
========================================
Unless you had your head in the sand, by now you've no doubt heard the
news that H&R Block sold CompuServe to telecommunications giant
WorldCom. WorldCom COO John Sidgemore orchestrated a three-way deal
involving WorldCom, H&R Block and America Online.
WorldCom picks up CompuServe's network in exchange for WorldCom stock.
It also picks up AOL's ANS network division in exchange for $175 million
and CompuServe's online services division. Though I haven't updated yet,
Steve Case jumps to the No. 1 spot in Seidman's 25. Sidgemore earns a
spot somewhere in the top 10.
The deal is pending federal approval, since some have expressed
concerns that by swallowing its nearest, albeit distant, competitor,
AOL is opening potential antitrust issues. This could take anywhere
from three to six months to clear up, but given all the ISP
competition out there from AT&T, MCI, Sprint, EarthLink, Netcom,
MindSpring, Erols and others, I find it hard to imagine the deal won't
go through.
*Why WorldCom Wins*
WorldCom is now an Internet powerhouse. On Sept. 8 it officially
announced its acquisition of MFS Communications, which already had
acquired UUNET. It is arguably in a better position to provide Internet
access than any of the big guns -- AT&T, MCI or Sprint. In fact, in a
blow to Sprint, which once upon a time provided the majority of access
for AOL, WorldCom now will be the primary provider to the largest user
of network services anywhere -- America Online. Effectively WorldCom
gets the biggest consumer of data networks IN THE WORLD!
*Why AOL Wins*
AOL gets $175 million and CompuServe's 2.6 million customers. You'll
notice that it is 2.6 million and not 5.2 million. Frequent readers
know that's because CompuServe always counted its licensee account
NIFTY, which represented some 2.6 million or so customers, but they were
not CompuServe customers.
AOL is claiming that it will maintain CompuServe as a separate brand and
service. Already I'm reading about how CompuServe customers will leave
en masse and how AOL won't be able to accommodate access for all the new
customers. What are these folks smoking? Seriously. I mean, first,
AOL picked up ANS for $35 million two years ago, and now it gets $175
million for it, plus 2.6 million customers. You have to figure that
many CompuServe subscribers' quitting was factored into the price. Even
if they all quit, $140 million net for ANS after two years seems like a
pretty good deal to me. But not all of CompuServe's users are likely to
quit.
As for access, how can it not get better? I mean, WorldCom will get all
the access AOL has, plus WorldCom already has additional access points.
Plus WorldCom picks up the CompuServe network, which was scaled for a
lot more customers than it actually has. CompuServe isn't suffering
access problems today, and I don't see how it could be any worse on Day
1 of AOL ownership, and it seems to me it would be a lot better. A win
for everyone!
But did AOL get such a good deal for ANS? Some have speculated that it
can't be so good if AOL just poured $350 million into upgrading its
network.
"This is not relevant; it's mixing apples and oranges," said AOL
chairman and CEO Steve Case via e-mail. "The $350 million was not just
related to AOLnet modems; it also related to building a new data center,
dramatically expanding our server complex, etc.," Case said. "Of the
portion related to AOLnet, much of it was leases, and the ANS portion of
the leases are being assumed by WorldCom as part of this deal."
One of the things AOL always did well was bundle access, software and
content. Some see the deal with WorldCom as AOL's getting out of the
access business. Not so, according to Case.
"AOLnet is the network AOL customers use to connect; it will continue to
be under AOL's management," he said. "ANS was one of three vendors to
AOLnet; the other two are GTE/BBN and Sprint," he continued. "In this
deal [AOL] is selling ANS to WorldCom, so they will take over that
portion of AOLnet for us.
"We are not getting out of the access business; we're just getting out
of the business of doing the infrastructure 'plumbing' ourselves and out
of the business of selling network services to corporations," he added.
*Why AOL's Subscribers Win*
AOL's subscribers win because, at least if AOL uses the situation to its
advantage, its landscape changes somewhat dramatically. It no longer
faces the burden of handling access, which frees it up to focus on a
better-quality service and better-quality customer service. Again,
access should get better as a result of this deal and not worse. AOL
picks up very favorable terms for access over a five-year period. It
knew what it wanted its access costs to be and it got them (whatever the
number is). It isn't AOL's problem now to figure out how to get to that
price -- that's been done for the company. On a much, much larger
scale, this is similar to what Prodigy did by offloading its network to
Split Rock.
*Do CompuServe's Subscribers Win?*
Over the short term, the worst case is CompuServe subscribers are no
worse off than they were. It was getting pretty bad for them anyway,
the way things were going with the service. But mark my words on this
one: Two years after the deal is done there will be no CompuServe.
Over the short term (say, six to 18 months after the deal is completed),
I would expect AOL to be sensitive and cautious. I met with Prodigy
CEO Paul DeLacey last week. Though only a shadow of its former self in
some ways, today's Prodigy has faced and continues to face similar
challenges to what AOL will face with CompuServe. In the case of
Prodigy, the goal is to shift all its subscribers over to the new
Prodigy Internet service. There are some hundreds of thousands of
die-hard users, however, who remain loyal to "Prodigy Classic." While
DeLacey made no bones about the fact that ultimately Prodigy would do
away with the Classic service, it appears that it's taken a very careful
approach to migrating customers. And it did in fact fix some things on
the Classic service even though it knew that ultimately it would close
down the service. As a result, at least for the time being, Prodigy has
retained a large percentage of its loyal base. AOL would be wise to
take a similar approach with CompuServe.
*The Importance Placed on CompuServe's Forums*
I agree that AOL's newest implementation of message threading (the one
that employs what it uses for newsgroups) isn't the best implementation
in the world. But technology alone doesn't make good forums, and that
piece, at least, is somewhat easily fixed.
I think, though, that perhaps too much emphasis is being put on the
current quality of CompuServe's forums. In its heyday, CompuServe's
forums were incredible. But its heyday is long gone and many of the
forums have suffered as vendors pulled out and set up shop on the Web or
other places. And a lot of its customers pulled out and went to other
places as well. Many of today's forums are all but barren.
It's important to consider why CompuServe's forums were so good to begin
with. That boils down to a few factors, each of which is very
important. The quality of the people participating in the forums was
higher; this is because the forums themselves were very focused. People
participating needed and/or had information that was useful to other
participants. Then there was the cost of the service. It wasn't all
that long ago that CompuServe was more than $20 an hour at 9,600 baud.
For a long time it resisted the temptation to lower hourly fees. As a
result, the quality of the posts was inherently better for the simple
reason that at $20 an hour, you're not going to find too many people
posting off-topic deliberately just to tick people off. The
participants, or their companies, were willing to pay the price to
participate. I think in many ways this dynamic ensured higher quality.
CompuServe did a great job of moderating the forums.
Moderators made sure the files people wanted were in the library.
Moderators made sure questions were responded to. Moderators made sure
the quality of postings was good. Then there's the not-minor issue of
there being a business model that made it worth everyone's while. The
groups hosting a forum received a cut of the revenue on access fees. By
holding out on flat-fee pricing (it'll be interesting to see whether AOL
honors CompuServe's decision to begin offering flat-fee), CompuServe
retained a business model. Companies hosting forums were paid.
Moderators were paid and/or received free accounts (and before the
advent of flat-fee online services, a free account could be a very big
deal). Everyone was happy. The dynamics of CompuServe's forums were
about to change quite a bit (for the worse, I think) with the addition
of flat-fee service.
Finally, as the Web exploded, there were a lot of places to get
information -often GOOD information, for FREE! I didn't need to go to
the Windows Forum on CompuServe to get the latest drivers for my video
card. I could just go the vendor's page on the Web and download them
easily. If I wanted to know how to do something, usually a simple Web
search or search of the newsgroups would turn up what I was looking for.
CompuServe's forums, through no fault of their own, were on the decline.
So whatever happens, let's not blame AOL for that.
Can AOL maintain them at their current level? That depends largely on
whether flat-fee is offered. Can AOL restore them to their former
glory? I think this is doubtful. Even if AOL were to offer forums at an
added cost (on CompuServe or on AOL), I think, the explosion of
information available would make success on a broad scale unlikely. Yet
I do think such an approach would succeed in specialized niche
categories.
*Again, Mark My Words*
Though AOL maintains it will keep the CompuServe brand and service
separate, long-term, I think that's not at all likely. AOL will have to
figure out what it has acquired. How many of the accounts on CompuServe
already have accounts on AOL? I'm guessing it's not a small number, but
as for a percentage, I don't have a clue. Then AOL will have to find
out (probably the hard way), how many CompuServe members will cancel
simply because of the fact that AOL now owns it -- even if AOL committed
to ALWAYS keeping the service separate. Then there are those customers
who, believe it or not, would switch to AOL without a problem if they
thought their buds from CompuServe were going with them. So subtract
all these categories from the 2.6 million. The bigger the remainder,
the longer the transition ...
I read that Case and AOL Networks president Bob Pittman visited
CompuServe's headquarters in Ohio. According to reports, Pittman
alleviated fears that the service would be closed down by pointing out
his background in the cable industry. According to reports, Pittman
regaled CompuServe employees with stories of how one brand just isn't
good enough to satisfy most people. That's why Viacom didn't merely
have MTV, that's why it has VH1 and Nickelodeon. So Pittman told the
crew, Hey, AOL is a consumer brand and CompuServe is a business brand
and that's why we'll keep them separate -- the value of the brand is
very important.
And you know what? I don't disagree with Pittman. In an ideal world,
he wouldn't be wrong. But we live in a realistic world, and he knows
it. Bottom line here is that AOL is blowing smoke. That Pittman would
bring up the cable model makes me wonder how dumb he thinks we are. How
dumb do you think we are, Bob? Seriously. Would you have launched VH1
and Nickelodeon if you were told you'd have to use different facilities,
different types of studios and different types of cameras, and if your
customers were forced to have one cable box for VH1, another for MTV,
and another for Nickelodeon so they could watch the individual
channels? When someone told you what that was going to cost, there's no
way you would do it! And you don't even need to guess what it's going
to cost to understand that it's going to cost MORE to keep CompuServe
separate, that developing software for a dying brand -- yes, a DYING
brand -- will cost more and be better spent elsewhere.
I don't know, but maybe Pittman should just shut up with this branding
stuff lest people think AOL will be launching new online services to
meet the needs of different people. AOL of course will be launching new
services to meet the needs of different people, but it will be launching
them, as it always has, under the AOL brand, under the AOL software.
While one could make a strong case that the AOL software needs to
change, the approach shouldn't change.
*What Does AOL Need to Do to Keep CompuServe Customers?*
CompuServe, like any other service, has a mix of customers ranging from
very active to inactive. What the percentage of inactive or
not-very-active customers is will likely determine what AOL does.
The active bunch of subscribers breaks down into another range -- from
those on computers 5 years old or older to those on newer machines. I
don't know what the percentage is, but obviously AOL has a better
opportunity with those who have newer machines. CompuServe was
ultimately going to do away with access to the text-based version of
CompuServe. But this shift was problematic for those who were on older
equipment and especially problematic for those who used available
third-party software for accessing CompuServe data offline (i.e.,
pulling down e-mail or messages from forums and responding to them
offline and then sending them up to the system).
While it's not exactly the same situation, Prodigy faces similar
challenges. DeLacey told me that Prodigy has more than 30,000
subscribers using the Classic service who have old equipment that's
incapable of using the new Prodigy Internet service. I asked him whether
he'd consider selling those subscribers to another service once the
company abandons Prodigy Classic. His response was interesting. He'd
rather work with computer-manufacturer partners to offer those folks a
great deal on PCs so they'll upgrade.
If AOL is lucky, those who have had their equipment for five years or
more make up a small percentage of the base. I believe that probably
will be the case. So assuming AOL plans ultimately to migrate everyone
over to AOL's system, what can AOL do? I believe the answer boils down
to these three ingredients:
1. Allow CompuServe members to somehow keep their e-mail addresses.
2. Move to AOL any widely used content that CompuServe has and AOL
doesn't.
3. Substantially improve the message-threading capabilities on AOL
Believe it or not, No. 1 might be the most important. AOL well knows
the value of e-mail addresses. You have to figure that whatever AOL's
or any service's churn is, it would be higher if folks could take their
e-mail addresses with them. Here it's not like the long distance
telephone market, where you can easily switch from AT&T to MCI to Sprint
without changing your telephone number. The e-mail address presents a
barrier to switching. So I believe if AOL could figure out a way to
allow CompuServe folks to log on to AOL and still be
whatever@compuserve.com, it would go a long way toward retaining
subscribers.
Along the same lines, if AOL builds a different experience within the
framework of AOL to differentiate it as "CompuServe," that also would go
a long way in retaining subscribers. In theory this is very doable, as
this was the notion behind privatized versions of AOL. This would allow
CompuServe members to still be CompuServe members and it would allow AOL
to focus on its system and client software instead of having to do all
of that AND focus on CompuServe's system and client software too.
Instead, however, AOL is claiming it will investigate some of the
technology CompuServe has moved forward with to move the service toward
the Web. While I think it's worthy of investigation, unless a
substantial number of CompuServe folks quit, I don't see AOL running a
Web-based CompuServe on Windows NT boxes using Microsoft BackOffice. I
just don't see it. But we'll see.
*Other Bonuses for AOL*
To a large extent the CompuServe customer base in the United States may
just be trimmings for AOL. It helps AOL reach its goal of 10 million
customers sooner, but AOL's U.S. dominance is such that it didn't need
to add a million or so subscribers to be the dominant player. Abroad,
however, AOL isn't dominant and the acquisition of 800,000 or so
subscribers in Europe goes a long way toward establishing AOL as a
player in the European market. To that end, Bertelsmann, the media
giant that is AOL's partner in a 50-50 joint venture, paid AOL $75
million for its acquisition of CompuServe's European base. Between the
subscribers the joint venture has and CompuServe, the venture would have
about 1.5 million subscribers, making it about as big as the biggest
European provider of online services, Deutsche Telekom's T-Online. In
addition, both AOL and Bertelsmann will kick in $25 million for the
venture to expand in Europe.
Stock Watch for the Week Ended Sept. 12, 1997
=============================================
Courtesy of InfoBeat's CLOSING BELL < http://www.infobeat.com >.
52 Wk 52 Wk P/E Week
SECURITY CLOSE HIGH LOW Ratio CHNG
---------------------------------------------------------------------
AT&T Corp................ 42 13/16 43 1/4 30 3/4 14 +7.1%
Amazon Com Inc........... 44 1/4 40 5/8 15 3/4 +47.5%
America Online Inc....... 79 15/16 79 1/2 22 3/8 +14.2%
Apple Computer Inc....... 22 1/16 29 3/4 12 3/4 -0.5%
At Home Corporation Ser A 21 25 3/4 16 5/8 +7.6%
C/Net.................... 34 1/4 41 7/8 14 3/16 -12.1%
CMG Info Svcs. Inc....... 24 15/16 25 8 41/64 +4.4%
CUC Intl. Inc............ 28 11/16 28 5/8 19 1/4 51 +3.1%
CompuServe Corp.......... 13 1/2 16 3/4 8 5/8 0.0%
Cybercash Inc............ 21 40 1/2 10 1/2 +13.5%
Earthlink Network Inc.... 16 5/8 22 1/2 8 5/8 +14.6%
Excite Inc............... 25 3/8 25 1/2 5 1/2 +9.7%
FTP Software Inc......... 3 5/8 8 5/8 3 1/2 +1.7%
GTE Corporation.......... 44 13/16 49 3/8 38 15 -1.5%
H & R Block Inc.......... 39 1/8 42 1/4 24 1/2 67 -2.6%
Hewlett Packard Company.. 67 71 1/2 42 1/2 24 +2.9%
IBM...................... 97 3/4 109 7/16 59 1/16 17 -5.6%
Individual Incorporated.. 4 7/8 11 7/8 2 5/8 +73.3%
Infoseek Corporation..... 8 1/2 11 1/2 4 3/8 +6.2%
Lycos Inc................ 33 1/4 35 5/8 8 3/4 -1.4%
MCI Communications Corpor 27 3/4 43 3/8 23 7/8 16 -4.5%
Mecklermedia Corp........ 22 1/8 30 16 1/4 116 +5.6%
Microsoft Corporation.... 137 15/16 150 3/4 64 7/16 52 +0.4%
Mindspring Enterprises In 18 5/8 18 1/4 5 1/4 +18.2%
Netcom On Line Communicat 12 15/16 20 7 7/8 -5.4%
Netmanage Inc............ 3 1/2 9 7/8 2 1/2 +14.3%
Netscape Communications C 41 65 23 1/2 -2.9%
Open Market Inc.......... 14 1/2 25 1/2 6 1/2 +23.4%
Oracle Corporation....... 38 11/16 42 1/8 22 25/64 48 -2.0%
Psinet Inc............... 8 3/8 14 1/2 5 1/2 -11.2%
Quarterdeck Corp......... 2 5/8 8 7/8 2 +5.0%
Security First Network Ba 12 27 1/2 5 1/4 +5.4%
Silicon Graphics Inc..... 27 7/8 30 5/16 12 5/8 65 -5.7%
Sprint Corporation....... 46 11/16 52 3/4 37 1/2 18 -0.2%
Spyglass Inc............. 8 49/64 20 1/4 6 -2.9%
Sun Microsystems Inc..... 49 1/8 53 5/16 25 1/2 25 -4.1%
Vocaltec Communications L 23 5/16 24 7/8 3 7/8 +5.6%
Worldcom Inc............. 34 13/16 36 5/16 18 3/8 +10.5%
Yahoo Corporation........ 53 15/16 56 3/4 11 9/64 +18.8%
Dow Jones 30 Industrials. 7,742.97 -1.0%
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Subject: Seidman's Online Insider - September 12, 1997
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</PRE></HTML>
Datum: 15.09.97 04:52:12 MEZ
From: robert@onlineinsider.com (Robert Seidman)
Sender: ONLINE-L@PEACH.EASE.LSOFT.COM (Seidman's Online Insider)
Reply-to: robert@onlineinsider.com (Robert Seidman)
To: ONLINE-L@PEACH.EASE.LSOFT.COM
============================================================================
Seidman's Online Insider - Vol. 4, Issue 31
Visit the Online Insider on the Web < http://www.onlineinsider.com >
============================================================================
Copyright (C) 1997 Robert Seidman. All rights reserved. May be
reproduced in any medium for noncommercial purposes as long as
attribution is given.
IN THIS ISSUE
- Editor's Note
- AOL and WorldCom Win Big With CompuServe
- Stock Watch
- Subscription Info
Editor's Note
=============
At long last, the "Insider Talk" discussions are up and running. Many
thanks to the folks at Well Engaged, and in particular, Susan Reed, for
hosting the discussion threads. Also many thanks to those of you who
were invited and already have posted. While the "Insider Talk" forums
have not yet built up their momentum, I encourage you to check them out
at:
< http://www.onlineinsider.com/html/insider_talk.html >.
If you work in the business and would like to participate in the forums,
please e-mail me information with your name, job title and company name.
In a week where Microsoft decided to pull Java from its web sites,
where the Mining Company is reportedly changing its business (to be more
focused on businesses) and the remaining Delphi customers were sold off
to Internet service provider Mindspring, the big news, once again, was
America Online.
AOL and WorldCom Win Big With CompuServe
========================================
Unless you had your head in the sand, by now you've no doubt heard the
news that H&R Block sold CompuServe to telecommunications giant
WorldCom. WorldCom COO John Sidgemore orchestrated a three-way deal
involving WorldCom, H&R Block and America Online.
WorldCom picks up CompuServe's network in exchange for WorldCom stock.
It also picks up AOL's ANS network division in exchange for $175 million
and CompuServe's online services division. Though I haven't updated yet,
Steve Case jumps to the No. 1 spot in Seidman's 25. Sidgemore earns a
spot somewhere in the top 10.
The deal is pending federal approval, since some have expressed
concerns that by swallowing its nearest, albeit distant, competitor,
AOL is opening potential antitrust issues. This could take anywhere
from three to six months to clear up, but given all the ISP
competition out there from AT&T, MCI, Sprint, EarthLink, Netcom,
MindSpring, Erols and others, I find it hard to imagine the deal won't
go through.
*Why WorldCom Wins*
WorldCom is now an Internet powerhouse. On Sept. 8 it officially
announced its acquisition of MFS Communications, which already had
acquired UUNET. It is arguably in a better position to provide Internet
access than any of the big guns -- AT&T, MCI or Sprint. In fact, in a
blow to Sprint, which once upon a time provided the majority of access
for AOL, WorldCom now will be the primary provider to the largest user
of network services anywhere -- America Online. Effectively WorldCom
gets the biggest consumer of data networks IN THE WORLD!
*Why AOL Wins*
AOL gets $175 million and CompuServe's 2.6 million customers. You'll
notice that it is 2.6 million and not 5.2 million. Frequent readers
know that's because CompuServe always counted its licensee account
NIFTY, which represented some 2.6 million or so customers, but they were
not CompuServe customers.
AOL is claiming that it will maintain CompuServe as a separate brand and
service. Already I'm reading about how CompuServe customers will leave
en masse and how AOL won't be able to accommodate access for all the new
customers. What are these folks smoking? Seriously. I mean, first,
AOL picked up ANS for $35 million two years ago, and now it gets $175
million for it, plus 2.6 million customers. You have to figure that
many CompuServe subscribers' quitting was factored into the price. Even
if they all quit, $140 million net for ANS after two years seems like a
pretty good deal to me. But not all of CompuServe's users are likely to
quit.
As for access, how can it not get better? I mean, WorldCom will get all
the access AOL has, plus WorldCom already has additional access points.
Plus WorldCom picks up the CompuServe network, which was scaled for a
lot more customers than it actually has. CompuServe isn't suffering
access problems today, and I don't see how it could be any worse on Day
1 of AOL ownership, and it seems to me it would be a lot better. A win
for everyone!
But did AOL get such a good deal for ANS? Some have speculated that it
can't be so good if AOL just poured $350 million into upgrading its
network.
"This is not relevant; it's mixing apples and oranges," said AOL
chairman and CEO Steve Case via e-mail. "The $350 million was not just
related to AOLnet modems; it also related to building a new data center,
dramatically expanding our server complex, etc.," Case said. "Of the
portion related to AOLnet, much of it was leases, and the ANS portion of
the leases are being assumed by WorldCom as part of this deal."
One of the things AOL always did well was bundle access, software and
content. Some see the deal with WorldCom as AOL's getting out of the
access business. Not so, according to Case.
"AOLnet is the network AOL customers use to connect; it will continue to
be under AOL's management," he said. "ANS was one of three vendors to
AOLnet; the other two are GTE/BBN and Sprint," he continued. "In this
deal [AOL] is selling ANS to WorldCom, so they will take over that
portion of AOLnet for us.
"We are not getting out of the access business; we're just getting out
of the business of doing the infrastructure 'plumbing' ourselves and out
of the business of selling network services to corporations," he added.
*Why AOL's Subscribers Win*
AOL's subscribers win because, at least if AOL uses the situation to its
advantage, its landscape changes somewhat dramatically. It no longer
faces the burden of handling access, which frees it up to focus on a
better-quality service and better-quality customer service. Again,
access should get better as a result of this deal and not worse. AOL
picks up very favorable terms for access over a five-year period. It
knew what it wanted its access costs to be and it got them (whatever the
number is). It isn't AOL's problem now to figure out how to get to that
price -- that's been done for the company. On a much, much larger
scale, this is similar to what Prodigy did by offloading its network to
Split Rock.
*Do CompuServe's Subscribers Win?*
Over the short term, the worst case is CompuServe subscribers are no
worse off than they were. It was getting pretty bad for them anyway,
the way things were going with the service. But mark my words on this
one: Two years after the deal is done there will be no CompuServe.
Over the short term (say, six to 18 months after the deal is completed),
I would expect AOL to be sensitive and cautious. I met with Prodigy
CEO Paul DeLacey last week. Though only a shadow of its former self in
some ways, today's Prodigy has faced and continues to face similar
challenges to what AOL will face with CompuServe. In the case of
Prodigy, the goal is to shift all its subscribers over to the new
Prodigy Internet service. There are some hundreds of thousands of
die-hard users, however, who remain loyal to "Prodigy Classic." While
DeLacey made no bones about the fact that ultimately Prodigy would do
away with the Classic service, it appears that it's taken a very careful
approach to migrating customers. And it did in fact fix some things on
the Classic service even though it knew that ultimately it would close
down the service. As a result, at least for the time being, Prodigy has
retained a large percentage of its loyal base. AOL would be wise to
take a similar approach with CompuServe.
*The Importance Placed on CompuServe's Forums*
I agree that AOL's newest implementation of message threading (the one
that employs what it uses for newsgroups) isn't the best implementation
in the world. But technology alone doesn't make good forums, and that
piece, at least, is somewhat easily fixed.
I think, though, that perhaps too much emphasis is being put on the
current quality of CompuServe's forums. In its heyday, CompuServe's
forums were incredible. But its heyday is long gone and many of the
forums have suffered as vendors pulled out and set up shop on the Web or
other places. And a lot of its customers pulled out and went to other
places as well. Many of today's forums are all but barren.
It's important to consider why CompuServe's forums were so good to begin
with. That boils down to a few factors, each of which is very
important. The quality of the people participating in the forums was
higher; this is because the forums themselves were very focused. People
participating needed and/or had information that was useful to other
participants. Then there was the cost of the service. It wasn't all
that long ago that CompuServe was more than $20 an hour at 9,600 baud.
For a long time it resisted the temptation to lower hourly fees. As a
result, the quality of the posts was inherently better for the simple
reason that at $20 an hour, you're not going to find too many people
posting off-topic deliberately just to tick people off. The
participants, or their companies, were willing to pay the price to
participate. I think in many ways this dynamic ensured higher quality.
CompuServe did a great job of moderating the forums.
Moderators made sure the files people wanted were in the library.
Moderators made sure questions were responded to. Moderators made sure
the quality of postings was good. Then there's the not-minor issue of
there being a business model that made it worth everyone's while. The
groups hosting a forum received a cut of the revenue on access fees. By
holding out on flat-fee pricing (it'll be interesting to see whether AOL
honors CompuServe's decision to begin offering flat-fee), CompuServe
retained a business model. Companies hosting forums were paid.
Moderators were paid and/or received free accounts (and before the
advent of flat-fee online services, a free account could be a very big
deal). Everyone was happy. The dynamics of CompuServe's forums were
about to change quite a bit (for the worse, I think) with the addition
of flat-fee service.
Finally, as the Web exploded, there were a lot of places to get
information -often GOOD information, for FREE! I didn't need to go to
the Windows Forum on CompuServe to get the latest drivers for my video
card. I could just go the vendor's page on the Web and download them
easily. If I wanted to know how to do something, usually a simple Web
search or search of the newsgroups would turn up what I was looking for.
CompuServe's forums, through no fault of their own, were on the decline.
So whatever happens, let's not blame AOL for that.
Can AOL maintain them at their current level? That depends largely on
whether flat-fee is offered. Can AOL restore them to their former
glory? I think this is doubtful. Even if AOL were to offer forums at an
added cost (on CompuServe or on AOL), I think, the explosion of
information available would make success on a broad scale unlikely. Yet
I do think such an approach would succeed in specialized niche
categories.
*Again, Mark My Words*
Though AOL maintains it will keep the CompuServe brand and service
separate, long-term, I think that's not at all likely. AOL will have to
figure out what it has acquired. How many of the accounts on CompuServe
already have accounts on AOL? I'm guessing it's not a small number, but
as for a percentage, I don't have a clue. Then AOL will have to find
out (probably the hard way), how many CompuServe members will cancel
simply because of the fact that AOL now owns it -- even if AOL committed
to ALWAYS keeping the service separate. Then there are those customers
who, believe it or not, would switch to AOL without a problem if they
thought their buds from CompuServe were going with them. So subtract
all these categories from the 2.6 million. The bigger the remainder,
the longer the transition ...
I read that Case and AOL Networks president Bob Pittman visited
CompuServe's headquarters in Ohio. According to reports, Pittman
alleviated fears that the service would be closed down by pointing out
his background in the cable industry. According to reports, Pittman
regaled CompuServe employees with stories of how one brand just isn't
good enough to satisfy most people. That's why Viacom didn't merely
have MTV, that's why it has VH1 and Nickelodeon. So Pittman told the
crew, Hey, AOL is a consumer brand and CompuServe is a business brand
and that's why we'll keep them separate -- the value of the brand is
very important.
And you know what? I don't disagree with Pittman. In an ideal world,
he wouldn't be wrong. But we live in a realistic world, and he knows
it. Bottom line here is that AOL is blowing smoke. That Pittman would
bring up the cable model makes me wonder how dumb he thinks we are. How
dumb do you think we are, Bob? Seriously. Would you have launched VH1
and Nickelodeon if you were told you'd have to use different facilities,
different types of studios and different types of cameras, and if your
customers were forced to have one cable box for VH1, another for MTV,
and another for Nickelodeon so they could watch the individual
channels? When someone told you what that was going to cost, there's no
way you would do it! And you don't even need to guess what it's going
to cost to understand that it's going to cost MORE to keep CompuServe
separate, that developing software for a dying brand -- yes, a DYING
brand -- will cost more and be better spent elsewhere.
I don't know, but maybe Pittman should just shut up with this branding
stuff lest people think AOL will be launching new online services to
meet the needs of different people. AOL of course will be launching new
services to meet the needs of different people, but it will be launching
them, as it always has, under the AOL brand, under the AOL software.
While one could make a strong case that the AOL software needs to
change, the approach shouldn't change.
*What Does AOL Need to Do to Keep CompuServe Customers?*
CompuServe, like any other service, has a mix of customers ranging from
very active to inactive. What the percentage of inactive or
not-very-active customers is will likely determine what AOL does.
The active bunch of subscribers breaks down into another range -- from
those on computers 5 years old or older to those on newer machines. I
don't know what the percentage is, but obviously AOL has a better
opportunity with those who have newer machines. CompuServe was
ultimately going to do away with access to the text-based version of
CompuServe. But this shift was problematic for those who were on older
equipment and especially problematic for those who used available
third-party software for accessing CompuServe data offline (i.e.,
pulling down e-mail or messages from forums and responding to them
offline and then sending them up to the system).
While it's not exactly the same situation, Prodigy faces similar
challenges. DeLacey told me that Prodigy has more than 30,000
subscribers using the Classic service who have old equipment that's
incapable of using the new Prodigy Internet service. I asked him whether
he'd consider selling those subscribers to another service once the
company abandons Prodigy Classic. His response was interesting. He'd
rather work with computer-manufacturer partners to offer those folks a
great deal on PCs so they'll upgrade.
If AOL is lucky, those who have had their equipment for five years or
more make up a small percentage of the base. I believe that probably
will be the case. So assuming AOL plans ultimately to migrate everyone
over to AOL's system, what can AOL do? I believe the answer boils down
to these three ingredients:
1. Allow CompuServe members to somehow keep their e-mail addresses.
2. Move to AOL any widely used content that CompuServe has and AOL
doesn't.
3. Substantially improve the message-threading capabilities on AOL
Believe it or not, No. 1 might be the most important. AOL well knows
the value of e-mail addresses. You have to figure that whatever AOL's
or any service's churn is, it would be higher if folks could take their
e-mail addresses with them. Here it's not like the long distance
telephone market, where you can easily switch from AT&T to MCI to Sprint
without changing your telephone number. The e-mail address presents a
barrier to switching. So I believe if AOL could figure out a way to
allow CompuServe folks to log on to AOL and still be
whatever@compuserve.com, it would go a long way toward retaining
subscribers.
Along the same lines, if AOL builds a different experience within the
framework of AOL to differentiate it as "CompuServe," that also would go
a long way in retaining subscribers. In theory this is very doable, as
this was the notion behind privatized versions of AOL. This would allow
CompuServe members to still be CompuServe members and it would allow AOL
to focus on its system and client software instead of having to do all
of that AND focus on CompuServe's system and client software too.
Instead, however, AOL is claiming it will investigate some of the
technology CompuServe has moved forward with to move the service toward
the Web. While I think it's worthy of investigation, unless a
substantial number of CompuServe folks quit, I don't see AOL running a
Web-based CompuServe on Windows NT boxes using Microsoft BackOffice. I
just don't see it. But we'll see.
*Other Bonuses for AOL*
To a large extent the CompuServe customer base in the United States may
just be trimmings for AOL. It helps AOL reach its goal of 10 million
customers sooner, but AOL's U.S. dominance is such that it didn't need
to add a million or so subscribers to be the dominant player. Abroad,
however, AOL isn't dominant and the acquisition of 800,000 or so
subscribers in Europe goes a long way toward establishing AOL as a
player in the European market. To that end, Bertelsmann, the media
giant that is AOL's partner in a 50-50 joint venture, paid AOL $75
million for its acquisition of CompuServe's European base. Between the
subscribers the joint venture has and CompuServe, the venture would have
about 1.5 million subscribers, making it about as big as the biggest
European provider of online services, Deutsche Telekom's T-Online. In
addition, both AOL and Bertelsmann will kick in $25 million for the
venture to expand in Europe.
Stock Watch for the Week Ended Sept. 12, 1997
=============================================
Courtesy of InfoBeat's CLOSING BELL < http://www.infobeat.com >.
52 Wk 52 Wk P/E Week
SECURITY CLOSE HIGH LOW Ratio CHNG
---------------------------------------------------------------------
AT&T Corp................ 42 13/16 43 1/4 30 3/4 14 +7.1%
Amazon Com Inc........... 44 1/4 40 5/8 15 3/4 +47.5%
America Online Inc....... 79 15/16 79 1/2 22 3/8 +14.2%
Apple Computer Inc....... 22 1/16 29 3/4 12 3/4 -0.5%
At Home Corporation Ser A 21 25 3/4 16 5/8 +7.6%
C/Net.................... 34 1/4 41 7/8 14 3/16 -12.1%
CMG Info Svcs. Inc....... 24 15/16 25 8 41/64 +4.4%
CUC Intl. Inc............ 28 11/16 28 5/8 19 1/4 51 +3.1%
CompuServe Corp.......... 13 1/2 16 3/4 8 5/8 0.0%
Cybercash Inc............ 21 40 1/2 10 1/2 +13.5%
Earthlink Network Inc.... 16 5/8 22 1/2 8 5/8 +14.6%
Excite Inc............... 25 3/8 25 1/2 5 1/2 +9.7%
FTP Software Inc......... 3 5/8 8 5/8 3 1/2 +1.7%
GTE Corporation.......... 44 13/16 49 3/8 38 15 -1.5%
H & R Block Inc.......... 39 1/8 42 1/4 24 1/2 67 -2.6%
Hewlett Packard Company.. 67 71 1/2 42 1/2 24 +2.9%
IBM...................... 97 3/4 109 7/16 59 1/16 17 -5.6%
Individual Incorporated.. 4 7/8 11 7/8 2 5/8 +73.3%
Infoseek Corporation..... 8 1/2 11 1/2 4 3/8 +6.2%
Lycos Inc................ 33 1/4 35 5/8 8 3/4 -1.4%
MCI Communications Corpor 27 3/4 43 3/8 23 7/8 16 -4.5%
Mecklermedia Corp........ 22 1/8 30 16 1/4 116 +5.6%
Microsoft Corporation.... 137 15/16 150 3/4 64 7/16 52 +0.4%
Mindspring Enterprises In 18 5/8 18 1/4 5 1/4 +18.2%
Netcom On Line Communicat 12 15/16 20 7 7/8 -5.4%
Netmanage Inc............ 3 1/2 9 7/8 2 1/2 +14.3%
Netscape Communications C 41 65 23 1/2 -2.9%
Open Market Inc.......... 14 1/2 25 1/2 6 1/2 +23.4%
Oracle Corporation....... 38 11/16 42 1/8 22 25/64 48 -2.0%
Psinet Inc............... 8 3/8 14 1/2 5 1/2 -11.2%
Quarterdeck Corp......... 2 5/8 8 7/8 2 +5.0%
Security First Network Ba 12 27 1/2 5 1/4 +5.4%
Silicon Graphics Inc..... 27 7/8 30 5/16 12 5/8 65 -5.7%
Sprint Corporation....... 46 11/16 52 3/4 37 1/2 18 -0.2%
Spyglass Inc............. 8 49/64 20 1/4 6 -2.9%
Sun Microsystems Inc..... 49 1/8 53 5/16 25 1/2 25 -4.1%
Vocaltec Communications L 23 5/16 24 7/8 3 7/8 +5.6%
Worldcom Inc............. 34 13/16 36 5/16 18 3/8 +10.5%
Yahoo Corporation........ 53 15/16 56 3/4 11 9/64 +18.8%
Dow Jones 30 Industrials. 7,742.97 -1.0%
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