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July 28, 1999

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Subject: AOL vs The World
Author: Standabove

I've been lurking on this board for a while now and watching the internet jihad between AOL holders and @Home holders. As an AOL holder for some time (2+ years) I've watched the nay sayers and doubters of this company get left in the dust. AOL has been good to me, but I've noticed an alarming trend that makes me, for the first time since buying, doubt the company's long term potential.

While some on this board have been waging a war of words with the @Homeies, I think you've totally misidentified your enemy. The current "broadband battle" is about access- who gots it and who wants it. Huge corporations (AOL included) headed by ruthless CEOs are positioning themselves to decide what the world will use to communicate in a new age of connectivity unparalleled in history. Cable vs copper wire is a tiny skirmish in a much larger campaign (simply a means to an end.) The real focus of this issue is resources- which include delivery (speed) but also include infrastructure, ubiquity, reliability, cost, familiarity, ease of use, brand identification and a host of other smaller, intricate characteristics.

"Huge corporations (AOL included) headed by ruthless CEOs are positioning themselves to decide what the world will use to communicate in a new age of connectivity unparalleled in history."

Use the resources to get the access. Simple, yes?

Those little free ISPs do not have the resources to deliver digital connectivity to the world. They are only competitors in the same sense that a roadside fruit vendor is a competitor to Dole. AOL has many of these resources in at least some quantities, and they are defiantly protecting them scorched-earth style. In doing so they are positioning themselves in the sights of the one company that has more of these resources than most other companies combined.

Who has the money to rush headlong into any business enterprise he chooses? Who has the ubiquity of platform from which to launch an assault on any software company (that is what AOL is rapidly becoming) with near impunity? Who's wrath has AOL been courting with increasing frequency as of late?

Could it beeeeee....

SATAN!!??

No, but close. Its Bill Gates.

Think about it, AOL has squarely set itself against a company who is clearly determined to control how the new information economy works. In a battle for subscribers, AOL has put its proprietary online content (which is similar in function if not in form to MIE) and "portal" status squarely against Microsoft (as well as a few other players as well.) AOL intends to be the new Windows for the digital economy, the format by which people collect, view and manage information from their home. Case has stated as much. But instead of focusing exclusively on developing the resources they will need to innovate and create the environment in which this will happen, they have been sidetracked- bickering over a small homesteader's plot while the entire West lies unconquered. The formidable AOL is fighting not just @Home (content, pipe) but AT&T (brand name, marketing, worldwide industry partnerships) and the mighty Microsoft (platform, ubiquity and more money than God). And potentially on AOL's side? The mighty power and wisdom of the US Justice department and or FCC! <Just a hint of sarcasm> Just how do they intend to win? By shutting MSFT out of their messenger service? Slings and arrows...

"...if AOL tries to crash a party to which it was not invited, by conducting a lengthy court battle and waving the one finger salute to the world in a bid to dominate the web by itself, it will likely fail."

Of coarse, in this scenario even @Home may end up being hobbled, but at least they're willing to ally themselves by not trying to replace MSFT in direct competition. When Gates replaces the AOL icon in Windows 200X or CE or whatever whose will replace it? @Home? Maybe. Right now MSFT is simply hedging its bets with its investment into AT&T to insure its software powers whatever the internet morphs into, but if AOL tries to crash a party to which it was not invited by conducting a lengthy court battle and wave the one finger salute to the world in a bid to dominate the web by itself it will likely fail. Maybe sooner. Maybe later. But eventually.

Look, I tend to lean towards the libertarian view, so even though I own AOL and do not own @Home I'd like to see the open access question end in @Home's favor. That may seem self defeating, but I think it will rapidly improve the internet experience for all persons involved by giving companies the financial incentive to invest in it (whether it be cable or satellite). Also, I think AOL can compete very successfully in that environment by building alliances with infrastructure (perhaps their own cable network), developing more efficient means of delivery (DSL, satellite) and focusing on their true trump cards- content and ease of use. Some of you will say they're already doing that and they are, to a certain extent. But trust me, I've been down this road before. As an Apple shareholder I've watched my favorite little company get crushed tilting at the bespeckled windmill in Redmond, WA while trying to protect its proprietary properties from in the face of overwhelming competition. Its not a pretty sight.

Just an opinion from an interested Fool.

Standabove
Long on AOL...for now.

PS- Has anyone read "The Plot to Get Bill Gates" by Gary Rivlin? Read it and you'll begin to see the market forces that are bound to shape AOL's future.

PPS- Full disclosure, I also do not own any MSFT shares. But I probably should <shudder>.