Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

Sticky@Home
...and the rumor du jure.com

By Nico Detourn (TMF Nico)

SILICON VALLEY, CA (August 13, 1999)-- Well now, wasn't that a nice change of pace? For the most part, at least. The week ended with most of the our Rule Breaker companies helping the portfolio to not only participate in the market's broader rally, but to actually arrive at this Friday pit stop ahead of the S&P and Nasdaq on the day and month, though still trailing the Nasdaq on the year.

H
elping to fuel the festivities was the announcement of what they (and we know who "they" are) like to call "benign economic news." The government's Producer Price Index (PPI) of wholesale prices indicated that inflation remains under control, which means stable prices, making for a more investment-friendly environment, which in turn makes for happier and more confident campers.

And when such news hits at just the right moment, it makes for days like today. For more on these issues, this camper will confidently refer you to News World
where Matt Richey's (TMF Verve) Fool Plate Special provides analysis and context for the market's "report du jour." As it turns out, the RB port has a report du jure of its own to ponder -- although unlike the hard numbers found in the PPI, it might be more appropriate to call this a rumor du jour.

Still under the weather and not participating in today's rally was Excite@Home (Nasdaq: ATHM), which for the last couple of weeks has been the subject of news reports about tensions between it and AT&T (NYSE: T), owner of a majority stake in the company. I wrote about this here last Friday, as did Louis Corrigan on Monday. And following increasingly detailed accounts in yesterday's San Jose Mercury News and today's Wall Street Journal, the situation again earns a peek.

For AT&T, the issues concern its longer-term strategy of providing a menu of telephone services over the cable systems it has been amassing and the role of consumer Internet services in particular on that menu. While Excite@Home is slated to fill that role, the role itself, though significant, is nevertheless of a supporting nature.

For Excite@Home, the issues cut deeper and get to the very definition of what the company is, and the vision that brought it into being by the merger of @Home and Excite. Is Excite@Home a full fledged online service, that integrates branded content and commerce services with high-speed connectivity, a pre-packaged "AOL on steroids?" Or is Excite@Home a company that operates, separately, the destination Web site known as Excite and the high-speed Internet access service known as @Home? Just what should Excite@Home be when it grows up? And what can it be?

Clicky Fingers or Sticky Fingers?

Of course, the situation is not as black and white as those alternatives makes it sound. The challenge is in finding a balance between those alternatives that balances the visions of AT&T and Excite@Home in a way that is acceptable to both, to say nothing of @Home's other cable partners.

One of the more interesting aspects of all this is that in addition to being about the fate of Excite@Home, these issues also concern the nature of the online medium as a whole. The executive decisions about how Excite and @Home should relate and interact with each other inevitably contain assumptions about how we relate to and interact with the things we see on our screens. What keeps us coming back to particular websites and services? What makes for a "sticky" site, one that we spend significant time on and always return to, rather than one we simply click through on our way to another more compelling destination?

As AT&T and Excite@Home wrestle with these questions, they need to decide how tightly or exclusively @Home's connectivity should be tied to the Excite website. At least one AT&T executive has expressed his belief that @Home's service should not favor Excite over other websites and services such as Yahoo! (Nasdaq: YHOO) and America Online (NYSE: AOL), seeing tight integration of connectivity with a single preferred content source as a limitation.

What this view risks sacrificing, however, are the benefits of @Home's having greater "ownership" of the user's experience. Such ownership would allow the company to more effectively tap into advertising and e-commerce revenues, since a greater amount of the user's activity would take place within the Excite@Home environment.

Ownership of the customer relationship is what powers the AOL model of interactive services that integrates content and connectivity. More than anything else, it is AOL's famous and infamous user interface that determines the stickiness of the AOL service. That model, however, has yet to be transplanted to the Web. Indeed, the roots of that model can be traced back to the days before the commercialization of the Internet and the Web as we know it.

Perhaps the key question, then, is how effectively -- and how efficiently, in terms of time and cost -- a model that allows for a highly exclusive ownership of the customer relationship can be adapted or developed for the modern Web. That question would take precedence over whether or not other content brands should share the @Home start page. For if that model cannot be adapted for the Web in a way that appeals to the mass market, integrating content and connectivity becomes a less viable option.

08/13/99 Close
Stock  Change    Bid 
------------------ 
AMGN  +4 5/16    83.81
AMZN  +5 11/16   97.44
AOL   +4         96.75
ATHM  -2 1/16    37.00
CAT   +1 1/16    62.25
CHV   +  11/16   96.75
DD    +  3/8     72.75
DJT   +  3/16     4.69
EBAY  +6 5/8     98.00
GT    +1 5/16    57.38
IOM   +  1/4      4.06
SBUX  +  1/8     20.69
TDFX  +  3/8     14.50


                  Day     Month   Year   History   Annualized 
      R-BREAKER  +3.82%  -0.18%  10.13% 1005.42%   61.37%
        S&P:     +2.27%  -0.08%   8.59%  203.89%   24.78%
        NASDAQ:  +3.46%  -0.03%  20.30%  266.27%   29.50%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91     96.75   10545.32%
   9/9/97  1320 Amazon.com     6.58     97.44    1380.98%
  5/17/95  1960 Iomega Cor     1.28      4.06     217.28%
 12/16/98   580 Amgen         42.88     83.81      95.48%
  4/30/97 -1170*Trump*         8.47      4.69      44.65%
  2/23/99   300 Caterpilla    46.96     62.25      32.55%
  12/4/98   900 Excite@Hom    28.04     37.00      31.95%
  2/20/98   260 DuPont        58.84     72.75      23.63%
  2/23/99   180 Chevron       79.17     96.75      22.21%
  2/23/99   290 Goodyear T    48.72     57.38      17.78%
  2/26/99   300 eBay         100.53     98.00      -2.51%
   7/2/98   470 Starbucks     27.95     20.69     -26.00%
   1/8/98   425 3Dfx          25.67     14.50     -43.51%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 212850.00  $210850.53
   9/9/97  1320 Amazon.com  8684.60 128617.50  $119932.90
 12/16/98   580 Amgen      24867.50  48611.25   $23743.75
  12/4/98   900 Excite@Hom 25236.13  33300.00    $8063.87
  5/17/95  1960 Iomega Cor  2509.60   7962.50    $5452.90
  2/23/99   300 Caterpilla 14089.25  18675.00    $4585.75
  4/30/97 -1170*Trump*     -9908.50  -5484.38    $4424.13
  2/20/98   260 DuPont     15299.43  18915.00    $3615.57
  2/23/99   180 Chevron    14250.50  17415.00    $3164.50
  2/23/99   290 Goodyear T 14127.38  16638.75    $2511.38
  2/26/99   300 eBay       30158.00  29400.00    -$758.00
   7/2/98   470 Starbucks  13138.63   9723.13   -$3415.50
   1/8/98   425 3Dfx       10908.63   6162.50   -$4746.13

                              CASH   $9924.87
                             TOTAL $552711.12
Note: The Rule Breaker Portfolio was launched on August 5, 1994, with $50,000. Additional cash is never added, all transactions are shared and explained publicly before being made, and returns are compared daily to the S&P 500 (including dividends in the yearly, historic and annualized returns). For a history of all transactions, please click here.

</THE RULE BREAKER PORTFOLIO>

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