<THE RULE BREAKER PORTFOLIO>

AOL Anywhere
Plus, Battlestar Galactica: "Starbuck(s) in Cyberspace"

by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (May 12, 1999) -- America Online (NYSE: AOL) is entering a new phase. The company's "AOL Anywhere" initiative is beginning in earnest. Management's goal is to make AOL services available from any electronic device short of a blow dryer (and maybe even a blow dryer) within a handful of years. Even mobile phones with tiny screens will carry AOL, but television is one of the most natural fits for "AOL Anywhere." AOL and TV. Put them together.

Yes, AOL TV, here we come.

Programmable television will probably soon follow, offered either by AOL or another company. Want to watch an old episode of CHIPS? Click on the database and download it. You're suddenly cruising L.A. highways with '70s hair, Fool. Or do you walk around wearing pink t-shirts, sweat stains, and white sport coats? Click on Miami Vice and relive the dream.

That's my interpretation. Now for the actual news.

Last night America Online announced four key partnerships, the primary one being with DirecTV, Inc. DirecTV is the country's leading digital television service provider. It has over 7 million subscribers (AOL, recall, has 17 million). America Online is also working with Hughes Network Systems, Philips Electronics, and Network Computer, Inc. The companies will develop a system to connect televisions to the Internet by using satellite dishes, high-speed digital subscriber lines, and high-speed modems.

Beginning in the year 2000, AOL members will be able to use their televisions for e-mail, Internet access, and the usual AOL services. They'll also be able to watch regular television shows and use online technology, including instant messages, chat, and e-commerce functions (make purchases directly), through the television while watching shows. AOL has a vision that -- as much as everyone respects the company -- I want to make fun of immediately. The vision: millions of people watching popular sitcoms and simultaneously chatting online about the plot or the characters' clothes.

Oh. I just got chills.

Viewers could also click to buy a song from the sitcom, or perhaps an outfit.

OK. Now I did just get chills.

The promise of the technology, especially for e-commerce, is immense, whatever content it carries. However, it does require buying a new set-top box and special keyboard, and I think this limits the near-term impact of the offering. Microsoft's (Nasdaq: MSFT) not-so-new WebTV service provides similar access to the Internet and it has only landed 700,000 subscribers to date.

Analysts believe that AOL will have better and quicker success than Microsoft. I believe this, but we'll see. Eventually, yes. Right away, no. Most people are still becoming comfortable with the Internet itself, and are not about to converge it with television. The widespread acceptance curve of Net TV will arise only a few years after the launch of a popular Net TV service, meaning, I'd guess, in 2002, 2003, and beyond. So, I'm glad that we're long-term investors. One day before long, Internet TV will make for very interesting television with endless possibilities for revenue. Including, no doubt, coffee sales.

Starbucks (Nasdaq: SBUX) raised prices on cups of coffee, but not whole beans, by about 10 cents per cup in order to cover increased labor and rent costs. This is the first price increase in about 2 years. Earnings in 1999 should remain the same, and the price increase is generally viewed as neutral to good for the company.

Meanwhile, a Merrill Lynch analyst issued a 1999 price target of $55 for Starbucks, reinstating a near and long-term "buy." (Ah, the Wise.) The brokerage house also hypothesized -- probably not without some knowledge -- that the company's new Internet venture will be a portal site that combines content, e-commerce, and community, and it will be branded and promoted through Starbucks' 2,200 retail locations. The portal site, it is said, could focus on cultural topics, although obviously, limitations are few. Today journalists are throwing around business ideas that I read on our Starbucks message board many days ago.

Merrill Lynch said the site should launch next month. We'll wait for the official word from Starbucks.

Starbucks' stock made a new high and the company is now valued at above $7 billion, up from $4 billion in recent months. The Foolish lesson that we're reminded of here involves patience and conviction. If you believe in your investments, you need the patience to see them through. Soon after we bought Starbucks, we were down over 40% on the investment. Now it has become a market-beater for us, up 41% in ten months. Of course, this is still just "short-term talk," but it should make a Foolish point for all of us regardless.

The Fool's Internet Report

Last night we began to send out the first issue of The Motley Fool's Internet Report. This new product offers comprehensive analysis of the online medium and the companies taking advantage of it -- what everyone calls "Internet companies," or "Internet stocks."

Why?

The Internet is a revolution. Revolutions can upset and tumble existing powers while catapulting some newcomers to great success. Already the Internet is creating and destroying tremendous amounts of wealth, and this is only the beginning. Opportunities and pitfalls abound for investors.

Too many of the Wise say that the Internet is all but impossible to understand and therefore should be avoided by investors. However, avoiding what will likely be the largest change in society for the next few decades is hardly something that we recommend to Foolish investors. There is a much better answer that is nearly opposite the Wise advice that says "avoid it."

The Internet Report strives to make sense of what is happening in order to help investors make investment decisions Foolishly. Each report covers the companies involved in the online revolution. The reports consider companies that are poised to gain ground; those that might lose ground; what online-based businesses are most attractive to investors; and which new companies have the most promise.

Yes, if you're getting the feeling that this is a pitch -- well it is, sort of. I don't make them often, but I feel that this is related to Rule Breakers and I'm involved in the product, so I feel Foolish about it.

Delivered with the first issue of the Internet Report is a companion guide to online-based business models. This twelve-page report discusses the five main online revenue streams and rates the potential attractiveness of each. The guide helps to break something as immense as the Internet into understandable parts, and then ranks the attractiveness of each part in a way that can be applied when considering companies.

This guide to understanding online business models is sent when you subscribe to the Internet Report. Arriving with the guide now is Issue One of the Internet Report. The first issue is 20 pages of text and 4 pages of tables and numbers. The main topic is e-commerce. The Focus Company (each issue has one) that is the subject of in-depth analysis in the first issue is potential Rule Breaker Priceline.com (Nasdaq: PCLN). (Sorry to spoil the surprise.)

Beyond the Focus Company analysis, each issue of the Internet Report summarizes the important news from the recent past. In Issue One, the largest Internet-related news is covered from December 1998 to early May (yesterday). The news is reviewed in several pages, including a timeline, by Nico Detourn. Rather than simply report news, we interpret it to uncover the most important trends and the direction of the online world and the companies forging it. Each future issue will report on the largest stories from the past two months.

Each issue of the Internet Report also looks at a specific niche of Internet business. Issue One covers e-commerce. Issue Two will focus on connectivity -- a big topic of late that includes cable Internet access and xDSL. The battlefield is filling with fighters, alliances are forming, and AOL is moving to address faster connectivity in various ways, with the cable market largely falling to competitors in the early going. The niche study leads to the Focus Company.

Issue One writers were Louis Corrigan, Nico Detourn, Alex Schay, and myself. I explain the product's long-term purpose and offerings further in this post on the product's message board (where all issues can be discussed). Please read the post for more information, and then read this description for yet more info and for ordering. As with all of our Fool subscription products (including Industry Snapshot and the annual Industry Focus), we work to provide tremendous value, or it wouldn't be Foolish. If you have questions or comments regarding the Internet product, please post them on the product's board, linked above.

Thanks for reading. Fool on!

05/12/99 Close

Stock  Change    Bid 
------------------ 
AMGN  -1 1/2     62.56
AMZN  -5 7/16   142.94
AOL   -1 1/8    138.50
ATHM  +2 9/16   158.19
CAT   -1 5/16    61.88
CHV   -3         95.06
DD    -3 3/8     71.06
DJT   -  3/16     5.56
EBAY  +3 7/16   198.75
GT    -  1/16    63.94
IOM     ---       5.00
SBUX  +  7/8     39.56
TDFX    ---      18.50

                  Day     Month  Year   History   Annualized 
      R-BREAKER  -1.22%  -5.16%  54.00% 1445.68%  77.61%
        S&P:     +0.62%   2.16%  11.28%  211.12%   26.89%
        NASDAQ:  +1.55%   2.50%  18.87%  261.93%   30.98%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    138.50   15139.04%
   9/9/97  1320 Amazon.com     6.58    142.94    2072.55%
  5/17/95  1960 Iomega Cor     1.28      5.00     290.50%
  12/4/98   450 @Home Corp    56.08    158.19     182.07%
  2/26/99   300 eBay         100.53    198.75      97.71%
 12/16/98   580 Amgen         42.88     62.56      45.92%
   7/2/98   470 Starbucks     27.95     39.56      41.52%
  4/30/97 -1170*Trump*         8.47      5.56      34.32%
  2/23/99   300 Caterpilla    46.96     61.88      31.75%
  2/23/99   290 Goodyear T    48.72     63.94      31.25%
  2/20/98   260 DuPont        58.84     71.06      20.76%
  2/23/99   180 Chevron       79.17     95.06      20.07%
   1/8/98   425 3Dfx          25.67     18.50     -27.92%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 304700.00  $302700.53
   9/9/97  1320 Amazon.com  8684.60 188677.50  $179992.90
  12/4/98   450 @Home Corp 25236.13  71184.38   $45948.25
  2/26/99   300 eBay       30158.00  59625.00   $29467.00
 12/16/98   580 Amgen      24867.50  36286.25   $11418.75
  5/17/95  1960 Iomega Cor  2509.60   9800.00    $7290.40
   7/2/98   470 Starbucks  13138.63  18594.38    $5455.75
  2/23/99   300 Caterpilla 14089.25  18562.50    $4473.25
  2/23/99   290 Goodyear T 14127.38  18541.88    $4414.50
  4/30/97 -1170*Trump*     -9908.50  -6508.13    $3400.38
  2/20/98   260 DuPont     15299.43  18476.25    $3176.82
  2/23/99   180 Chevron    14250.50  17111.25    $2860.75
   1/8/98   425 3Dfx       10908.63   7862.50   -$3046.13

                              CASH   $9924.87
                             TOTAL $772838.62


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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