<THE RULE BREAKER PORTFOLIO>

@Home via Phone
Plus, eAmazon.dabomb.

by Jeff Fischer (TMFJeff)

ALEXANDRIA, VA (June 3, 1999) -- @Home changed its name to Excite@Home last week after the completion of its merger, but databases still list the company as @Home (Nasdaq: ATHM). So, let's continue to call it @Home. After all, writing Excite@Home requires more bandwidth.

What's up at @Home? Leverage, baby.

The company is reportedly considering offering good old, slow mo', dial-up Internet access in order to address -- ta da -- the majority of the online market.

Most of the world is still using telephone lines for Internet access, and over the next five years -- at least -- much of the world will continue to do so. The use of high-speed cable access will soar, but tens of millions of Internet surfers are using and will continue to use telephone lines, too, while thousands more sign up each day. (So far, about 60 million Americans dial up through phones.) @Home could target its new dial-up Internet service to Excite's 28 million registered users and elsewhere. Everywhere.

But why bother, you ask, if the next big thing -- long term -- is high-speed cable access?

Well, for many reasons.

Think about what America Online (NYSE: AOL) has done. It's beautiful, really. AOL offers nearly-global access -- and charges for it -- by leveraging communication networks that have been in place for years. AOL didn't spend billions to build its distribution network. The network was already laid (with great ugliness) via telephone poles the world over. AOL provided a service that could be accessed over telephone lines and then it charged for it. That's somewhat like using train tracks that other companies laid down, for free, and then charging people to ride the tracks with you, too. Doing this, AOL has reached Coca-Cola-like distribution at relatively little distribution cost.

@Home could sell regular dial-up access to millions of as-yet unsigned customers as well as to existing Internet Service Provider users by offering the potential to easily switch to high-speed cable access when a user is ready and when it's available. (What other dial-up ISPs currently offer that promise?) Many customers might not need cable (or be reachable by cable) for a handful of years. Why ignore them in the meantime? Plus, @Home has over 400,000 high-speed users who would appreciate dial-up access when they're away from home.

The quickest route to providing dial-up access might mean an ISP acquisition for @Home, though rumors regarding such a move have not surfaced. Indeed, the idea of dial-up access at @Home is still only rumor. Albeit a good one, I think. And logical.

Starbucks (Nasdaq: SBUX) should launch its new in-store magazine, Joe, and a new website in the next two weeks. Speculation still remains regarding exactly what the new website will be. Starbucks invested in online community site, Talk City Inc., last month, and CEO Howard Schultz is on the board of eBay (Nasdaq: EBAY) and Drugstore.com.

Speaking of which, eBay, Amazon (Nasdaq: AMZN) and @Home declined today. The businesses didn't, the stocks did. (Rule Breaker ended down over 4%.) Let's consider some arguments made against Amazon in Barron's last week. The Barron's cover story was enough to make me purchase my first Barron's in over two years. (It was fun to see that Mr. Abelson hasn't changed his tune since 19XX -- insert any year there, all the way down to 00. At least he's consistently bearish. Come the year 2000, he can just recycle his thoughts from the 1900s.)

Anyway, one issue raised by the Amazon article itself (not Mr. Abelson) was direct sellers -- Dell and Sony were given as examples. Book publishers could sell direct, cutting out Amazon, the article argued. We have mentioned that possibility here, too. However, it requires some thought; one can't merely toss out the possibility and then damn Amazon eternally. Barron's left out this thought.

First, the products sold by Dell and Sony are far different from books. They're much higher-end, durable items and they offer higher dollar margins, so selling direct makes more sense. With books, retailers only try to make a few quarters here and there on each sale, so a publisher isn't likely to offer a much more compelling price. Plus, there are thousands of book titles. Millions, actually. There are only dozens of core computer models. You buy computers based on brand and price. You don't buy books based on either. You buy books based on your interest and the author.

Now, most of us don't know -- off-hand -- who publishes our favorite authors. Come on. I couldn't even tell you who publishes Stephen King (not that he's a favorite, but I see his books everywhere, so he makes for a great example). The point is: I wouldn't know which publisher to visit online to buy a King book. Sure, I could search the Web for Stephen King and find a site devoted to him and find the direct book that way. But what about all of the other much lesser-known authors? You'll rarely find them that way. So what're you to do? Should you visit dozens of publishers online in search of a specific book? (Eventually you'll hit the right publisher!) Of course not. You visit a site that consolidates all books. The prices are already rock bottom.

Just because a producer/publisher/manufacturer can sell something direct doesn't mean that it will choose to do so. Many items (and I believe books are one of them) don't fit the direct model so well, because there are too many hundreds of thousands of products divided across too many publishers (in the case of books), and customers wouldn't easily know where to look to buy direct.

Barron's also said that a growing use of e-books could threaten Amazon. Of course, the author somehow forgot to suggest that Amazon actually stands to be one -- if not the -- leading seller of e-books. Amazon is already the leading seller of paper books online. E-books are little different. They still need distribution and promotion. Besides, they're even better to sell than paper books, because e-books can be sold at a much lower cost to a company than paper books. There's no real inventory involved. Just electronic inventory. Love it. E-books. I hope that they take off. Surely many online shoppers would download them at Amazon.

Perhaps more on this article later.

Three Iomega (NYSE: IOM) executives provided an interview today at Vcall. Visit this page -- http://www.vcall.com/ -- and then click on the RadioWallStreet link in blue. Once you register, enter a search for Iomega and the magic of technology will whisk you to today's radio interview. Some Fools are already talking about the interview on our Iomega message board. They're calling it ho-hum. Ho-well. More on this company later, too.

To close, what is Foolishness to you? For me, it's best exemplified in the community spirit of Fools everywhere -- a spirit of helpfulness. I discussed this more in the Drip Port today. Next, which provides better overall returns, small caps or large caps? The Harry Jones Port reached a "draw" decision on the issue.

Finally, did you know that you can read the Fool on your Palm Pilot? Check out AvantGo to gain access to the Fool's daily news via your Palm Pilot each day. Then look like a nerd reading off that tiny screen. (It's fun and useful, so who cares!)

Be Foolish!

06/03/99 Close

Stock  Change    Bid 
------------------ 
AMGN  -1 1/4     60.50
AMZN  -7 1/16   105.06
AOL   -3 7/8    106.44
ATHM  -9 3/16   105.25
CAT   +2 1/16    60.44
CHV   -  7/16    91.56
DD    +  15/16   66.94
DJT   +  1/8      5.44
EBAY  -7 1/2    161.31
GT    +  5/8     61.75
IOM   +  1/16     4.44
SBUX  -1 13/16   35.94
TDFX  -1 9/16    17.81

                  Day     Month  Year   History   Annualized 
      R-BREAKER  -4.02%  -9.13%  21.62% 1120.67%   67.93%
        S&P:     +0.37%  -0.18%   6.04%  197.05%   25.30%
        NASDAQ:  -1.19%  -2.72%   9.61%  233.72%   28.36%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    106.44   11611.23%
   9/9/97  1320 Amazon.com     6.58    105.06    1496.88%
  5/17/95  1960 Iomega Cor     1.28      4.44     246.57%
  12/4/98   450 @Home Corp    56.08    105.25      87.68%
  2/26/99   300 eBay         100.53    161.31      60.47%
 12/16/98   580 Amgen         42.88     60.50      41.11%
  4/30/97 -1170*Trump*         8.47      5.44      35.79%
  2/23/99   300 Caterpilla    46.96     60.44      28.69%
   7/2/98   470 Starbucks     27.95     35.94      28.56%
  2/23/99   290 Goodyear T    48.72     61.75      26.76%
  2/23/99   180 Chevron       79.17     91.56      15.65%
  2/20/98   260 DuPont        58.84     66.94      13.75%
   1/8/98   425 3Dfx          25.67     17.81     -30.60%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 234162.50  $232163.03
   9/9/97  1320 Amazon.com  8684.60 138682.50  $129997.90
  12/4/98   450 @Home Corp 25236.13  47362.50   $22126.37
  2/26/99   300 eBay       30158.00  48393.75   $18235.75
 12/16/98   580 Amgen      24867.50  35090.00   $10222.50
  5/17/95  1960 Iomega Cor  2509.60   8697.50    $6187.90
  2/23/99   300 Caterpilla 14089.25  18131.25    $4042.00
  2/23/99   290 Goodyear T 14127.38  17907.50    $3780.13
   7/2/98   470 Starbucks  13138.63  16890.63    $3752.00
  4/30/97 -1170*Trump*     -9908.50  -6361.88    $3546.63
  2/23/99   180 Chevron    14250.50  16481.25    $2230.75
  2/20/98   260 DuPont     15299.43  17403.75    $2104.32
   1/8/98   425 3Dfx       10908.63   7570.31   -$3338.31

                              CASH   $9924.87
                             TOTAL $610336.43
 
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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