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May 27, 1999

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Subject: Content, users, and blink-power.
Author: TMFNico

Questions about the relative importance of content and users, or subscribers, in the @Home acquisition of Excite have come up in some recent posts. The relationships and interactions between the two are worth looking at, because one thing we know for sure is that @Home was willing to pay $6.7 billion for something.

We talk about Excite's content, or AOL's content. But the main thing about their content is that, for the most part, it isn't really theirs. They produce very little of it themselves. And with some exceptions, the content on these and other services is provided by third party "content providers" under agreements of different sorts. That's why a service like Excite is often called a "content aggregator." When users experience Excite's or AOL's content, what they're usually seeing are Excite's and AOL's presentations of third-party content.

As an example of this, say you want a quote for ATHM. If you go to Excite's financial area, you'll get an Excite quote page which on the bottom has a notice and logo that say, "Quotes provided by Standard & Poor's Comstock." Or, if you click the Go button at the top of this page you are currently reading, you'll go to the Motley Fool quote page, which has the same notice and logo. The Excite and Fool pages look completely different. But the hard, first-order content -- the quote data -- that defines those pages is identical. Who's content is that? And where do you draw the line?

For the user who isn't thinking about things in this way, the preference for one of those pages over the other is experienced as a preference for "Excite's content" or "the Fool's content." In that sense, the entire page, as the site-branded interface to third-party content, actually becomes "the content." Most of what we talk about as "content" falls into this category and works in this way.

Laying it out like this, what would it mean for a content aggregation/presentation service such as Excite to be acquired for its content? And what exactly is being acquired?

On one level, it means the service is being acquired for the existing relationships it has with content providers. On another level, it is being acquired for its ability to present that content in an appealing way to users who will hopefully experience it as coming from the service itself.

Relationships with content providers, and the ability to create an appealing online environment, are both of extreme importance. But you can see that as soon as we look at it in this way, we run straight into the question of the user base, which is the only reason all that content is being aggregated and flowed onto the service's pages in the first place. Content and users can not be separated once you are looking at the service as a system. That can make it difficult to simply say a company like Excite was acquired for one more than the other. But it's not impossible to draw general conclusions.

The arrangements between these services and their content providers can be and quite possibly are of any sort you might imagine, especially when you consider the spectrum of content types. Each party to each deal has its own set of interests, and its particular leverage or lack of leverage in meeting those interests. This can make for interesting deals.

In early February, America Online and CNET announced a two-and-a-half-year "content and commerce agreement." Under the deal, CNET became the "exclusive provider of co-branded computer buying guides" on AOL, AOL.com, CompuServe, and other AOL services. In other words, CNET is producing commerce-ready content to be made available to all those AOL users. Sounds pretty good. Reading this, you might wonder how much AOL is paying for all this special CNET content. The answer is, AOL pays zero. The deal calls for AOL to receive from CNET guaranteed payments of $14.5 million, with additional payments based on specified performance thresholds. A somewhat comparable deal was struck between America Online and Web-hosting firm Verio in early March. This is called leverage. Blink-power in action.

Deals of this sort are not uncommon. But more often in content deals, the dollar amounts and other terms are left unspecified. There is often no indication of who's paying who, if indeed money is being exchanged at all. Money changes everything, but there are times when money isn't everything. These deals are usually smaller scale and less extensive, resulting in less meaningful relationships. At this level, the parties can be interchangeable. They can be and are easily swapped in and out. Dozens of these are announced each week.

Bringing this back to the main question, the evidence suggests that even with its extensive content partner relationships and presentation expertise -- and the latter is especially important -- neither one is the main reason @Home is buying Excite.

@Home could buy tons -- and tons and tons -- of content for $6.7 billion dollars! But as the deal between AOL and CNET demonstrates, under the right circumstances, content is not something you pay for, but something that someone else will pay you to carry. And so here again, we run into the user base as the main factor in determining online value.

Excite's value is located first, foremost, and last, in its 28 million registered users. That is why, in January, @Home was willing to pay about $240 for each of them. And that is why, this Friday, those users will become @Home's to make the most of. If that doesn't make sense given our understanding of what @Home is, it suggests the need to reconsider our understanding.

Nico