eMailbag Offerings: CyberCash, Lycos, Excite, Netscape, Egghead
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First reader up this week asks:
"Could you tell me what CyberCash's market share is in terms of Internet payment processing?"
Reply: CyberCash (NASDAQ:CYCH) has always looked to us like a solution in search of a problem. In 1994, when it debuted, the idea of buying something over the Internet was unheard of so CyberCash sought to address a fundamental belief that it could provide a secure solution, one that people would trust. There was also heavy belief by some at the time that "micro-transactions" or pay-per-document commerce could be significant (like paying a nickel to view this report).
Credit cards typically addressed the $5 and up market, leaving what some thought to be a large hole for "micro-payments." So far that hole never materialized.
In the following four years (a long, long time in the Internet industry) credit card companies have ridden the secure payment protocols embedded in browsers and servers (there are commerce servers now when there used to be just one type of server, THE server!). So we suspect that credit card companies lead payments on the Internet today and could do so in the future.
In 1997 CyberCash annual revenue was $4.5 million, in our belief that's testimony that whatever it thought was going to happen in the Internet space hasn't happened yet. So market share of what, we ask?
Credit card firms and software makers seem to be the leading payment systems on the Internet. When you buy a book from Amazon or an auction item from ONSALE, what do you use? A Cybercash wallet or your credit card? Perhaps that's why CyberCash acquired ICVerify, an Internet-based credit card verification service.
A Tangled Web Weave?
"I bought 330 and 65 shares of Lycos and Excite less than a week ago at $62.50 and $77 respectively, when they appeared to be on substantial declines, but now they have really nose dived. What are the fundamentals of these shares, and what is your near and medium term outlook on these shares?"
Reply: We believe that of the search and directory leaders, the top four--Yahoo!, Excite, Lycos, and Infoseek--could be akin to the media networks of the 21st century, with a few big "ifs." The analogy we often use is that these four could be the ABC, CBS, NBC and Fox in their relationship to each other and the Internet industry and user.
Long-term they seem to perhaps have the opportunity to become the Internet experience for users. The rivals we see are AOL (NYSE:AOL) and Microsoft (NASDAQ:MSFT) and even the TV networks themselves should they jump into the portal game.
Fundamentally, Yahoo! is the leader in revenue and earnings with Excite, Lycos, and Infoseek following in that order. Near-term we expect volatility in all of them, especially as wannabe portal Netscape (NASDAQ:NSCP) tries to play catch up with them.
Ad Forecast Clicks
"We were fascinated by your projections in Internet Stock Report, April 28 ("Internet Ad Forecast--$23B By 2002"). Later this year we will be looking for investors for our business expansion. Could we receive permission to reproduce all or portions of this to provide to potential investors?"
Reply: Thank you for the request. We'll get back to you regarding permissions on using it. For those who missed our ad forecast, see ISR April 28 Morning Report. It includes direct mail, catalog sales and other sales as we believe the Internet provides a hybrid experience where you cannot easily draw the line between content, commerce, marketing and advertising.
"How about looking at Egghead.com? Shouldn't it have a higher value? Three Web sites and relationships with leading eyeball sites such as Yahoo! and GeoCities? Some thoughts please."
Reply: See Internet Stock Report, February 5 for our initial take on Egghead.com (NASDAQ:EGGS). And yes, we will be revisiting it very soon right here.
"With all the search engines and Netscape renegotiating, is Netscape going to acquire Infoseek?"
Reply: There have been rumors about Netscape acquiring a stake in Infoseek (NASDAQ:SEEK) as it looks for a search partner, and at the same time looks to realize some benefit from feeding it users.
Infoseek gets a substantial amount of its users via Netscape now. Infoseek has always been a strong search technology and not a "media" company per se. Infoseek seems to be doing well on its own building the media side, but a combined firm with that much traffic in users could be very powerful.
If Netscape acquired Infoseek outright it would make it the leading Internet site at 39.6 million unique monthly users. Yahoo! would be second at 32.5 million.
A Netscape-Excite (NASDAQ:XCIT) merger would create a 42.7 million unique monthly user base.
Of course if Yahoo! acquired Netscape (and sold the software side to IBM), that would be the tectonic deal against Microsoft's coming threat. Yahoo-Netscape would command 55.9 million unique monthly users--the most consumer and business Web users under one umbrella.
We think that's the kind of scale needed to compete in the long haul against not only Microsoft but the PC box makers Compaq, DELL, and Gateway who will probably start creating their own online services at the box level. After all, it's their box; why give away business to the search firms? Compaq or DELL could just as easily be a portal as any one of them, and Compaq (which is acquiring Digital) already is inheriting Digital's Alta Vista to make this even easier.
That's if they realize the stakes here. Twenty five years ago, Bill Gates and Paul Allen bet on software, and IBM bet on the box. Twenty five years from now, we bet the Web will be worth more than Compaq, DELL, and all PC and hardware makers combined, IBM included. It's the "software" that matters, not the hardware. Web services are the "software" for the new era of computing. That's why Microsoft is doing Expedia, Investor, CarPoint, Money, etc. These are the "applications" of tomorrow.