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RealTime IT News

eMailbag Monday: E-tail, Priceline IPO, @Home, Ozzy

First reader up writes:

"More than any other Internet sector, I suspect your readers are heavily involved in E-commerce and Internet retailers like CDNOW. Many entered in OCT-NOV 1998 because it was the only Internet sector easily understandable to the many novice online investors like myself. Many are stuck with losses now after the late 1998 E-commerce hype.

I would like very much to hear in further detail your thoughts on the consolidation of the sector. Who will and will not survive and who may be buying the currently successful Internet retailers. A year from now who do you suspect will lead the e-commerce pack. Of particular interest to me is Onsale, a stock on your current list and one you have commented favorable on in the past. Is it not a good company for Yahoo or @Home to look at in light of the EBAY- AOL talks?

Do they possess the best technology in the auction/E-commerce sector like many believe? Your opinion would be greatly appreciated?"

Reply: I believe that the e-tailers (my preferred term for those that sell products on the Internet) have a few key things of value. The first is a customer database, real buyers who have bought something from them and therefore the firm has the necessary data points to establish a relationship with this customer over time.

Those data points are basic name, address, e-mail but also the actual product that person bought, for how much and how many times they bought. Brand is also important, if one has been established.

Technology for the e-tail space is also important but I haven't seen any Internet technology that cannot be duplicated. Technology changes. Technology is more important to me in software or hardware, not in services like e-tail.

Lastly, the most valuable asset an e-tailer or any Internet company has, other than customers, is its people, its employees who make it all happen, who put in the long hours, who are the value of the enterprise. It's difficult to find talented Internet people, they are a scarce resource. They ultimately make any company in the Web space.

Priced Yet?

"How do I get involved in Priceline.com's IPO?"

Reply: Carefully. Never buy at open price for one, always do your research on the company's prospects. See if it fits your investment objectives. If you want to buy shares, try looking at the underwriters and calling them or looking at their Web sites to see if they are allocating any shares at the IPO price to their Internet account holders. Difficult to get.

Amazon, Flow Or Go?

"What do you see in AMZN's future and what kind of price target? I am in at 138/share. Go long or get out??"

Reply: I think Amazon.com (NASDAQ:AMZN) may be one of the few e-tailers to survive long term since it has a brand and customer base that dwarfs the next players in this space, has moved into selling everything (or probably will soon) and it just sold $1.26 billion debt (cash to grow with).

But I also think Amazon must make the switch to being a portal since the large traffic Web sites may not always send it customers if they so choose to get into selling themselves. Selling may become a free service, a loss leader to attract users that you generate revenue via ads or other deals. The stickiest Web sites (those with the most users coming back over and over) look like the winners to me. Amazon.com is in the top 15 most used Web sites in the world. Pretty sticky to me, but probably needs to acquire to grow.

Why? AOL-Netscape, @Home-Excite, USANetworks-Lycos, Yahoo-GeoCities. As these mega-states emerge they will dictate deal terms for players like Amazon that Amazon may not like, if not this year then maybe two or three years from now.

In my mind, whoever has the most reach on the Web wins in all areas. That's why I'm a fan of AOL, not because I use the service but because 16 million people do, 25 million use its ICQ instant message platform and with Netscape it adds several million more businessusers during the day.

I see further consolidation among non-AOL top 20 Web players to get to AOL-like reach.@Home may do some more buying to bolster its ATT-TCI-Excite three amigos.But they're probably not the only ones. I see three or four final players with category definer status in three years, the ABC, NBC, and CBS, Fox of the Web. By 'category definers' I mean those with enough users, capital,customers, brand value, and leverage to dictate what the Internet experience is or will be.

Acronym soup powerhouse: ATT-TCI-ATHM-XCIT

Steve, on your 2/18 column you suggest that the ATT-TCI merger, given their connections to Excite and @Home, could be the premier player in 24-36 mos. Are you suggesting that AOL may find itself in a #2 position? Is that a probable scenario given that AOL doesn't have a broadband deal going yet? Do you think AOL will fritter away like Prodigy did in the 80's? Your thoughts would be greatly appreciated regarding AOL's prospects to remain #1. By the way, your column is world-class.

Reply: I think @Home-Excite, soon to be owned in large part by AT&T and TCI, could be an AOL killer within 36 months due to the clout, capital and connections they bring together. But I don't think AOL will sit still. AOL needs to buy into broadband somehow, perhaps through a stake in a cable company or even @Home (NASDAQ:ATHM).

Or partner up with an MCI-WorldCom, which may need to acquire a few of the top cable firms.

Yahoo (NASDAQ:YHOO) may also need to address this issue, how it guarantees carriage on the broadband systems of tomorrow. Internet users may determine that. In other words, they may click on Yahoo Turbo (or whatever Yahoo calls its broadband test it's doing) but that cannot be assumed.

G'day Stats

Hi Steve, here in Australia we are a bit behind with the Internet particularly with sales over the Net despite being one of the quickest adopters of technology in the past (eg mobile phone per capita use). I am with you as far as the Internet affecting people and business so substantially then it must be one of the big paradigm shifts this century.

However people here keep saying it is "just a blip" no more than the video player. Can you please help me by providing me with concrete facts to refute this? Also can you give me a benchmark that I can agree with these people over the next year that will if exceeded prove that it is a paradigm shift?

Reply: There are many. Look at the number of Web users in 1994 and now and you'll see that the Web has grown faster than any other medium in history. Look at sales over the Internet Christmas 1996 vs. 1998 and you'll see another valuable indicator.

Examine how many ads were on the Net in 1994 and then in 1998 and this year so far. Suggest you do some digging, try looking at jup.com, nua.com, internet.com, and gatech.edu for starters. There's many more. Give a person a fish and they eat for a day.Teach them to fish (in this case for info) and they at least get their feet wet.


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