eMailbag Monday: Readers Ask About Microsoft, Microcaps, and IBM

First reader up this week writes:

“re: Morning Report, Wednesday,
December 31
–Top Ten Web Stocks To Watch. In the report and specific
reference, RealNetworks, you mentioned that Microsoft ‘has licensed Real’s
code.’ Could you explain to this neophyte what that means?”

Reply: It means that Microsoft can use RealNetwork’s streaming media
technology/software in Microsoft products. Effectively that means Real’s
competitive edge is lost in many ways since Microsoft can leverage Real as
an R&D firm for its own efforts.

On the other hand, sometimes you gotta shake hands with a rival in order to
avoid getting crushed by it. And Real gets some revenue out of the deal.
Longer term, this sets the stage for Microsoft to acquire Real if it wants
to since it’ll be privy to the whole works anyway.


“I bought some shares of a while back and watched it go
from about $2.15 to $3.28 and then right back down to about $1.11. It seems
like all the company offers is good news, but the stock keeps getting
killed. It made
it back up to about $1.70 before falling back down again to $1.11. Do you
know anything about this company?

“It has been selected by Microsoft to be featured as one of its lifestyle
sites, and its Web site is pretty impressive. I don’t know why the stock is
doing so poorly. I would appreciate any info.

“Another Internet stock I’ve read about recently is General Store
International Inc. (GSIC). They let shoppers buy groceries over the Net. My
local Tom Thumb is already offering this service and I think it could be
big. What do you know about this company? Thanks for your help?”

Reply: Many microcap (very small) firms are out there fighting the
good fight. It’s basically a battle for brainwidth. Without investors’
awareness there is little liquidity in these issues. Peapod (NASDAQ:PPOD)
is a much more well-known shopper-groceries-via-the Internet company, and
it seems to have trouble shouting above the din of investments available.

Internet Liquidators out of Canada is another untold story. AOL just upped
its ownership in this Web auction outfit, but finding out the news and
tracking these smallbies reminds us of the needle and haystack. Wall Street
can barely spell Internet yet, let alone surf the tiny ripples.

Jolt ISPs

“I recently read an article (can’t remember where) that suggested our local
utility companies (power and light) will be offering Internet connection in
competition with ISPs, AOL, etc. Evidently there is technology available
that will allow the electrical receptacles in our homes to be converted in
ways to allow access to the Internet and at speeds comparable to cable,
ADSL, etc.

“True or untrue? If true, which power companies are in the lead with this
technology, and how soon will we consumers have this technology available?

Reply: Theoretically it’s possible, and we’ve seen some early studies
on this. How’s this for a litmus test? Call your local utility company and
ask it if it even knows what ‘ISP’ stands for. (For reference, ISP =
Internet service provider; for example, Netcom, Mindspring (NASDAQ:MSPG), or
Earthlink [NASDAQ:ELNK].)

Yes, it could happen. But our hunch is Internet access via electrical lines
may be a long shot for another decade. So scouring the utility stock
landscape looking for a winner in this realm–at this zygote in a box
stage–seems to be akin to boiling the ocean to find fool’s gold.


“Good article (ISR, Jan.
) on Netscape (NASDAQ:NSCP). Does it make sense for IBM (NYSE:IBM) to
buy Netscape at this low price? Just wondering.”

Reply: In our humble opinion, yes. Fuse it with Lotus Notes, and vice
versa. Big Blue + Netscape = Deep Blue. Or, as we paraphrase from the old
’60s movie “The Graduate,” the future is the Internet (as opposed to plastic).

If IBM truly wants to be a Web player on open protocols, it could gobble
Netscape, merge it with its business services, and give Microsoft a run for
its network.

Over time Netscape could be pure content. Let the coders tweak the GUI, as
Yahoo found it’s the content that matters.

Two hundred million people will be watching the Superbowl on TV, not
because of the technology per se but for the action, the “content.” The
only thing that makes
Superbowl Sunday more valuable to advertisers than any other Sunday is the

Content is not king, it’s everything. Otherwise a Sunday’s a Sunday.
Airwaves, like “netwaves,” are there for the programming. It takes a few
brainwaves now to make it happen.

Betting On Many Tables

“Good Evening: Could you explain why Microsoft is taking a stake in so
many small companies? A few million here and a billion there.

“For example: Microsoft just took a 32.4% interest in Digital Sound Corp
(DGSD). What in the world does DGSD, selling for $1 23/32 and asking the
shareholders to O.K. a five-for-one reverse split, have to offer MSFT?
What am I missing?”

Reply:Vegas fruit machine players know the answer–because you never
know when the three cherries will line up. Microsoft is in a scramble to be
all things Internet to everyone. It has the cash to dabble in whatever
flits across its radar. We’ll bet that in 1993, if Netscape co-founder
Marc Andreessen had approached Bill Gates about a Web software project, we
may be reading a different story now.

At this point we think Microsoft may be at the saturation stage, unable to
cope with the rapid developments in the Internet space. It acquires
companies before a product is even at critical mass or proven stage. Some
of them may never make it that far. But the ones that do may make it very
far. So they keep betting.


“In the article, ‘No Try Before Buy Good For Shopping’ (ISR, Jan.
), you reference ‘pure play’ book vendors such as Amazon and Barnes &
Noble. Barnes & Noble is by no means anywhere close to being a ‘pure’
Internet company. It is a square peg of mass-marketed brand-name retail
book sales being jammed into the round hole of Internet commerce.

“Power to its attempts, but Amazon still provides much better services via
the Internet, seeing as how that is the heart and soul of its ‘pure play’

Reply: We’ve said that many times. Barnes was included so as to give
investors a picture of the bookscape. It’s more than a pure play story here.

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