eMailbag Monday: Y2K, AOL, CBS, and More Alphabet Soup

First reader up this week poses this question:

“I was thinking about the Y2K Time Bomb. Internet users are to increase from present 30 million to 100 million Year 2000 – but what then? If we lose the ability to make phone calls due to installed date-sensitive computer systems what will this do to Internet stocks and/or Wall Street?”

Reply: The year 2000 problem describes older mainframe computers programmed never to last 30 years running the same old code and not programmed to recognize beyond the year 1999. There’s been plenty of talk and hype about this phenomenon, chased by plenty of investors looking for firms to “solve” the Y2K problem, if that’s what it is.

We think there could be some glitches here and there with some ancient computer systems but that the Internet, given the intense upgrades by several commercial network backbones in the past few years, may be fine. University networking systems, those more likely to run on old programs, may suffer, though. By the way, 60 million people in the U.S. use the Internet today and about 100 million globally. So by the year 2000 it may be closer to 80 million U.S. and 175 million globally.

Eye On AOL?

“The NY Post stated in its gossip column that CBS & AOL are in talks? Heard anything?”

Reply: On a market capitalization basis both firms are about equal in value so we doubt CBS will try and swallow a fish its own size. CBS is the only top 3 broadcaster without a major Internet media alliance along the lines of Disney-Infoseek or NBC-Snap/CNET. That pretty much leaves Yahoo! (NASDAQ:YHOO), Excite (NASDAQ:XCIT) or Lycos (NASDAQ:LCOS) as allies or acquisition targets. Yahoo is owned in part by Softbank. Combined with its lofty valuation we doubt it’s the one.

Conversely, AOL (NYSE:AOL) needs broadband allies not content per se. Trouble is, @Home (NASDAQ:ATHM) is a high-speed AOL in the making. And it has exclusive access to 60 million cable households. If you’ve seen AOL chairman Steve Case lately in the news this is what he’s clamoring for–for AOL to be carried on @Home, especially now that AT&T bid on TCI (which owns 40% of ATHM).

Our solution (message to our readers Steve Case, Bob Pittman and Ted Leonsis): AOL buys a chunk of @Home–stock plus cash–with part of the deal to be guaranteed carriage. Or just take the whole thing out and it’s yours, high-speed nirvana, [email protected]

That’s the move Microsoft’s Bill Gates would make, but there’s no way the cable cowboys and the ‘lone ranger’ (John Malone) are going to sell to Gates. The next 20 years are at stake and it would take more than Microsoft’s market cap to cover the value of that.

In short, AOL seems more like a buyer than a seller at the moment while CBS seems like an old-fashioned media company in search of an Internet strategy.

Wide & Far

“This Internet stock (Broadvision) has risen more than 250% this year and is among the few Internet companies projected to be profitable very soon.”

Reply: We first brought up Broadvision (NASDAQ:BVSN) in Internet Stock Report on January 21, 1998 when the stock was $6.25 per share. Our view then and now is that delivering targeted marketing counts. BVSN shares closed July 2 at $23.75 per share.

Finally, this from the Q&A of the Day: A news release from DoubleClick last week played up its overall Internet reach and sought to associate itself with the portal sites. We asked you last week if DoubleClick (NASDAQ:DCLK) should be counted as a “portal” due to its reach or as an advertising network.

We believe it’s an advertising network with a much more limited set of deliverables because any site using its service doesn’t want it delivering commerce or other services that may compete with the site that hired it.

DoubleClick exists off other sites, not its own. Nor does it have strong consumer “brand” appeal. If it tries to be a content deliverer or something else, it risks alienating its clients who can go elsewhere for ad services.

That said, here’s a few of the hundreds of reader responses:

“DLCK should be considered as a broker or advertising agency.”

“As an agency media buyer, I look at reach, frequency and the ability to target by demographics and/or psycho graphics. Also, I look at the cost per thousand for the unit(s) purchased. When considering these factors, networks, portals and communities are immaterial. I strive for efficiency and effectiveness.”

“DCLK should not be counted as a portal or a community. In fact, to do so would be a disservice to the creative approach to which DCLK takes. They are not limited to a select community, but have the opportunity to expand their reach to the entire Internet.”

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