By Brian Caulfield
Internet World
Big Internet content players are pitching themselves to money managers as
the best way to cash in on the growth of the Internet as an outlet for
consumer goods and services.
But while investors are warming up to companies like Yahoo!, America Online, and Excite, advisors for individual investors remain wary.
“I think the advertisers have shown up with some money,” said Keith
Benjamin, an analyst with BancAmerica Robertson Stephens. “But the
consumers are showing up with much more.”
More than 3,000 venture capitalists, institutional investors, and
investment advisors attended pitches by a broad range of high-tech
companies in communications, manufacturing, and new media Monday at the
BancAmerica Robertson Stephens Tech ’98 Conference in San Francisco. The
conference is intended to introduce money managers to technology companies looking to raise money.
One of the stronger undercurrents of the conference was that even more
conservative investment advisors are warming up to the idea of the
Internet.
“I really think there’s something out there,” said Max Rittmann,
President of Rittmann Capital Management, who still favors more traditional
tech stocks like Motorola. “But I’m still waiting for it to gel a little more.”
Benjamin said he thinks that’s just what’s happening. He said the growth of electronic commerce will increase the revenue of the Web’s traditional content aggregators.
“AOL, Yahoo!, and Excite are becoming the landlords who rent out space to
the ‘e-tailers,'” Benjamin said.
Nevertheless, Internet executives tried to soothe investor fears by
demonstrating a broad base of potential revenues. For example, Charles
Conn, CEO of the local-site producer CitySearch, said he hopes to soothe
fears by relying on a broad base of local ad revenue, rather than a few high-tech advertisers. “We’re not as self-referential as some Web
sites with Microsoft advertising on Yahoo! and Yahoo! advertising on
Microsoft,” Conn said.
Daniel Corry, chief operating officer of Sand Hill Capital, a Menlo Park,
CA-based venture capital firm, said he was attracted to CitySearch, a
privately-held firm based in Pasadena, CA that competes with ventures like Microsoft’s Sidewalk to offer local content and sell advertising to retailers, because it was promising break-even on its investment in two years, and payback in 3 to 4 years.
“Content, it’s all about content,” he said.
Even giant online service AOL is pitching itself as an e-commerce player. AOL executives told investors it is shifting its business model to include more advertising and electronic retailing efforts. Lennert Leader, AOL’s chief financial officer outlined a broad strategy for cashing in on AOL’s large audience by hawking goods and services to its huge audience.
One money manager, who did not want his name used, wasn’t buying it. “My
concern is still how are they going to drive revenue from their content
business,” he said.
But Tom Kippola, managing partner of The Chasm Group, a San Mateo, CA-based market research firm, said AOL is an example of how Internet companies
are finding creative ways to cash in on their subscriber bases.
“I’ve always thought that AOL has a good business model and it was going to
take time for membership to pan out and reach the 10 million mark and turn the advertising model on.”
Kippola said AOL is an example of three ways for Internet companies to cash in on a large user base: subscriber fees, advertising fees, and
charging merchants to sell goods through a site.
Yahoo! CEO Tim Koogle said the company has turned a large audience that comes to view its aggregation of content by teaming up with the most popular
commerce sites to turn its huge viewer base into another revenue stream.
Yahoo! now has 15 distribution partners that pay long-term fees in addition
to a piece of each transaction.
“I continue to believe Yahoo! will win the fight for the Internet, and will profit,” Benjamin said. “It’s a great stock.”
Steve Levy, CEO of CBS Sportsline, is planning to turn content into cash by building an online store to sell sports paraphernalia to the site’s users. While Levy said CBS’s Olympic coverage did poorly, Sportsline saw a 54% jump in traffic during the Olympics. That translated into cash for Sportsline, which charged $35 per thousand impressions per banner advertisements–a $13 jump from its standard rate, he said.
Despite a lackluster Initial Public Offering last Fall, Benjamin said he
likes the stock, and pegged it to rise to $35 a share.
Nevertheless, Cern Basker, associate vice president, Provident Investment
Advisors, remained wary of pure-play Internet companies.
“Typically we would not invest in these kinds of companies,” Basker said. “The nature of the companies we invest in have a strong history of earnings.”
