AOL List: Slams and Spams

David Cassel (
Fri, 8 Nov 1996 02:23:57 -0800 (PST)

		     S l a m s   a n d   S p a m s


Thursday after the stock market closed, AOL released their first-quarter
profits. Before their $385 million write-off:  a profit of $19 million. 
With the write-off:  a loss of $3.80 per share.  "[W]e have not operated
this company for purposes of earnings," AOL's chief financial officer told
the New York Times.  "We would be missing a lot of opportunity by focusing
on earnings instead of our huge opportunity to build market share." 

Upside magazine's Christopher Byron sees it differently.  Referring to the
charge as AOL's "big bath", he writes that the new accounting move
"totally wipes out all profits--indeed, all operating income--this
11-year-old company has ever made." 

What about AOL's original accounting?  "The ploy created an illusion that
AOL was healthy when, in fact, it had been losing money from day one...all
AOL was doing was snowplowing its biggest (and fastest-growing) cost item
into the future and pretending it wasn't there."  He makes a damning
observation about the company's 1996 numbers--that actual marketing and
operating costs increased more in 1996 than revenue. 

Indeed, the New York Times reported that AOL spent $130 million to bring
in 400,000 subscribers--which comes out to $325 for each subscriber added. 
"AOL has in effect been hiding this situation from investors..." Byron
writes.  "In 1995, subscription acquisition costs amounted to 22.9 percent
of on-line service revenues.  By last June they amounted to close to 32

AOL's fiscal statement isn't encouraging, either.  Over the last three
months AOL's marketing costs increased $39 million from the same period
last year--and the broader "cost of revenue" figure increased $69 million. 
But a year ago, AOL added 714,000 members in the same 3-month
period--which represented a 19% increase in size.  This year, though
spending more, they added 314,000 *fewer* members--which is now an
increase of just 6%. 

Upside's Byron noted that "AOL is currently selling at 92 times trailing

In other news, the Associated Press reported Cyber Promotions filed a
17-page motion in their ongoing Philadelphia suit.  In fact, the latest
spam in AOL mailboxes was a press release.  Sent to
"", it announced that "Cyber Promotions, Inc.,
has filed a motion with the U.S. District Court for the Eastern District
of Pennsylvania...alleging that AOL's e-mail blocking software is a
direct violation of federal anti-trust laws." 

The president of CyberPromotions outlined his philosophy.  "We have felt
all along that AOL's motivation to block Cyber's commercial advertisements
was not implemented to protect AOL members, but instead monopolize direct
electronic advertising to 7 million people who have e-mail addresses that
are within AOL's stranglehold.  We do not feel that a few powerful media
companies, like AOL, should be able to control commerce on the Internet
simply because they are the exclusive connection for millions of people to
 the Internet." 

The press release notes that AOL's pop-up advertisements appear by
default, whereas e-mail is *blocked* by default--and it uses AOL's own
words against them.  "In defending AOL's practice of selling its members'
personal information to direct mail companies that engage in unsolicited
postal mail, AOL wrote, "For many people, advertising mail is informative
and provides value, convenience, and fun." 

"How can one form of unsolicited commercial advertisements be informative
and valuable, and another form, from outsiders, be offensive and
intrusive?  What's good for the goose should be good for the gander." 


Christopher Byron's article notes that AOL's actual profits are "far
enough below zero as to make the Arctic seem tropical." At the top of the
page was a banner ad for AOL's intranet service.  It said "AOL.  The
company that makes online work." 

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