By Rachel Chalmers
America Online Inc, the Dulles, Virginia-based interactive services leviathan, bucked the loss-making trend for internet companies by posting net income of $184m for the first quarter of fiscal 2000 ended September 30, 1999, up from $50m for the same quarter last year. Revenues reached $1.5bn, up from $1bn this time last year. AOL also launched a venture to sell Gateway Inc’s personal computers online and to invest $800m in the OEM. The two companies will collaborate on an online software store targeted at their combined user base. Gateway will package AOL’s service into every computer it makes and sells, and will spend $85m in aggressively marketing the service. AOL’s financial injection of $650m cash and $150m worth of AOL stock will be staged over the next two years, and the company also will supply service and personalization to Gateway’s ISP, Gateway.net. What they basically concluded was that rather than do it themselves they could work with us, said AOL CEO Steve Case in a conference call with analysts. For us it’s a big win in many areas. The brand is going to be loaded for the first time on Gateway PCs.
Gateway deal aside, AOL’s membership grew by 1.1 million worldwide over the quarter, bringing total numbers to 18.7 million. The cheaper CompuServe 2000 service added 378,000 subscribers to close the quarter at 575,000. There are now 45 million registered users of ICQ, almost 70 million of AOL Instant Messenger (AIM) and 20 million of Netscape Netcenter. Subscription revenues came to $995m, up from $723m for fiscal 1999’s corresponding quarter. Average daily usage has increased to 55 minutes from 47 minutes this time last year. Ad revenues nearly doubled to $350m. Other highlights of the quarter included the rather belated launch of AOL 5.0 with a personal calendar and the You’ve Got Pictures service jointly developed with Eastman Kodak. With an eye to the wireless future, AOL launched its Mail on Palm Pilot Service and announced a strategic alliance with Motorola Inc to provide AIM and the BuddyList on Motorola’s wireless phones and PDAs. Another agreement, this one with GTE, will see digital subscriber line (DSL) services rolled out in 17 states. The devil is in the details, and there are issues we need to deal with, said Case of AOL’s ventures into high speed access, but overall the broadband picture is brightening. We’ve practiced patience and perseverance, and that approach seems to be bearing fruit.
As far as content is concerned, AOL added deals with CareInsite Inc and Medscape Inc to a multi-million dollar agreement with drkoop.com. Travelocity.com, which has just merged Preview Travel, will provide an exclusive reservations engine to AOL, CompuServe, Digital City and Netscape in an alliance valued at $200m. CBS MarketWatch.com will provide business and financial news to AOL’s Personal Finance Channel. The company’s other brands posted some wins of their own. CompuServe 2000 is extending its PC rebate program through the holiday season and is upgrading its service to AOL 5.0. AIM 3.0 was introduced and use of Netscape’s Internet keywords tripled. Netscape Communicator 4.7 is out. There’s still no sign of the elusive version 5.0, to be based on the open source Mozilla kernel, but Mozilla’s other big project, the Netscape Open Directory, now powers AOL Search and exceeds 1 million entries.
Over in the Interactive Properties Group, ICQ swung advertising and e-commerce deals with eBay, AmericanGreetings.com and Net2Phone, Digital City announced expansion plans and Moviefone moved into Radiant Systems’ theater point-of-sale devices. The recently acquired online music companies, Spinner and Winamp, now form the backbone of Netscape Radio, a new feature in Communicator 4.7. Internationally, the company launched AOL Hong Kong, passed the one million member mark in Germany, sold a 20% equity stake in AOL Canada to the Royal Bank of Canada and planned localized versions of AOL 5.0 for Australia, Canada, France, Germany, Japan and the UK. The Sun-Netscape alliance announced new deals with Chase Manhattan, Cutler Hammer, Adelphia Cable, Argentaria, ExpenseVision, Telecom New Zealand and National Discount. Not a bad quarter for a company that’s looking more and more like Microsoft Corp’s worst nightmare.
