Please see the report on AOL at www.billparish.com What do you think? AOL took on $22 billion in bank debt, $16 billion in deferred taxes and $10 billion in Time Warner stock option debt when they made the purchase. Combined, this debt exceeds gross annual revenues.

They have also issued new bonds since the purchase due to cash needs and it looks as though they are paying close to $2 billion in annual interest charges. Remarkably, they boast of what is called EBITDA (earnings before interest and taxes and depreciation) growth and no one seems to be seeing the obvious, Microsoft has done to AOL what it did to Amazon.com

Please share your thoughts and questions.

-- Bill Parish (bill@billparish.com), April 20, 2001

Answers

SEC reports for the Time Warner merge are just now being filed and so perhaps the business media simply has not noticed yet.

-- Bill Parish (bill@billparish.com), April 20, 2001.

>>Microsoft has done to AOL what it did to Amazon.com

In the sentence above, "it" refers to microsoft or AOL?

-- Charlie Black (charlie.black@mindspring.com), April 20, 2001.

"It" refers to Microsoft. The point was that Microsoft unplugged Amazon the same way it is unplugging AOL and no one seems to notice what they are doing.

-- Bill Parish (bill@billparish.com), April 21, 2001.

Of course MS fooled AOL into a bad deal. But it was lose-lose. If AOL didn't get Time-Warner, MS would have signed a lockout deal with T-W themselves. Microsoft holds other companies in "trust," through their phony dealmaking, but AOL and other competitors are not big enough (or bad enough?) to do that yet. So they must make purchases instead of controlling agreements.

AOL needs T-W to get content and Web infrastructure. Those are the two things required for future growth. Microsoft doesn't need either, as it can hold infrastructure companies in trust ("Do this, or I'll pull your Windows license and sic the DOJ on you for piracy."). MS also produces its own content as needed. AOL was not a content maker, just a conveyor. So to AOL, a single buy provided both infrastructure (cable, etc.) and content. Content is their insurance against future low-margins in the infrastructure business.

Eventually, of course, even content will become low-margin, once computer-generated actors and athletes replace the real thing. And infrastructure is reaching the learning-curve inflection point, as shown by the glut of fiber and cellphone providers. So it is only the software monopolies like MS who will have high-margin products, since they can also remove/revise software licenses at will. Soon it will simply be a matter of paying a monthly fee to keep using the product, even if the product doesn't wear out and uses no consumables. It's a license to print money.

-- Tom Nadeau (pcassembler@mindspring.com), April 23, 2001.

Hello Tom. My feeling is that AOL needs real customer relationships, not just those based upon access. For example, AOL should not be handing over financial services to a predator like Citigroup. They should have their own visa program, etc. This would provide immense profit opportunities. The notion of profit in access is as ridiculous, given high costs, as evidenced in the current state of long distance carriers. Of course high speed satellite will soon be a strong competitor to AOL's notion of one wire does all. In my opinion.

-- Bill Parish (bill@billparish.com), April 24, 2001.

With all due respect to Tom Nadeau, Microsoft does not simply have a "license to print money" with regards to its software products. Such statements betray considerable naivete about the nature of software-based goods and products. Users off software and systems do not crave change for change sake. They require compelling improvements and new features to provide real competitive advantages before they wilkl adopt new release prodcuts to compete with existing products for which they have already paid for training, testing, deployment and other support costs in addition to licenses that they already acquired. In that respect, Microsoft has to compete mightily with itself and its own past performance-to-price evaluations. To suggest otherwise, is an insult to both the efforts of Microsoft employees and the general intelligence of those who manage information technology decisions at the enterprise level.

-- Brad Mahugh (brad@mahugh.com), August 14, 2001.