American History 1988
Chapter 268 - 259 AOL

Chapter 268: Chapter 259 AOL

21% of American households owned computers, though this statistic targeted urban residents from cities with a population over 50,000.

However, the urbanization rate in America was quite high, and according to the results of the 1990 census, this rate was over 83%.

Therefore, the CIX Alliance easily inferred that there were at least 20 million households with computers in America.

But among these households with computers, only about 10% had network connectivity.

Anybody seeing this data would understand that the internet service market had immense potential.

After all, the 90% incremental market alone was incredibly attractive, with a huge potential customer base.

Even if the network connectivity rate for households with computers were to rise to 50%, that would mean tens of millions of internet users.

Everyone present was acutely aware that convincing households with computers to subscribe to network services

was much easier than persuading families who had never touched a computer to buy one.

Because those who could embrace the concept of a computer should also be interested in the internet.

This was where Steve Case’s confidence that the number of internet users would double by the end of the year came from.

And according to the laws of societal development, the number of households with computers would continue to grow afterwards.

In other words, the incremental market would be much more than 20 million, and it was continuously expanding.

"Gentlemen, if the number of internet users doubles by the end of the year, we might need more data exchange centers."

The current data exchange center operated by the CIX Alliance was only located in Virginia.

Results from the trial operation showed great effects, with the average online time for internet users increasing by about 20 minutes.

Since internet service providers were charging by the minute, the longer the online time, the higher the revenue for the providers.

However, having only one exchange center was clearly not enough, so they immediately established a second one in California.

But according to survey estimates, to meet the online needs of 4 million internet users, the scale of the current hardware facilities would need to double at the very least.

It was a huge expense, but nobody objected.

"I suggest we place the next data exchange center in Columbus, Midwestern internet users are in dire need of access to a network that connects the entire country."

Robert from Americannet was the first to raise his hand to speak, fearing he would miss another opportunity if he were slow.

The first two data exchange centers were taken by Virginia and California, but that was tolerable, as the Midwest had always been overlooked.

But he would not give up easily this time, because Americannet had more users than any other provider present.

Dean and Steve saw Robert’s determined look and nodded in agreement with his proposal.

The Midwest did indeed need a data exchange center; it would be hard to refuse him again.

"What about the fourth? We need redundancy in our data exchange centers," Dean continued to inquire about the site for the next center.

To prevent server overload, its access limit should be set higher than average demand.

"Let’s put it in Houston, the southern states are also a stronghold among internet users," suggested Adams from UUNET.

"What does everyone think?" Dean looked around, and everyone silently nodded.

"OK, then let’s proceed with the planning of the third and fourth data exchange centers in the order just discussed."

The main purpose of today’s meeting had been achieved: not only had they begun to compete for IBM’s clients, but they had also taken the chance to expand the scale of the CIX Alliance.

Especially in the case of IBM, it was the public enemy of the CIX Alliance, having taken the largest slice of the market pie.

The reason they all sat together was to unify industry regulations and then collectively stand against IBM.

Of course, the most important thing was to fight for its customers and, by the by, isolate IBM from the alliance.

However, IBM was not so easy to deal with; many large companies preferred to trust IBM’s brand recognition and security.

Thus, the CIX Alliance had not achieved ultimate victory; they had to continuously expand their membership.

Like this time, with Duane’s introduction, seven local Bell companies had all joined the CIX Alliance.

Since the divestiture of AT&T, Bell’s core business was only local telephony.

But local telephony profits were very slim and had almost no growth potential.

Even in the future, as technology advanced, the market size for local telephony services was expected to keep shrinking.

So the local Bells, feeling the chill, urgently needed to find new growth areas for their companies.

Renting out telephone networks and charging service fees to internet providers seemed like a nice choice.

They could make money without any additional investments.

Therefore, after Bell South on behalf of the CIX Alliance extended the invitation, the other six companies joined without much deliberation.

It was a win-win situation; they received benefits while the service providers within the alliance gained access to a vast network of lines.

To promote internet services and expand the domestic base of internet users involved all aspects of the industry.

They established the CIX Alliance, advocating for the unobstructed exchange of data, and held shares in Cisco to advance the development of higher-grade routers.

They supported the passage of bills at federal government hearings and were the first to use HyperText Markup Language after restructuring Price’s List.

Promoting the concept of the World Wide Web, setting up a fund to support the development of online service providers.

Looking closely, Dean was practically involved in every aspect of the internet’s universal adoption.

If not for the limitations imposed by the current scale, he even wanted to reach a consensus on the pricing of internet services.

After all, the cost of getting online for ordinary people is still too high, a few US dollars per hour are enough to deter many people.

But there’s no helping it, as operators need to make money too. Maybe when the internet penetration rate gets a bit higher, it might be time to consider a new pricing model.

After the meeting ended, Dean did not leave Santa Clara right away. He and Steve Case had a few more issues to discuss.

"Is AOL planning to go public this year?" The two casually found a coffee shop on the street and sat down to chat.

"Yes, I believe the timing is ripe." Steve Case was brimming with confidence, as AOL’s business had shown significant growth over the past two years.

But that wasn’t enough for him; only by going public could AOL’s development get on the fast track.

Steve Case planned to use the funds raised from the IPO to heavily promote AOL’s online services.

The privatization of the NSFNet would undoubtedly attract more ordinary people to join the internet, so he believed this was a good opportunity.

"OK," Dean nodded in understanding. He was just one of AOL’s shareholders, and he respected Steve Case’s decisions.

And with the internet wave gradually approaching, going public sooner was not a bad thing.

"How much funding are you preparing to raise? I know some people on Wall Street, maybe I can help."

Dean was experienced in this regard; he had been through it before.

"That’s exactly why I’m looking for you," Steve Case handed him a document, "We’re initially planning to raise 60 million US dollars.

This money will mainly be used to reach cooperation with more telecommunications service providers; our goal is to offer network services to any family in America.

No matter which city they’re in, or at what time!"

Steve Case had great ambitions; he wanted AOL to become a national network operator, that is, an ISP.

This required AOL to reach agreements with the phone companies in major cities to completely cover the service range nationwide.

Fortunately, all seven Bell companies had joined the CIX Alliance, which basically allowed them to serve the majority of the population.

"AOL’s user base is roughly 430,000, with an average revenue per user per year of about 235 US dollars.

So by this calculation, AOL’s annual sales are roughly 100 million US dollars."

To be honest, this was a bit more than Dean had expected. "Are these revenues all from online service charges?"

"No, it includes other value-added fees, such as subscription fees for some special content, email fees, advertising fees, and so on.

Of course, online service charges account for over 70%, with the value-added fees less than 30%."

AOL is a content provider, and besides basic services, its value-added income is also quite diversified.

But even so, Dean couldn’t help but feel astonished at the high cost of internet access upon doing some quick math.

You see, with the current timed model, the average person spends no more than half an hour per day online, sometimes even less.

Yet, even with such casual use, the final costs add up to nearly two hundred dollars, which is still too expensive.

However, Dean didn’t dwell on these details; he focused his attention on the document in his hands.

"What’s your preliminary valuation of AOL? I’ll contact Morgan Stanley and Merrill Lynch for you."

"600 million US dollars!" Steve Case clenched his jaw tightly; one could see that he was nervous but also excited.

"600 million US dollars..." Dean considered for a moment before nodding, "I will help you convince Wall Street to accept this price."

"That’s fantastic, Dean!" exclaimed Steve Case enthusiastically, swinging his fist in the air, "It was the wisest choice for AOL to accept your investment!"

"Don’t celebrate too early. Wall Street hasn’t fully embraced the concept of the internet."

This year’s focus is on server architecture, also the earlier mentioned C/S network system.

Have you not heard that saying? "The internet is greatly beneficial to C/S networks!"

In the eyes of Wall Street analysts, the potential of the internet ranks behind that of C/S networks.

So even if Wall Street accepts AOL’s valuation of 600 million US dollars, the prospects for its market value growth are expected to be weak.

"As long as the IPO is successful, I have confidence that AOL will reach new heights!"

Steve Case joined AOL’s predecessor back in ’83, and he had gained ample understanding of the industry.

With the National Science Foundation lifting restrictions and the federal government introducing supportive legislation, the internet was bound to enter a high-speed development phase.

"Alright, I’ll contact Wall Street. And you..." Dean picked up the document and stood up, "Get your roadshow materials ready."

"Can I include our excellent employees in the presentation like you did?"

Dean started to laugh, "As long as you make AOL’s stock very popular, I would be more than happy."

He was one of AOL’s largest shareholders, and ultimately AOL’s market value would also be reflected in his net worth.

Time had entered February, and before they knew it, it had been half a year since Byte Company went public.

At the end of this month, all major shareholders’ stocks would become unrestricted.

Also this month, Byte Company’s dividends from the previous year were about to be paid out.

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