Apple Plans to Use Technology Developed by America Online

by Sandra Sugawara

Saturday, December 5, 1992

Apple Computer Inc. yesterday announced that it plans to use technology developed by Vienna-based America Online Inc. in future on-line information services, a deal that will mean a minimum of $15 million for the local company.

"It's a great deal for America Online, a real feather in their cap," said Brian E. Stack, a Boston-based analyst for Robertson Stephens & Co., an investment banking company. He said the deal will both help America Online financially and boost its credibility in the marketplace.

On-line information services enable people to use personal computers and other devices to gain access to a range of information, conduct electronic shopping or banking and converse with other computer users.

Under the agreement, Cupertino, Calif.-based Apple will pay America Online $1 million to spend the next year incorporating its technologies into enhanced versions of AppleLink, Apple's on-line communications and information service. America Online will own any of the improvements it develops. Apple will pay America Online a royalty based on usage.

The Vienna company is to receive a minimum of $2 million in 1994, with the minimum rising to $4 million by the fifth year, for a total of at least $15 million and possibly more, according to Lennert Leader, chief financial officer of America Online.

Apple received warrants to buy 500,000 shares of America Online at $25 -- roughly 10 percent of the company's stock. It can buy the stock any time over five years. America Online, whose shares closed yesterday at $25.50, up $3.25, had revenue of $26.5 million and profit of $3.5 million for the fiscal year ended June 30. It has 150 employees and anticipates hiring a small number of people to assist with the Apple project.

Rick J. Martin, an analyst with the brokerage firm Chicago Corp., predicted that the royalty payments will be closer to $50 million over five years. He expects Apple's on-line product to play an integral role in the company's push into mobile computing and its effort to expand the use of computers in education and business. But Apple officials called such predictions "speculation." They also declined to discuss details of the project or to say why they chose America Online's technology over other on-line services.

AppleLink was started to allow Apple employees and the company's suppliers to talk to one another. It has about 50,000 subscribers, but to sell it to the general public, it must be made faster and easier to use, analysts said.

In September, America Online, which had about 180,000 subscribers, was the fourth-largest on-line network, after Compuserve, which had more than 1 million subscribers; Prodigy, with 850,000; and GEnie, with 350,000, according to Arlen Communications, a Bethesda consulting firm.

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