Wit Capital’s perspectives on the deal

(http://www.witcapital.com/research/researchbody.jsp?Report=aol_19991222) are instructive for those interested in commercialization and public availability of computer mapping (spatial technology) tools. Let me quote from the "buy" recommendation that Wit issued:

MapQuest is a leading online mapping and destination information solutions company. According to Media Metrix, MapQuest receives 3.7 million unique visitors monthly to its Web site and is ranked among the top 50 Web properties. According to the company, MapQuest generates the majority of all Internet mapping page views and is linked to more than 170,000 Web sites. MapQuest benefits from substantial barriers to competitive entry due to the detailed and comprehensive nature of its mapping software, and due to license agreements with over 950 business partners.

We believe that the acquisition solidifies AOL’s local commerce and advertising platform. In combination with AOL’s Digital City and MovieFone assets, MapQuest will create a true critical mass of local advertising and commerce opportunities. For ads targeted to consumers within specific zip codes, AOL should command advertising rates (CPMs) 2-3x higher than broader, run of site ads. According to Jupiter Communications, local and regional advertising will account for 24% of all Internet advertising by 2003, up from 14% in 1999, implying a growth rate that far outpaces the growth of online advertising as a whole.

We also believe that this acquisition advances the company’s AOL Anywhere strategy by providing maps and directions on various devices [i.e., Palm, Web or other delivery of content].

I alert you to this development, not as a recommendation to buy or sell any company’s stock, but to ask you to use it to check the pulse of the financial market’s accelerating appetite for spatial technology. The "pooling of assets" form and market justifications for the AOL-MapQuest deal underscore the competitive forces unleashed by robust supplies of reliable spatial data and open specifications, Web-enabled applications that bring "Where I am awareness" (geoprocessing power) into consumer and business-to-business Websites. Once the Y2K crises passes, this will have far-reaching implications for current discussions about the National Spatial Data Infrastructure, data consortia, aligning capital investments in maintenance and use of spatial data, privacy, public access, security, data malpractice and many other aspects of the technology.

As all of you know, Urban Logic has been active for many years in seeking to understand the value and appropriate uses of financial alignments in spatial technology and data. We look forward to using the new market awareness for as much public and private good as is possible, and to helping to bring programs of liquidity to support as many accessible spatial data collaborations and consortia as possible.

Best Regards for the New Year,

Bruce

Thanks for the update from Wit. We’ve been following the AOL/Mapquest merger for a while. In our opinion, AOL and Mapquest certainly have the potential to exploit location-based services in a number of markets.

We see the merger more as a content play rather than an acquisition of technology. Microsoft and Delorme, for example, have competitive technology. MapQuest has an advantage in content with working agreements in place with about 900 content providers. They have improved their spatial data to the point that it is reasonably realiable in most regions. As the leading Internet mapping service provider, they also have an advantage in mindshare and position. So Mapquest can provide a competitive advantage for AOL.

AOL is also looking to Mapquest for an advantage in the wireless market. The AOL "AOL Everywhere" strategy is interesting. But this strategy depends on the broad availability of wireless Internet access devices. Will these quantity of devices reach critical mass before competitors can position themselves in AOL/Mapquest’s space? Hard to say, but that is a big risk for AOL.

One potential downside for Mapquest is that AOL’s competitors will be nervous about doing business with AOL. Since competing technology is available, companies like Yahoo may elect to move away from Mapquest. The question there is whether Mapquest has a strong enough advantage in content to lock out competitors.

Generally, we think that the AOL/Mapquest merger will have an overall positive effect on the spatial information industry, particularly location-based services. We expect to be able to quantify the location-based service segment within a few months. Right now, we can say qualitively that location-based services will be a strong growth sector for the next several years. Companies like Oracle, MapInfo, and Microsoft are reasonably well-positioned.

You mentioned that: "Once the Y2K crises passes, this[AOL/Mapquest merger] will have far-reaching implications for current discussions about the National Spatial Data Infrastructure, data consortia, aligning capital investments in maintenance and use of spatial data, privacy, public access, security, data malpractice and many other aspects of the technology. "

Generally, I agree. But, I see the AOL/Mapquest merger as more of a wake-up call for the spatial technology industry. Mapquest managed to put together a very strong business without much assistance from NSDI, traditional GIS vendors, spatial standards, or the rest of the GIS legacy. If the GIS folks want to be relevant to the location-based services market, they will have to scramble to provide something of real value. Right now they are being left in the dust.

Bruce, it’s good to hear from you. I’ve followed your "data consortia" concept and think that it has an interesting potential for solving a number of increasingly difficult problems across a number of industries. Lets discuss after the first of the year.

Best regards,

Dave

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David Sonnen 360-332-7546 (office)

ISSI/ IDC 360-332-7013 (fax)

4629 Shipyard Rd. 508-935-4559 (IDC)

Blaine, WA 98230 dsonnen@ispatial.com

USA dsonnen@idc.com

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