07/14/97 NOT @HOME ALONE: BILL COMES KNOCKING

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NOT @HOME ALONE: BILL COMES KNOCKING

In the 28 months since it was founded, @Home has burned through $38 million. It expects to spend $30 million more by yearend as it attempts to build a high-speed ''backbone'' for delivering Internet content over cable-television systems. So far, there are only 11,000 customers in the world paying for its service. In the quarter ended Mar. 30, @Home lost nearly $11 million on just $806,000 in revenues, and it expects to continue losing money for the foreseeable future.
So why is the company's imminent initial public offering expected to be one of the hottest high-tech IPOs in years? It could be the luminaries behind the venture: media scion William R. Hearst III, venture-capitalist John Doerr, Netscape Communications Chief Executive James Barksdale, and high-tech companies such as Sun Microsystems, Motorola, and Bay Networks. Five cable companies, including Tele-Communications, Cox, and Comcast, together hold 70%, pre-IPO.
ACED OUT. Those are big drawing cards for the 8 million-share offering, which is expected to bring in at least $58 million, giving the company a market value of about $600 million. And there's buzz on Wall Street that the valuation could go as high as $1 billion. ''The valuation is ahead of itself, based on the fundamentals,'' says Geoffrey Y. Yang, a partner at Institutional Venture Partners. ''It's being priced on what the future can bring.''
But Yang and other Silicon Valley investors believe @Home's future will justify the big valuation--thanks to its most important asset: Exclusive contracts with its cable backers to use the startup's technology to provide ''broadband'' communications to the 44 million homes their wires reach. If millions of consumers sign up for high-speed Internet access via cable modems, @Home stands to make a fortune by providing the basic connections as well as online content. It will share monthly fees and advertising revenues with the cable companies.
For now, the @Home service is simply a fast Internet system for personal computers. But eventually, @Home seeks a bigger audience by delivering the Internet--and other new digital programming--to TVs, too. The company has deals with dozens of content developers, including CNN and the Discovery Channel.
All this has such enormous potential that Microsoft Chairman William H. Gates III has been fuming that he still has not nailed down a piece of the action. The software mogul has complained to cable companies that he has been locked out of the @Home cabal. The company's directors include such Microsoft foes as Doerr and Barksdale, and it has adopted Netscape software, rather than Microsoft's, for browsing the Internet.
Now Gates is stepping up his campaign. His $1 billion stake in Comcast, which owns 14% of @Home, gives him a small stake. And, as the @Home prospectus reveals, Microsoft can force Comcast to terminate its exclusive relationship with @Home after June 4, 1999, and sell its @Home shares back to the company.
Meanwhile, Gates is lobbying CableLabs, an industry research and development group, to adopt his next-generation cable box design. His interest is in establishing a Microsoft-friendly standard.
How Gates proceeds will be determined in large part by the cable companies. @Home's cable partners could adopt Gates' new set-top box and software. Or they could abandon the startup altogether. That's not likely, given their investment in the company. More importantly, there's a growing consensus among cable executives that it may be safer to work with Gates than to fight him--it's possible, sources say, that Gates could even take a stake in @Home. Says Graig Mundie, senior vice-president of Microsoft's consumer platform division: ''There's no reason this can't be a symbiotic relationship.'' That's fine as long as @Home doesn't mind being the pilot fish to Microsoft's shark.
By Amy Cortese in New York, with bureau reports

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