In an attempt to reclaim users and revenue, AOL likely to drop fees
After losing almost a third of its subscribers in three years and about $200 billion in market value in five, Internet giant AOL likely will transform its entire business model to become a free, advertising-driven web portal and e-mail service—and possibly even social networking destination—to compete with the likes of Yahoo, Google, MySpace and others.
Word of the massive change leaked to the media in advance of today’s Time Warner Inc. board of directors meeting. It is anticipated the board of Time Warner, which merged with AOL in 2001, will thrash out final details today and formally announce the transformation Aug. 2, the same day it will release Q2 2006 financials, as part of a new turnaround plan—its fourth in five years.
The new AOL would be free to broadband users, who can access the Internet sans AOL via their broadband providers and then access their AOL account at AOL.com; the company, however, would continue to charge subscribers who use dial-up access, according to leaked reports.
“It seems in many ways that this is a last-ditch effort to be competitive in a highly competitive market,” says Sucharita Mulpuru, senior retail analyst at Forrester Research Inc. “This could give them an opportunity to again become a player. But they’re in a tough spot: few think of AOL as being at the forefront of technology, they’re no longer relevant in the search arena, and trying to make gains through ad revenue today is very difficult in an online world with companies like MySpace and many others attracting new users and new ad dollars. Plus, the difficulty that Google’s Gmail service is having taking off does not bode well for similar new efforts.”
The implication for the e-commerce industry is unclear. While some experts ponder how an AOL upheaval could affect e-mail marketing, others see new opportunities, such as the potential of a new social networking destination arising from the expected new AOL.
If AOL can establish a social network through its AIM service`s ability to automatically consolidate address books from many other free e-mail services and its MySpace-like AIM Pages, web retailers can benefit from the very powerful word-of-mouth marketing that social networking sites can generate, Mulpuru says.
The expected overhaul of AOL follows the quiet introduction last year of AIM Triton, which expanded the AOL Instant Messaging, or AIM, service that already featured other functionality as well as content to include e-mail, telecommunications and other offerings for which AOL subscribers pay. AIM also added AIM Pages, a tool that enables AIM users to create personal pages akin to MySpace venues.
Today AIM has 23 million monthly instant messaging users, though AOL declines to provide the number of those users who also use AIM’s Triton functionality. AOL did not spend a penny on advertising to promote AIM Triton, relying instead on viral marketing.
The difference between AOL and AIM Triton is cost: AIM Triton is free. Hence, the big question became: Why would Internet users pay for AOL when they could get essentially the same service via AIM.com for free? Looking back, it now seems AIM Triton may have been a test-bed for what AOL is expected to become, some industry observers say.
Further, AOL seemed to be using the free AIM Triton as a way to bring individuals who dropped AOL in favor of Yahoo, Google and others back into the fold, then use the new AIM Triton population to drive new advertising revenue, says Benjamin Chafetz, vice president of marketing at 4inkjets.com, No. 285 in the Internet Retailer Top 500 Guide to Retail Web Sites. “Attempting to monetize a drop-off in AOL users was a very smart move on AOL’s part,” he contends.
Chafetz, who has extensive experience in e-commerce and e-mail marketing, also believes AOL has the experience to successfully shift from a subscriber-based Internet service provider and content portal to an ad-driven free web-based portal. And the change, he says, could be a boost for the marketing efforts of many e-retailers, some of whom have become wary of marketing to users of AOL, which strictly monitors the types of incoming e-mail messages.
“Look at the heyday of AOL way back when. Users were bombarded with advertising, and the company did a good job of integrating ads seamlessly,” he says. “They made ads look like value-based offers as opposed to conventional ads. Consequently, today the AOL demographic is rather responsive to advertising.”
However, parent Time Warner could lose as much as $1 billion in the next three years if it does switch from a paid model to a free one, according to anonymous sources quoted in a Wall Street Journal story. Time Warner quickly brushed the appraisal aside, saying it was based on flawed and incomplete information. Today Time Warner stock is at a two-year low.
AIM Triton is positioned as a free service that rivals others. In 1989 AOL’s instant messaging service, dubbed AIM in 1996, made its debut. AIM Triton, introduced last year, includes a tool with which users can link to Yahoo Mail, Gmail, Hotmail and Outlook applications to migrate all contact information to their AIM Triton e-mail address books. And AOL users who drop the paid service typically can maintain their same e-mail/screen name but with the AIM domain. Triton also enables conventional and mobile phone-based instant messaging, text messaging to mobile phones, VoIP audio chat, video chat, social networking pages, and many other features not offered by other free portals like Yahoo and Google.
“As a part of AOL’s web strategy, AIM plays an important role in introducing millions of Internet users to popular AOL content and services. It also aids in the recirculation of traffic to network properties such as MapQuest, Netscape, Music Now, Moviefone and others,” an AOL spokeswoman said in an interview with Internet Retailer prior to news of the likely change in strategy.
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