September 1, 2006, 12:00 AM

AOL drops fees for users with broadband Internet access

Time Warner is now providing access to AOL at no charge to online consumers who pay other providers for broadband Internet access. The move changes AOL`s business model from a subscription service to one based on advertising revenue.

Time Warner Inc. last month announced that AOL now will be made available for free to broadband Internet users. The enormous business model change, the company says, is designed to enhance the growth of AOL’s online advertising business-on which it now will be dependent for revenue.

Broadband has usurped the necessity for AOL to serve as users’ Internet service provider, their link to the web. So broadband users no longer have to pay for AOL. Through standard-issue AOL software or users can access their AOL account, content, instant messaging, phone service, blog, social networking and other features. The company will continue to charge subscribers who use dial-up access but no longer will market dial-up service.

“This is the next logical step for AOL to capitalize further on the explosive rise in broadband usage and online advertising,” says Time Warner president and COO Jeff Bewkes. “With its rapidly expanding advertising operation, we expect to put AOL back on a growth path.”

The change comes after AOL has lost almost a third of its subscribers in three years and about $200 billion in market value in five. In a move designed to bring former AOL users back into the fold, the company is offering these users the ability to recreate their account with the same e-mail address they had prior to dropping the service. The company is pinning its hopes on increased advertising sales based on, among other things, a hoped-for increased user base resulting from the change to free services.

Some in the industry think the Internet giant has made a wise decision. AOL has the experience to successfully shift from a subscriber-based Internet service provider and content portal to an ad-driven free portal, says Benjamin Chafetz, vice president of marketing at, who has extensive experience in e-commerce and e-mail marketing. The change, he adds, 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,” Chafetz says. “They made ads look like value-based offers as opposed to conventional ads. Consequently, today the AOL demographic is rather responsive to advertising.”

Other industry players are not as confident as Chafetz. “It seems in many ways that this is a last-ditch effort by AOL 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.”

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