The Agony of Market Leaders (AOL Surrenders Edition)

Nick Gillespie | August 2, 2006

The AP reports that AOL--the planet's single largest ISP--"will give away e-mail accounts and software now available only to its paying customers." The switch will happen in September and is not being done out of kindness of heart, of course:

AOL has little choice. As of June 30, AOL had 17.7 million U.S. subscribers, a 34 percent drop from its peak of 26.7 million in September 2002. AOL lost 976,000 subscribers in the past quarter alone.

Full account here.

Back in the April 2000 issue of Reason, I wrote a piece about the then-pending merger between Time-Warner and AOL, which had been attacked on the grounds that it would create "a virtual monopoly of media ownership" that would strangle the press, choke off dissent, blah blah blah. My basic point, which appears to have been borne out, was this:

If AOL's own corporate history is any guide, far from offering slimmer and slimmer pickings to an increasingly captive and dissatisfied audience, "AOL Time Warner" will be pathetically desperate to deliver more and more stuff at better and better prices to restless and demanding subscribers. Today's "250 Hours Free!" on AOL and $40 "special discount" subscriptions to Time will seem positively stingy by comparison....

Better terms and offerings for customers undergird...AOL's growth from a small online operation started in 1985 to the world's largest Internet service provider (with about 20 million subscribers, it has about half the global market for dial-up ISPs.) How'd AOL get that big? By surrendering time and again to customer demands. The service was originally marketed as a closed system that offered no Internet access and unreliable e-mail delivery to non-AOL addresses. Subscribers were supposed to be satisfied with proprietary content and internal chat groups (and were, for a while).

After Internet access came a buggy proprietary Web browser, then a built-in version of MSIE, then the purchase of Netscape, then flat-rate pricing, free IM, etc., etc., all in an attempt to keep customers around. Which led me to conclude, "If this is market domination (and it is) you can almost feel pity for AOL or Time Warner, much less for the new combined behemoth."

More here.

Comments

s.m. koppelman|8.2.06 @ 9:53AM|#

976,000. Imagine how many more people would have dropped AOL that quarter alone if the company didn't make it so difficult to cancel (warning: self-playing audio).

|8.2.06 @ 11:22AM|#

Somehow, AOL still thinks charging $26.00 a month for dial-up service is going to fly. My provider charges $8.95 a month for 450 hours, month-to-month. Why would anyone stay on AOL dialup?

Kevin

|8.2.06 @ 11:35AM|#

but AOL software sucks, aol email sucks, aol sucks!!!!
aol was great when people were new to the internet and couldn't check their email without having a large icon with a mailbox that yells "you've got mail"
but seriously, aol sucks.

|8.2.06 @ 11:38AM|#

AOL's largest mistake (aside from not buying out Yahoo! and eBay when it could've cheaply done so) was to insist on tailoring and marketing its service to consumers as the Internet on training wheels. Between all of the proprietary content that they were able to amass thanks to their once-dominant position in the residential ISP market, and all of the proprietary content that came their way through the Time Warner merger, AOL could've easily remodeled itself as a premium service. Which, in addition to giving the company a better chance at holding onto non-computer-illiterate subscribers, would've also given it more leverage in forming partnerships with broadband ISPs not named Time Warner.

At this point, though, with a rapidly declining dial-up base and most cable and DSL ISPs hardly giving a damn about the company, it might make sense for AOL to start offering most of its proprietary content for free and hope that it can create a worthwhile competitor to Yahoo! and MSN. Though, given the mindshare that those sites have developed over the years, and all of the work that they've put in towards integrating their different portal services, I wouldn't expect more than partial success. A better approach would be to buy out YouTube and MovieLink, merge them with AOL's video search capabilities and Time Warner's content library, and hope to become to online video what MySpace is to online social networking.

Uncle Sam|8.2.06 @ 11:58AM|#

It took us over six months to end grandpa's subscription to aol after he died even though we had an cancelation acknowledgement letter from five months before his death.
The bastards.

Jennifer|8.2.06 @ 3:59PM|#

Having done some marketing work for AOL (don't hate me for that, guys; rest assured I already hate myself for it), I'd say another problem is their assumption that their customers are all frivolous airheads with the emotional maturity of a 15-year-old.

My first week on the job I had to write some stuff talking about all the wonderful features in some new thing they had; basically my job was to invent a one-or-two-sentence story about a problem that would easily be solved if you had AOL. One feature (my memory here is vague) was some type of scanning service, that would search the news for stories containing keywords you'd put in. (Or something like that.)

So I'm trying to think of a non-timely news story anybody might care about, be they male or female, black or white, rich or poor, and finally came up with something like this:

What's happening with that new bill being debated in Congress? You don't have time to search the news and find out, but now you don't have to. . . .

I finish all my other assignments, give them to my boss, and return to my office. Two minutes later I hear explosive laughter coming out of his. He called me in and, while laughing so hard he could barely get the words out, said:

"Jennifer, the customers care whether Brad will stay with Jen or go with Angelina. They care about Britney Spears' romantic problems. They care about Tom Cruise's new movie. But they don't care about the new bill being debated in Congress."

Naturally, for about a week after that I had to deal with sarcastic bellowing from colleagues: "Hey, JENNIFER! What's the government up to nowadays? We really wanna KNOW!"

|8.3.06 @ 3:42PM|#

I heard on WGN radio last night that AOL was planning a 2-tier dialup pricing schedule. The $26.00 version is classic AOL with all the bells and whistles. There will also be a $10.00, stripped-down version, that I suppose will compete against NetZero/Juno, PeoplePC, and the other low-end ISPs.

I intend to pay as little as possible for dialup until I can clear enough space in my budget for a DSL or cable connection.

Kevin