The Agony of Market Leaders (AOL Surrenders Edition)

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.