We all remember collecting giant stacks of “free” AOL CDs (and for the really old techies among us, free AOL floppy disks, which could at least be reformatted and used for something else). Now it turns out that AOL may be offering something else for free: access to their Internet service.
Those still on dial-up (yes, they are out there) will continue to pay a fee to use the AOL service. However, subscribers to the “AOL for Broadband” service, where you bring your own high-speed Internet connection to the party, will no longer have to pay subscription fees. The plan, which could see AOL losing up to US$2 billion in revenue from subscription fees, is intended to boost AOL’s numbers and ultimately the company’s advertising revenue. AOL hopes that up to 8 million of its existing dial-up customers will take advantage of the offer. An earlier attempt to move people from dial-up to broadband by increasing dial-up access prices met with limited success.
The proposed change comes at a crucial point for AOL. While the company still has an impressive number of subscribers, they are losing customers rapidly as broadband access becomes more widespread. In 2002, AOL had 26.5 million subscribers in the United States; by 2006 this figure was down to 18.6 million. AOL estimates that the company lost approximately 850,000 members in the first quarter of this year.
The plan to drop access charges from broadband essentially turns AOL from a subscription-based service to an advertising-supported one. While companies like Google and Yahoo have shown that you can make very good money from online advertising bundled with free content, it remains to be seen whether the corporate culture at AOL will adapt well to this change.
According to the Wall Street Journal, the new plan was proposed to top Time Warner executives by AOL CEO Jonathan Miller, in a meeting held last week in New York. Time Warner, which was “acquired” by AOL in a stunning stock swap deal in 2001, right before the dotcom crash, has been distancing itself from its AOL portion. AOL reported a colossal US$99 billion loss in 2002, and in response, Time Warner removed “AOL” from its name and removed Steve Case from his position as executive chairman. Case left the Time Warner board in 2005. The media giant has considered selling its AOL property many times before, but decided to partner with Google instead. It is likely that the partnership with the search engine company provided the impetus to move to an advertising-supported business model.