With most Americans spending more and more time online, the competition for advertising on the Internet has grown fierce in recent years. America Online, now known as AOL, used to be the undisputed leader of Internet access when people were still using dial-up modems to get online. The company inundated consumers with discs that arrived in their mailboxes, offering them their first glimpse of the Internet, text messaging, and e-mail. AOL’s growth was phenomenal during the 1990s and the company used its celebrity status to purchase Time Warner in 2000, just as the Internet was bursting at the seams.
Unfortunately, the promise offered by the high-profile merger was never fulfilled as the Internet bubble burst—the company’s stock plummeted, key AOL executives deserted the company, and Time Warner management slowly took the reins and is now firmly in control of the company. "This is the final goodbye to the days when AOL was the king of the Internet," said Jeff Lanctot, general manager of Avenue A/Razorfish, an agency that places some ads on AOL sites. "They now know they are the underdog."
AOL currently has about 6.2 million subscribers in the United States who have broadband access but pay extra—about $15 a month—for AOL services. But many of those high-speed subscribers have been leaving in droves, since they can get similar services from other companies for free. So the company decided to shift its business plan to offer for free some of the services their subscribers used to have to pay for. The company knows that the decision to offer services for free will result in the stream of disappearing subscribers growing even larger, but they hope to recoup that income and more by drawing all Internet users to its ad-supported Web sites—sites that were previously available only to AOL subscribers.
The innovative decision offers tremendous potential for the company, since it can tap into video and other resources owned by other Time Warner business units, as well as tapping into a still-sizeable subscriber base that still makes AOL the leading Internet access provider. Although AOL could lose more than $1 billion in annual revenue from the loss of subscribers that will surely result from the new free offerings, executives say they will be able to offset that loss by the end of 2007 by cutting marketing, network, and overhead costs.
"Acquiring narrowband subscribers has been unprofitable," Bewkes said during a conference call with analysts. "If we did nothing else and just this, this one move alone would increase earnings this year." AOL’s chairman and chief executive, Jonathan Miller, told the Associated Press that his company is changing the nature of the Internet game. "Before, when someone left us, that was not good for our company. They probably went to one of our competitors." Now, with the new free offerings from AOL, they can continue to use the services they used to have to pay for, which means they will still be viewing ads on AOL sites. "They were leaving us over price," he said. "They weren't leaving us because they were unhappy."
The changes in AOL service were announced Wednesday as Time Warner reported a profit of $1 billion for the second quarter of 2005. The decline in profit at AOL was offset by the growth in cable TV, which resulted from more high-speed Internet and digital phone service customers. AOL accounts for 1/5 of Time Warner’s revenue, most of which comes from subscription sales. So although the company knows that offering free services will cause those subscription sales to plummet, they hope that advertising will rise enough to make up the difference and then some. The trend is probably already happening anyway, according to AOL records—the company’s’ ad sales rose 40% in the second quarter, while subscriptions dropped by 11%.
Subscribers who dropped their AOL subscription within the past two years will be able to reclaim their old AOL.com e-mail addresses simply by logging on with their old passwords.
Unfortunately, the promise offered by the high-profile merger was never fulfilled as the Internet bubble burst—the company’s stock plummeted, key AOL executives deserted the company, and Time Warner management slowly took the reins and is now firmly in control of the company. "This is the final goodbye to the days when AOL was the king of the Internet," said Jeff Lanctot, general manager of Avenue A/Razorfish, an agency that places some ads on AOL sites. "They now know they are the underdog."
AOL currently has about 6.2 million subscribers in the United States who have broadband access but pay extra—about $15 a month—for AOL services. But many of those high-speed subscribers have been leaving in droves, since they can get similar services from other companies for free. So the company decided to shift its business plan to offer for free some of the services their subscribers used to have to pay for. The company knows that the decision to offer services for free will result in the stream of disappearing subscribers growing even larger, but they hope to recoup that income and more by drawing all Internet users to its ad-supported Web sites—sites that were previously available only to AOL subscribers.
The innovative decision offers tremendous potential for the company, since it can tap into video and other resources owned by other Time Warner business units, as well as tapping into a still-sizeable subscriber base that still makes AOL the leading Internet access provider. Although AOL could lose more than $1 billion in annual revenue from the loss of subscribers that will surely result from the new free offerings, executives say they will be able to offset that loss by the end of 2007 by cutting marketing, network, and overhead costs.
"Acquiring narrowband subscribers has been unprofitable," Bewkes said during a conference call with analysts. "If we did nothing else and just this, this one move alone would increase earnings this year." AOL’s chairman and chief executive, Jonathan Miller, told the Associated Press that his company is changing the nature of the Internet game. "Before, when someone left us, that was not good for our company. They probably went to one of our competitors." Now, with the new free offerings from AOL, they can continue to use the services they used to have to pay for, which means they will still be viewing ads on AOL sites. "They were leaving us over price," he said. "They weren't leaving us because they were unhappy."
The changes in AOL service were announced Wednesday as Time Warner reported a profit of $1 billion for the second quarter of 2005. The decline in profit at AOL was offset by the growth in cable TV, which resulted from more high-speed Internet and digital phone service customers. AOL accounts for 1/5 of Time Warner’s revenue, most of which comes from subscription sales. So although the company knows that offering free services will cause those subscription sales to plummet, they hope that advertising will rise enough to make up the difference and then some. The trend is probably already happening anyway, according to AOL records—the company’s’ ad sales rose 40% in the second quarter, while subscriptions dropped by 11%.
Subscribers who dropped their AOL subscription within the past two years will be able to reclaim their old AOL.com e-mail addresses simply by logging on with their old passwords.
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