AOL: You've got VoIP

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at 26.4 million U.S. dial-up subscribers in 2002, AOL has watched those numbers collapse to 22.2 million at the end of 2004, a trend that's only expected to get worse. That's forcing the company down a difficult path of reinvention.

AOL has begun to aggressively pitch new products as an alternative to its core $23.90 a month dial-up service. It has created a $14.95 a month package that it markets to broadband subscribers, regardless of the service provider they use. It also has launched a $9.95 discount ISP under its Netscape moniker, revived Netscape's Web browser, and is pushing much of the content behind its "walled garden" onto the free Web through AOL.com.

Phone services would seem to be a timely update for AOL's image as a communications company, highlighted by its "You've got mail" marketing campaigns of years past, and a natural extension of its popular AOL Instant Messenger software.

Unlike traditional phone services that require considerable maintenance, VoIP runs on a broadband Internet network typically provided by a local phone or cable company. The service is relatively cheap to maintain, with the bulk of the cost stemming from marketing and customer service, two areas with which AOL is intimately familiar.

Still, analysts cautioned that VoIP on its own won't likely be enough to bolster AOL's flagging dial-up business. "I don't think this one's the massive lure that kicks its subscriber numbers back to positive," said Rob Sanderson, an equity analyst at American Technology Research.

Merger friction redux?
AOL will not only need to battle a wide array of VoIP competitors outside the company; it could find its efforts complicated by internal corporate rivalries, given sister company Time Warner Cable's ambitious VoIP plans.

For the past year, Time Warner Cable has earmarked Internet-based voice calls as the top priority for the division. Unlike other VoIP services, such as AOL's or Vonage's, Time Warner Cable's will operate solely in its cable network, which executives say will give better quality calls to its customers. However, because AOL's VoIP service can run on anyone's broadband connection, Time Warner Cable customers could choose AOL's cheaper plan over the cable company's $40 a month offering.

It's unclear how AOL and Time Warner Cable will split the VoIP baby. The two companies have had a contentious history under the same roof at Time Warner, although there have been recent signs of detente. In January, Time Warner Cable agreed to package a custom version of AOL to its Road Runner broadband ISP customers.

The two may yet be able to work out some sort of peaceful coexistence regarding VoIP, some analysts said. But the twin offerings

[Dachi]

VoIP, a good reson to dump AOL and get broadband

Between offering video downloads on their home page and now offering VoIP that also cannot be used with dialup it seems that AOL is trying almost as hard to market themselves out of the dialup business as their competitors.

[Ubber geek]

trying almost as hard

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