August 2, 2006 4:00 AM PDT

AOL: You've got free e-mail

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Second-quarter net profit was $1 billion, or 24 cents per share, compared with a net loss of $409 million, or 9 cents per share, in the year-earlier period, when it settled shareholder lawsuits. Revenue rose 1 percent to $10.7 billion.

Cable services revenue rose 15 percent to $2.7 billion in the quarter. It added 18,000 net additional basic video subscribers, 171,000 digital video subscribers, 230,000 residential high-speed Internet subscribers, and 234,000 digital phone customers in the quarter.

AOL revenue fell 2 percent to $2 billion due to an 11 percent drop in subscription revenue. It lost 976,000 U.S. subscribers from the first quarter, ending the period with 17.7 million subscribers. But AOL ad sales rose 40 percent.

Alliances with rivals
AOL, meanwhile, also is partnering with those companies it can't beat. For instance, the company made a deal with Google late last year in which Google will pay $1 billion for a 5 percent stake in AOL. The deal also involves partnering on ads, search, instant messaging and video.

AOL has been trying to keep up with the portal race to attract the widest swath of users by offering and beefing up Web services like e-mail and instant messaging. The more eyeballs a site has, the more ad dollars it can expect to take in.

The growth of broadband connections has made video a must-have for portals and other sites as well. AOL has mined Time Warner's vaults to compete on video. On Monday, AOL said it would preview a new video portal with more than 45 on-demand channels, a programming guide, video search and the ability to upload and share video.

But AOL isn't likely to dump its dial-up business, Laszlo said. The company has more than 18 million dial-up subscribers in what is a shrinking, but still large, part of its business.

"As long as millions of people are satisfied paying AOL $25.90 a month for dial-up, it doesn't make sense to kick them out the door," he said.

AOL faces a conundrum, said Gartner analyst Allen Weiner. The company should focus on its media business to survive but still relies on its ISP revenue, he said.

"I'm among those who believe that AOL cannot maintain two separate business strategies--one based on being a proprietary ISP, which is essentially a slowing if not dying business, and at the same time being a broadband Internet portal with a growing number of services and partners. They operate on two separate business models," Weiner said. However, "if they get rid of (the ISP business), they are going to have to convince people, primarily Wall Street, that they can make up that money some other way."

Ultimately, the path is clear for AOL, Laszlo said. The question is how fast AOL takes it.

"In a world where consumers seem reluctant to pay for core (Web) services and where online advertising is growing fast, where you have 18 million plus dial-up subscribers plus others who use AIM and other services, why not try to take advantage of that audience and build a more ad-centric business model?" he said.

Reuters contributed to this report.

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17 comments

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I got a few suggestions to help out their Dial-Up...
Firstly, their current dial-up connection speeds are slow even from a narrowband point of view, for example I'm connecting to a local access point in Metro Detroit at 24000 Bits/s. They also need to stop so much advertising on a service that I pay to use, their application is crowded with Ads on just about everything from the welcome screen to the Inbox and settings menus. Their application is way too complicated and freezes up on the average home PC consistently. Even when the megaapplication isn't being used to connect to the internet, various other add on processes like "topspeed" are sucking up system resources. The only way they are going to turn around AOL is to start listening to the user's comments, complaints, and suggestions instead of piling on useless and inefficient features.
Posted by jmasta264 (9 comments )
Reply Link Flag
Do they expect us to go back???
I hope they aren't expecting past AOL users to flock to their free services... I had enough of AOL a long time ago. I used AIM up until a few months ago when they started forcing you to use their browser. After that, i am refusing to use anything remotely related to AOL.
Posted by usualsuspect87 (35 comments )
Reply Link Flag
R.I.P.
This has gotta be one of the longer swan songs in corporate history. They've been swirling the drain for eons.
Posted by TV James (680 comments )
Reply Link Flag
AOL is SOL and 5 years to late...
Being an X AOL subscriber it is so very easy to see why they have no chance at gaining back market share. they are the dino of the industry and have proven themselves as poor business execs time and time again. Netscape anyone? "I got a great idea! lets give away what everyone has to many of anyway! Everyone needs ANOTHER email account!" please, RIP AOL.
Posted by jdgarner (3 comments )
Reply Link Flag
Free email not enough
AOL will have to comeup with a bundle of useful features and things that people can do on their AOL web site other then free email.

You might as well take your losses and go our of business now.

Once people go to AOL, they need to be able to do a lot of things, like they can on other web sites.

Free Chat, Free Bulletin Board, Free Ads, All that stuff that you have now, Let it all go FREE.

I would bet you would turn around, because AOL is designed for simple minded folks who like to click and view.

I ignore all ADS anyways, no matter of what network they are, MSN, AOL, GOOGLE, I never click on any banners or crap like that.

I understand the value to pay money to be on top of a search list on search engines, but POP Ads and banners are evil, I hate them.

Does anyone know if there is a Company that studies people online behavior from AD point of view ?

Because I bet educated people never click on that crap to begind with, only dumb *****.
Posted by rmiecznik (224 comments )
Reply Link Flag
Their Brilliance Cost Them A Company
One day, I found unsolicited "free" ads on the header to my AOL Journal. Ads which, as a paying subscriber, I did not request, pay for, or (in many cases) ethically agree with. One week later, 2 million of their customers (including me) had migrated to different services. Our complaints were answered with a thinly veiled disclaimer on the bottom of the header which STILL contained the ads. Another 1 million defections later, they asked what we were so upset about! The changes to the bulletin boards, the ads, and the careless and absolute disregard for customer feedback showed those of us who knew the absolute arrogance of a company that, for the greater part, we helped (significantly!) to build.

And, when we reiterated our absolute discontent, they did....nothing.

I was an alpha tester on the Bulletin Board, before version 1.0 hit the street. I was a beta tester for the last security edition upgrade. This wasn't a free Roadrunner account, I paid for it. I voted with my dollar, and do not regret the vote. I hate losing the community that I loved there, but tempis fugit, baby.

Now they want to....what, exactly?

They've addressed zero complaints of their long-standing customer base because, as one of their Senior VP's told me directly "We don't have to!"

Umm, neither do I, buckwheat!

Sorry, once burned, twice not that stupid.
Posted by kybudman (6 comments )
Reply Link Flag
AOL Service
Ya, I felt that same vibe when I was a customer with then back in 1998, I left and never looked back.
Posted by rmiecznik (224 comments )
Link Flag
AOL wasted alot of money and forgot about its customers
AOL had vast wealth at one time. What it did was forget it
customers. Their interface is so complicated and slow that
people just get fed up with it and go some where else. I left in
1999 because of the Ads and pop ups and slow response. I from
time to time fix my roomates computer he uses AOL. The new
9.0 is the worst designed browser I have ever seen. It looks like
a cartoon browser with way too much going on on screen. I now
like simplicity in design and switched to Apple/Safari about two
years ago. Even when my 62 year old mother switched to Apple
this month asked not to be set up with AOL software on her
own!!!!!! These are the people who would never leave. So just
giving away a crappy service will not save them. Maybe a total
redo of there interface and give away security with email and
chat.
Posted by grdaven (12 comments )
Reply Link Flag
"Free" AOL
I've just tried to switch a family member from paying to FREE, with
no luck and much frustration. Why did AOL not have a process
set up for consumers to switch with ease? Is this another case of
AOL promising the consumer one thing and actually doing another?
Did they not carefully plot out the operational side of their
announcement?
If we aren't able to switch easily on our next try, we're dropping
AOL altogether.
Posted by CRHONEY (1 comment )
Reply Link Flag
So when do I start saving money?
As someone who has been paying a little under $10/mo for "Bring Your Own Access" (just to hang on to my long-time email address), when and how will I make the switch to free? Wonder if it will be automatic or will I have to jump through hoops. I'd bet on the later, at least to some degree.
Posted by zimmecl (45 comments )
Reply Link Flag
Wow
You paid $10 just for a simple email address? LOL, you're the type of customer AOL loves.

You never needed to pay for the aol.com address. You can can still use it for FREE on the their website. They don't tell you that so gullible people will continue to pay the $10 month fee. Wake up!
Posted by PerfectCr (17 comments )
Link Flag
Watch out for security
AOL is the original email program, and now its exposure is going to increase ten fold now that it doesnt cost a cent to set up an email account. AOL's encryption software has always been up to par for its number of users (128-bit encryption), but now they might have to upgrade, seeing as the number of accounts is increasing.

AOL was also able to encrypt so many accounts because their users were on paid accounts, I don't know how they can afford that nowadays with customer revenues dropping and accounts to encrypt increasing. In order for new users to encrypt their messages they might have to consider third party software to assure themselves protection.
<a class="jive-link-external" href="http://www.essentialsecurity.com/products.htm" target="_newWindow">http://www.essentialsecurity.com/products.htm</a>
Posted by Nkully86 (59 comments )
Reply Link Flag
<rant>
If aol wants to be another google or yahoo, they should completely ditch their software and start anew. Take a lesson from google, minimal is the new large! Use the K.I.S.S. Principle!

Give the people what we want, a portal that gives us what we want, when we want it and nothing else. I don't need an aol branded browser or an aol branded antivirus or spyware program. I don't need an aol branded firewall!
&lt;/rant&gt;

Sorry about that, had to be done. I'm not sure why, I'm not even an aol user, but I can't stand the fact that aol keeps saying, "what are we doing wrong?" and when their users speak up, they ignore them! What's up with that?
Posted by thedreaming (573 comments )
Reply Link Flag
I WOULD LIKE TO CHANGE Y TOOL BAR TO AOL---AND GO AOL AL THE WAY---DAVID McGEE
Posted by DAVID McGEE (1 comment )
Reply Link Flag
Thank You
Posted by Haroldv81 (1 comment )
Reply Link Flag
 

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