August 2, 2005 4:00 AM PDT

AOL ready to reinvent itself

A correction was made to this story. Read below for details.
Not all that long ago, America Online looked unbeatable.

The country's largest Internet service provider lured millions of tech newbies online with its omnipresent dial-up discs and members-only content, offered an e-mail service that starred in a Hollywood movie, and merged with media giant Time Warner in a staggering stock transaction worth about $160 billion.

Needless to say, the merger fell short of expectations. Five years after the tech bust, AOL's bread-and-butter dial-up subscription business is declining because of cheap broadband Internet access. And Net stalwarts like Yahoo and Google, which AOL once dwarfed, are running away with the online advertising market.

News.context

What's new:
America Online is spending $50 million to promote the launch of a new portal that will make the services and content previously available only to AOL subscribers free to everyone.

Bottom line:
ISP hopes to build portal traffic fast enough to make up the difference for its declining subscriptions.

More stories on AOL

But don't count out the company that made "You've got mail!" part of the American lexicon. In a clear acknowledgement that the Internet is maturing beyond dial-up service and so-called "walled gardens" of content, AOL is reinventing itself. The company plans to launch in mid-August a new portal that will make the services and content that were previously available only to AOL subscribers free to everyone. A beta version of the site has been public since early in the summer.

To back up the plan, AOL is reportedly spending more than $50 million on a marketing campaign that's scheduled to begin this week. Though ads will appear in magazines and newspapers, on billboards, and during some radio and television broadcasts, the heart of the campaign will be online, said Kevin Conroy, chief operating officer of AOL's media networks.

To many analysts, the move is a no-brainer. AOL's subscriber list has dropped from more than 26 million in March 2002 to 21.7 million this year, largely because AOL's dial-up customers are defecting to broadband. Subscription revenue declined by $116 million between 2003 and 2004, but ad sales increased $220 million, helping total revenue increase $100 million to $8.7 billion. AOL is scheduled to report its second-quarter results on Wednesday.

With numbers like that, it doesn't take a genius to figure out that advertising is where AOL should be moving its chips. The company's goal with the portal makeover is "to leverage the traffic we already have and recirculate it from one site to the next, and attract new users by opening up content to the Web, and monetize that more effectively by having a wider audience," said Jim Bankoff, executive vice president of programming and products at AOL.

A tricky balancing act
In other words: Build portal traffic fast enough to make up the difference for all those lost subscribers. And more traffic equals more ad dollars. "I believe in their strategy," said David Card, an analyst at Jupiter Research. "They're doing the right things, but they have to execute against that strategy."

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It will be a tricky balancing act. "I would have told you by now they'd be looking for suitors for the dial-up business, but they've said it has high margins for them because they worked over the years to make it an efficient infrastructure," said Gartner analyst Allen Weiner. "That leaves you with the conundrum of can they do both? I don't believe they can."

Still, don't feel too bad for AOL, because the company is certainly not starting the free portal business flat-footed. In June, AOL was the fifth most popular Web site in the United States, with about 74.4 million unique users, trailing Yahoo, Microsoft, MSN and Google, according to Nielsen/NetRatings.

"Yahoo definitely has a head start on them," said Jeff Marshall, managing director of the digital marketing arm of advertising and branding company Starcom MediaVest Group. "But AOL has a library of content, essentially troops in the wings waiting to create original programming for the Web...It's going to be a great revenue stream for them to be able to put ads in front of assets they already have

 

Correction: This story incorrectly reported the number of unique users for America Online. AOL has 74.4 million unique users.

CONTINUED:
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America Online Inc., portal, Time Warner Inc., subscriber, traffic

13 comments

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Lie: AOL members are switching to other dial-up providers, not broadband..
A few of the members AOL has lost have gotten broadband, but I would say over 5 million of those they've lost have switched to another dial up provider, like PeoplePC. Face it AOL, you suck and no one wants your service. Especially if it's $23.90 a month.
Posted by PCCRomeo (432 comments )
Reply Link Flag
Perhaps...
I swithced from AOL Dial-Up to a DSL/BB connection and then swithced my dialup to the BYOBB AOL plan. which actually ended up being $2/mo cheaper than the AOL DialUp plan.

...and, since I was able to drop my second phone line, my entire net-access/home-phone-bill costs ended up being $12.00/month cheaper overall. Great deal.

I also agree that the AOL dial-up price is outrageous, and even the BYO BB plan is high, but since I just use the AOL service as a "portal" I stayed with them. my 2cents...
Posted by Aardasp (31 comments )
Link Flag
AOL can start by reinventing AIM
AOL should first reinvent AIM to support ssl connections. Yahoo!
Messenger and others already do this. This is really a BIG flaw in
AIM's design.
Posted by (1 comment )
Reply Link Flag
aim- wrong from the start
AOL should have improved the basic instant messenger instead of starting AIM. AIM never attracted enough members to support or improve itself. Why pay that much extra for a few extra options? Even those were almost matched by the basic instant messenger. Aim did not help itself by using pop ups for whoever paid them. "Paid them" refers to AIM being a bit too independent of AOL- did not provide what AOL needed, only what AIM employees wanted.
Posted by (5 comments )
Link Flag
AOL has yet to learn....
... that the quantity of garbage offered does not equate to quality,
AOL drew the newbies. But as the newbies got smart, AOL quickly
could be seen as a loser. It didn't take low cost broadband to start
the defection from AOL, but it did help. There will always be gross
neophites who are attracted like moths to the AOL glow, but there
are fewer of them every day. And they are learning faster now. So
the defections will continue, maybe even at an accelerated rate.
That will make life rough for AOL, but that's the way life goes.
Posted by Earl Benser (4310 comments )
Reply Link Flag
AOL reinventing itself-fraud?
I received an email- could not be AOL because AOL
always tells that AOL official Emaiis to be read- ignore the rest. Second- Jon Miller was the SUPPOSED sender of the email- cannot trust him to be or not be whatever. He is a very tricky guy involved and not involved in AOL's 9.0 and AOL's
partnership with McAfee's fake spy scan in AOL's
Spyware Protection, and the fake Spy Zapper AOL uses.About everything Jon Miller touches is a fraud. If AOL has been short money, Jon Miller is the one to look at.I recommend that AOL members click report spam anytime anything comes from Jon Miller. Bad times always come after Jon Miller says anything.
Posted by (5 comments )
Reply Link Flag
AOL -
I have broadband AND DSL -- and I'm not the only one. There is a reason AOL is #1 people -- and you can whine and complain all you want about AOL. We sit back and smile because we know that you can't please everyone. Remember - you are in the minority
Posted by DebsSweet (4 comments )
Reply Link Flag
New AOL??
It's new web-mail service isn't too bad. I took it up because as a member of netscape.net, I would soon not have an aol connected account.
It's not too bad and will be downloadable to your PC at some date, not too far in the future ... I hope.
For a basic web-mail program it's not too bad but as always with AOL it's tricky to gain access to it ... so far, the only fault with it so far but then I've only had it a week.

Anne
Posted by Whitesnake (9 comments )
Reply Link Flag
AOL ready to reinvent itself
AOL's only problem with customer base loss is it's failier to respond to it's customer base. AOL refuses to rectify situations in chats and message boards; ans it also refuses contact with English first language reps.
Posted by vgraybeard (35 comments )
Reply Link Flag
AOL - others
Want the cheapest ISP you can find? Great - and remember when you do that, you always get exactly what you pay for.
Posted by DebsSweet (4 comments )
Reply Link Flag
Why I hate AOL
1) The AOL browser is very heavy program. AOL is really for grandpa or grandma who just know how to use computer. The most annoying thing for me is how I can not make the window maximized all the tiem. AND Oh please, i don't need two browsers in my computer.
2) AOL is pushing the ads on your eyes. They put headline that looks like an article or news that is helpful for you to read, but they are really advertisement. This is the worst kind of spam. If you want to put ads, i found google is the most polite way to offer things.
3) Internet is meant to be open for all. Their exclusive content is almost laughable. Who needs AOL membership just to get something that other website gives for free ?
Posted by Lyong (4 comments )
Reply Link Flag
 

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