June 8, 1998 7:10 PM PDT

What will AOL do with ICQ?

Now that rumors about America Online's bid to acquire Internet messaging company Mirabilis have turned out to be true, many questions have surfaced among industry observers and analysts about how AOL intends to transform this immensely popular service into dollar signs.

Paying the Israeli technology firm $287 million in cash for 100 percent of its assets, the online giant gains a whopping 11 million to 12 million registered users, and sole possession of Mirabilis' ICQ software--one of the Net's most popular downloads.

ICQ (pronounced "I seek you"), like AOL's own Instant Messenger service--formerly ICQ's biggest rival--allows users to communicate with each other while logged on to the Internet, and can be accessed on any platform.

But many analysts wonder how the world's largest online service plans to leverage this new technology to further capitalize on its service offerings.

Some believe the acquired technology and customer base can open more distribution channels that AOL can broker between product vendors and ICQ users. Others see it as an opportunity for AOL to build around ICQ's community appeal to attract more users or spin off a meatier Web offering.

"I expect them to use those members for offers, either directly by putting advertisements into the client itself or using those emails to offer products to their members," said Kate Delhagen, an analyst at Forrester Research.

But AOL spokeswoman Tricia Primrose would not comment on whether AOL, a service loaded with advertising, also would introduce advertising into the service. She added that there are no announcements yet about the next step AOL plans to take with its new acquisition.

"AOL can use ICQ to broaden its reach in important markets that aren't served by AOL-branded products," said Patrick Keane, an analyst at Jupiter Communications.

Keane added that the online giant also gains access to a new market, an audience with a strong international identity. To put things into perspective, 60 percent of all users registered to ICQ reside outside the U.S., with 40 percent of them living in Europe. ICQ's market also tends to be younger and more Net-savvy than AOL's base, he said.

But besides increasing its reach across the Atlantic, Keane also noted that AOL's acquisition could serve a more useful purpose.

"It's basically acquiring their largest competitor," he said.

AOL intends to maintain ICQ as an independent Web brand, instead of incorporating it into its Instant Messenger client, Primrose said. AOL plans to fatten it up to be a viable Web service.

"We do think this acquisition is a great launch pad for our broader Web portal strategy," Primrose said.

But details are still fuzzy about which direction AOL intends to take with ICQ, and the company remains quiet about how it intends to use the service as a portal offering.

Nonetheless, some side effects are expected. Along similar lines to AOL's acquisition of CompuServe, many expect a chunk of ICQ members to drop their memberships. After being acquired, CompuServe's online population declined from 2.8 million in October 1997 to 2 million in February 1998, said David Simons, managing director of Digital Video Investments.

Delhagen agreed. "I suspect the fallout audience will be the ones who say, 'Ugh! I don't want to have anything to do with AOL--I'm leaving,'" she said. "But even if they net half the audience, I look at it as a potentially very powerful acquisition for AOL."

 

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