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AOL Introduces New Strategy with Free Broadband Services; Now, ‘‘You’ve Got Mail’’ Free| August 3, 2006 | Digital Home | Competitive Intelligence Report Analyst: Bruce McGregor
On August 2nd AOL announced its new company strategy to begin offering its software, e-mail, and upcoming new video content free to users utilizing any broadband connection. This new initiative will be fully operational in September 2006, and previous members from the past two years have the option of reactivating their e-mail addresses/screen names free. AOL plans to continue offering its unlimited premium dial-up plan for $25.90 a month, with the option of two lower-cost tiers as low as $9.95 a month, but its dial-up marketing support will be minimized to put more focus on online advertising-supported services. Analytical Summary • Current Perspective: Positive on AOL refocusing its company strategy to provide its software, e-mail, and content to any broadband user free and its move to an open consumer portal model to boost online advertising revenues, because AOL needs to rebound from losing millions of paying dial-up subscribers. AOL will benefit greatly in the long term from offering millions of broadband users a non-exclusive free portal site that it can populate with appealing content and advanced communication features. • Vendor Importance: High to AOL, because it has tried several different approaches to appeal to broadband users in the past with lackluster results. AOL is going through a long, painful transition from a premium dial-up provider dependent on subscriber revenue to a consumer portal Web site with more services tied to online advertising to generate revenue. Giving the majority of its services to broadband users free will make AOL more appealing, but compelling new applications and content are necessary to win back ex-AOL customers who have moved to online services provided by AOL’s rivals. • Market Impact: Low to moderate on the digital home services market, because AOL rivals such as MSN, Yahoo!, and Google need to be concerned about AOL’s free services strategy; many of AOL’s former members moved on to those free online portal services that cater to broadband users when they felt AOL’s broadband services did not warrant a monthly fee. AOL is being forced into adopting the business strategy of its competitors since it continues to lose members, with a drop of 3.11 million from Q2 2005 to Q2 2006. Recommended Competitor Actions • Yahoo! and MSN need to monitor closely the new content and features that AOL develops to make sure their broadband offerings are competitive and highlight the ways in which they offer more value to the consumer. Yahoo!, in particular, can market the success it has had co-branding with the two largest DSL providers, AT&T and Verizon, and highlight its experience with content and features targeted for broadband like its Yahoo! Music Unlimited service. • Prior to this announcement, AOL’s strongest subscriber lock-in was the "@aol.com" e-mail address. AOL has now leveled the playing field and offers its broadband users a similar array of online features and content to those of its rivals, Yahoo! and MSN. The major consumer portal sites need to be aware that AOL is growing its online presence and aggressively competing for consumers’ eyeballs on the Web and online advertising dollars. • Competing IM providers such as MSN, Yahoo!, and Google need to work quickly to offer a free incoming phone number to keep pace with AOL in the race to become the most dominant IM provider. These IM providers also need to develop unique add-on features to enhance the user experience, with the goal of being more connected online. Recommended End User / Customer Actions • Internet-savvy dial-up consumers that are not interested in AOL's content and features should look for another provider or portal site. There are many quality narrowband providers in the market that are significantly cheaper than $25.90 a month, and they do not inundate consumers with unsolicited content in which they may not be interested. Fast broadband speeds are available through the major cable and phone companies for as low as $12.95 a month. Now that AOL does not hold its dial-up customers’ e-mail address hostage if they drop its paid services, these consumers can freely move to any provider without the aggravation of updating their e-mail address with friends, business associates, and subscription mailing lists such as news alerts and retailers. • The growing AOL Video service that AOL offers to any broadband subscriber is worth checking out to see if its selection of online video content meets their entertainment preferences. AOL now offers the majority of its content free; the only price that users pay is being subjected to extensive advertising. AOL’s video content has some exclusive content, but the Web is full of more free online video content through YouTube.com, Google, and Yahoo!. Digital Home - U.S.
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