My sister Hannah is the answer to the question, why are AOL's subscriptions falling? A dabbler in the internet, she and her family paid for AOL dialup for years; even though she's now married with a real job, she's kept her AOL address from when she still lived at home with my parents. Last month, she called us to ask about this wonderful world of high-speed internet, and a few days later, Comcast came into her home and switched her over. She cancelled her AOL account.
Many like Hannah have kept their AOL account just for the email address. And though two-thirds of U.S. internet users now have high-speed internet access, AOL's user base is very different; approximately one-third of AOL users are high-speed customers, according to the AP. Yet Time Warner is rumored to be considering a very radical plan: making the coveted aol.com addresses free for users who have switched to other providers' high-speed services.
With Google, Yahoo! and Microsoft all offering a wide variety of free email options, and AOL's content now available to all comers, competitive strategy seems to dictate that Time Warner's decision should be already be made. Is board, who might say yes to the plan in their meeting this Thursday, will have to weigh the potential dollar losses (said to be $1 billion between now and 2009) against the untold customer goodwill and increased "eyeballs."
It's a tough call. AOL would have to reduce costs (a.k.a. lay lots of people off) roughly in line with its decreased revenues, and at the same time greatly increase its revenues from other, higher-margin sources -- like advertising on AOL.com.
Analysts seem mixed on the issue. It's both a proposal that seems like a terrible option, and the only option. Market watchers, as well as investors, seem to be handicapping the board at a "yes" vote, although no one's quite sure what that will mean to the stock's value. Also a good one to watch: how AOL subscriptions have changed this quarter, following the big drop in Q1. Thursday should be an interesting day for Time Warner shareholders.
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Reader Comments (Page 1 of 1)
7-24-2006 @ 5:27PM
Sheldon said...
Billion in lost revenue with some float or a billion in profits...losing profits would be the real worry.