In his big New Yorker profile on AOL this week, Ken Auletta explained that 80% of the company’s profits STILL come from AOL’s subscription business.
What’s troubling about AOL’s subscription business is who the subscribers are and why they may be sticking around – in Auletta’s words, "older people who have cable or DSL service but don’t realize that they need not pay an additional $25 a month to get online and check their email."
A former AOL exec explains that this is AOL’s "dirty little secret" – "that 75% of the people who subscribe to AOL’s dial-up service don’t need it."
AOL’s subscriber revenues during Q3 2010 were $244 million on 4 million customers.
Wait a minute. AOL still has subscribers?
That’s the shocker. Not that they’re, well, selling customers something they don’t need. After all, why would AOL tell 4 million customers that they’re paying for an unnecessary service? It makes AOL richer, plus it get the company off the hook for coming up with a new business model — something AOL was talking about doing back in 2006
AOL is considering a rapid acceleration to a new business strategy, one in which it gives away premium services that its broadband customers pay for — such as e-mail addresses and parental controls — and moves away from its dependence on member subscriptions, according to people familiar with the internal discussions.
Instead, the company would gamble on increasing ad revenue and a portal-type presence on the Web that would make the Dulles-based Internet pioneer look more like powerhouses Google Inc. and Yahoo Inc. It means that the company initially could be giving up $1.8 billion in revenue from subscription fees that would probably be recouped through advertising revenue over time, one analyst said.
At the same time, AOL could also sacrifice hundreds or thousands of jobs related to marketing and subscriber retention — most of which are outside the company’s headquarters — and bring an end to the familiar free CDs that offer trial subscriptions to its dial-up service.
AOL declined to comment on its plans yesterday. But a person familiar with the internal discussions, who spoke on the condition of anonymity because the plan is not final, said the company is trying to determine which content offered to only subscribers should be available to everyone. The company would not abandon its dial-up members but would halt efforts to recruit new customers.
.Carlson added a note to his post apologizing for describing the above as a scam, but one doesn’t have to have a degree in ethics to look at this and say "That ain’t right."
Don’t get me wrong, I’ve nothing against AOL. It was my first route to getting online. I subscribed around the time that the company went from hourly rates to "unlimited access" for a monthly fee. (I put quotes around "unlimited" because it was around this time that I discovered the company’s habit of rolling out new features and services before it had the capacity to support them.) I remained until AOL rolled out its DSL service, and abandoned them when they were unable to get my DSL service running and keep it running. (Again, introducing features and services before they had the capacity to support them. In fact, I spent so much time on the phone with one tech support guy that we exchanged emails and pictures, and might have gone further had he not been on the other side of the country.
It was then that I discovered that not only didn’t I need AOL’s DSL service, I didn’t need AOL’s content. All I needed was and ISP to get me on the internet, and I could find the content I wanted for myself. Today, I can’t imagine waiting for ISP software to get me online. Today, I just fire up my browser go where I want.
My guess is that these 4 million customers may be unwilling to part or nervous about parting ways with the familiar. At least on their own, but this is where friends and family should come in, sit down with them, help them get set up with a less expensive ISP, and show them how they can still access their AOL email accounts. (Once we moved in together, my husband got rid of his AOL account, and now access AOL webmail using our cable internet access.)
I don’t know if there’s another way, another entity that could look out for these consumers, and at least let them know they have options, or even help them set up an alternative. But I agree with Carlson, this is unsustainable and it’s not ending fast enough. Four-plus years is long enough to wrap this up. And this gravy train is going to end as older users die off, because younger and more tech savvy web users won’t bother to subscribe, because they know they don’t have to.
And then AOL, having failed to adapt, will be history.