 |
||||||||
 |
||||||||
|
||||||||
|
High speed successes slow AOL
By DAVE GUSSOW America Online is 35-million subscribers strong, by far the largest online service. It has created cultural phenomenons, such as the ubiquitous "You've got mail" e-mail greeting. In the much ballyhooed 2000 merger with Time Warner, it was billed as the New World engine to boost the Old World publishing company. But sheer size, fame and promises of Internet riches didn't pan out. AOL dominance is slipping. It lost subscribers in the last quarter of 2002, a first in years. Advertising and e-commerce revenues have plummeted, dropping almost $1-billion last year from 2001 levels. In an increasingly high speed online world, AOL seems to be stuck in the slow lane without a clue how to pick up the pace. Unlike earlier hopes, it is seen as the anchor weighing down parent AOL Time Warner, which this week reported a record $99-billion loss for 2002. Even with all those woes, analysts say it's too early to write off the biggest online service, though it has its work cut out for it. "It is incredibly shortsighted to say that AOL was going to come in and change the world," said Michael Goodman, an analyst with the Yankee Group in Boston. "You don't even begin to measure the success of a merger before five years." AOL is not alone among online services that have faltered during the dot-com meltdown and the economic slowdown. No. 2 Microsoft's MSN service has about 9-million subscribers and is losing money. Earthlink, the third largest, said this week that it was cutting 25 percent of its work force. Subscriptions alone are not enough to make a profit for service providers, even with 35-million subscribers. During the boom years, says Eric Paulak, a research analyst with Gartner, subscriptions made up about 75 percent of AOL's revenues. Now, it has risen to 85 to 90 percent, which "takes away all that profitability." The online ad slump has been particularly tough on AOL Time Warner, which has more than 50 percent of the U.S. market. Over two years, AOL saw ad revenue decline by about two-thirds. Gartner is predicting a pickup in online ads later this year and into 2004, which could boost AOL. When "the market crashes, that's a problem," Paulak said. "When the market comes around, they actually win." More important is how AOL will deal with an increasingly high-speed world. Most of its subscribers are still on slower, phone dialup access. "Slowing dialup growth and migration from dialup to broadband spells bad news for AOL," Goodman said. The Yankee Group projects 2007 as the year when high-speed connections overtake dialup. Dialup users are less likely to take advantage of potential premium pay services for video and music, which need speed. AOL is available on some high-speed networks, such as sister company Time Warner Cable in the bay area, but it needs more such arrangements, Paulak says. One attempt to piggyback its service for high-speed users is called "Bring Your Own Access," where the subscriber winds up paying two bills: one to an Internet service provider and an extra $15 a month to connect to AOL. As recently as December, AOL executives vowed to emphasize that offering because subscribers see it as a premium service. "Quite frankly, that's been a failure," Paulak said. "No one wants to pay $15 for AOL on top of what they pay for a high-speed connection. That's a lot of money just to get AOL." If it can work out deals with other cable companies, such as Comcast, Paulak says, AOL should consider tiered pricing. That system, beginning to roll out in other parts of the company, has people pay based on the amount of speed they want and can afford. Lower speed, lower cost. That's already a system used by phone companies for digital subscriber line, or DSL, connections. And it could let people choose to pay, say, $40 a month, instead of $60 or more. AOL charges more for its dialup service ($23.90 a month) and high-speed access ($54.95 a month) than competitors. That will become an issue as the gap closes between the cost of a slow connection vs. a fast one. It also will put pressure on providing premium content, because margins on high-speed networks is less than dialup. To sort out all these conflicts, Goodman of Yankee says, AOL might look to Yahoo, the giant online portal that has seen revenues grow and has a deal with phone company SBC. Yahoo provides content, SBC high-speed access. "Yahoo operates in a 100-million person market," Goodman said. "AOL operates within the AOL universe, part portal, part ISP. Does AOL open itself up to more non-AOL subscribers and become more of a portal? They have a significant ability to develop premium services." One way that might work is to charge non-AOL subscribers for content and services they want, such as video and audio instant messages, and offer AOL users free or reduced rates. "Your cable company or DSL provider will have a bigger say" in online access, Goodman said. "And then the challenge becomes if subscriptions are de-emphasized, how do you generate additional revenue?" -- Times news researcher Kitty Bennett contributed to this report. Dave Gussow can be reached at gussow@sptimes.com or (727) 445-4228.
 © 2006 • All Rights Reserved • Tampa Bay Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111 
|
From the Times Business report
From the AP
|
