The AOL transition begins as e-mail, other premium services become free

Posted by Scott M. Fulton, III

New York (NY) - It will be the single toughest sell the company has ever had to make, and yet it doesn't expect to earn anything from it: Today, AOL's new CEO, Jonathan Miller, joined his corporate parent's boss, Time Warner president Jeff Bewkes, in declaring that e-mail and other services for which AOL was among the last to charge a premium, would now be marketed for free. This in a world where such services have already been largely given away for the better part of the decade.

"Providing [members] with their familiar AOL software and e-mail for free, over any broadband connection, will be critical to our future success," stated Miller this morning. "For members who've left us over the past two years, we've kept your e-mail address. When this effort is fully operational in early September, you'll be able to come home again - for free."

The keyword here is "members." Up to now, AOL has considered this term synonymous with subscribers; but starting in September, the subscription model will go away...for the most part (more on that in a bit). Even though North America was relatively slow on the uptake with broadband Internet service adoption, by 2003, it was already clear that dial-up service was headed for extinction. With the membership base for AOL (then known as America Online) primarily comprised of dial-up customers, the company soon found itself competing head-on with its own corporate siblings, including Road Runner, in instituting a transition program. With broadband service in North America generally bundled with cable and DSL carrier services, or piggy-backed along with next-generation phone service, it was AOL which, in a devastating twist of irony, found itself unable to pair up with a cable carrier, even though - and perhaps because - its corporate parent already owned one.

The company would try a "carry-your-own" approach, hoping members would find AOL's content compelling enough to convince them to substitute their own broadband provider's service with AOL's. It was a campaign that seemed designed to fail from the get-go. But then Google may have done the most to undermine the dependencies that had upheld AOL's prior business model, by making Gmail a free and ubiquitous service in March 2004. Yahoo soon followed, and before long, both Internet content providers were creating new, unique, and compelling services based around a free "membership" platform.

The revenues from the Internet business clearly come from advertisers, not subscribers, as Google proved; but AOL found it impossible to market its subscriber base as a selling point to prospective advertisers. In the cable TV world, people who pay for content - as another Time Warner division, HBO, demonstrates so well - expect to see no ads, not more. Suddenly, the fact that AOL's "members" were paying money, became a disadvantage to advertisers.

Last March, AOL started experimenting with leveraging its corporate siblings' huge catalog of established TV programming - second in size only to the Viacom library now owned by CBS Corp. - building a free, advertising supported TV service that diverged from AOL's previous premium content model. Since even that time, video services such as YouTube have risen from seemingly nowhere to become stream-serving powerhouses. AOL doesn't want to see itself flanked by another upstart, yet again.

But key to AOL's strategy today is a plea: The company is asking former subscribers within the last two years to "come home," saying the services for which they had been paying are still waiting for them, including their old e-mail addresses. "For members who've left us over the past two years, we've kept your e-mail address," admitted Miller today. "When this effort is fully operational in early September, you'll be able to come home again - for free. For those who have never tried the AOL software, e-mail or our other products, we invite you to do so at no charge."

The marketing catch-phrase, unveiled today, is "You've Got Mail...For Free!" As bonuses, AOL plans to offer such features as parental controls and "local phone numbers" for free as well, suggesting a public expansion of its existing AIM Pro VoIP service. Within the next two fiscal quarters, we may learn whether this campaign is enough to rebuild AOL's waning "membership," or if this invitation to AOL's coming out party came about four years too late.