AOL hovers on historic decision to quit the ISP market
Considers radical change
Comment Throwing existing revenue away is a tough business and you can never be sure it's the right thing to do. And it's especially difficult to throw away a profitable cash cow piece of revenue. But that's exactly what the AOL board is being asked to go ahead and authorise by AOL CEO Jonathan Miller.
At the heart of the matter is a major issue about whether or not content is better off being free, with a multiplicity of advertising offerings, or better being a paid subscription service? There's no easy answer to this especially for a company that is currently losing three million subscribers a year.
Even if we all agreed tomorrow that advertising was the best way to drive an internet content business, then we would still have the tricky task of working out how to transition the AOL offerings from the paid world into the free.
And part of the problem is that AOL was less than honest when it collected all of those subscribers in the first place. It never really thought about whether or not what is was offering was worth all the money that it charged. Instead, by getting in early, it asked for money in order to provide a connection to the internet over a dial up line.
The content it offered was supposed to be a way of satisfying its customers without letting them wander out onto the wider public internet and it was usually described as internet access with "safety wheels".
The world has moved on a long way since then, and Miller is right in understanding with some clarity that AOL's cash cow days are all but over. People only pay their monthly AOL bills out of habit, and although habits are sometimes hard to break, the modern world is conspiring to eliminate dial up, even if AOL still has 13m dial up customers.
Convergence, broadband cellular services, IPTV and triple play, VoIP service and video over the internet are all things that dial up customers find it hard to join in with. Video and photo sharing, social networking sites, music downloads both legal and illegal, all require higher bandwidth and at the point that people buy broadband they become aware that they are paying one price for connectivity and another for content. That's the point when they realise they are probably no longer using the AOL content, and drop the service.
The decision to make the internet an advertising place lives in the code of internet explorer. Early browsers would load text first, images second, video last. Now the order is reversed or under website designers' control, and we now expect to load advertising first, navigation second, content last, and that change slipped by us all in about version 4.00 of Internet Explorer. That's one of the big problems of having any kind of software monopoly.
Now that this is embedded in all of our habits, it's difficult to change. And also we inherited the idea that everything on the internet was non-commercial, from back when the internet was released from the clutches of US military and academia in the early 1990s. It has turned out to be largely a good thing that the internet has this "free" ethic, although it has also sponsored large scale content piracy, and destroyed some of the best content businesses in the world, as it threatens to destroy AOL.
The key question to ask for any content business on the issue of charging for content is not "Is this service worth paying for", because many businesses that offered exceptionally good content, for money, over the internet have gone bust.
No the real question is "Can consumers find this content anywhere else?" And when the answer is "yes", then you had better head out of the paid subscriber model.
The uncertainty comes when the answer is "consumers can get something that looks like this, but which is nowhere near as good, for free, and ours is worth paying for". And that's the bind AOL has always found itself in.
There are certain rules out there in internet land, like no-one knows that your content is better if they can't see it, so a password protected content site always gets ignored. If a search engine can see past the password, then at least there will be hits turning up in searches, but if the consumer hits a brick wall when hitting these links, it’s still little better.
And every company out there that offers a similar but poorer service is sat on the internet telling everyone how good its services are, while a paid service is hiding the quality of its services.
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