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AOL hovers on historic decision to quit the ISP market

Considers radical change

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In the end the only way to offer paid services is by offering something that can:
a) be easily sampled by passing browsers, and
b) offers content that is both desirable and which cannot be found anywhere else for free.

We have said many times that the three things that need to be satisfied for a consumer product to take off are:
a) I want one
b) I can afford one, and
c) I know someone that's got one and these conditions also need to be satisfied on paid content on the internet, plus the condition d) And I can't get it elsewhere for free.

But there's one more thing that needs to be added here. If content is worth buying, the process by which it becomes known to the average person on the internet has to be augmented in some way. Take for instance the complete failure of companies like Movielink, which sells motion pictures downloaded over the internet.

Because its customer base has never been huge, Movielink fails to generate sufficient peer recommendations for it to take off via word of mouth.

You might argue that this is because pirate sites give away the same content. But other services, such as market research, leading newspapers, and consulting, all sell slowly over the internet. Virtually all their leads come from websites, but virtually all business require a professional sales contact to be made to complete a sale.

The newspapers only have a price so they can protect their paper subscriptions sold through retail, while market research cannot scale with its internet traffic, only with the size of its sales force. What is the point of any service being promoted widely over the internet if its scaling is restricted to how many sales people the company can employ or how many retail establishment the service is available through.

So the rules for driving momentum over the internet is:
a) people want what you are selling
b) they can afford it
c) they can see some of the content for free to sample it or someone will recommend it to them
d) they cannot get it elsewhere for free, and
e) this is not the sort of decision that just cannot be made entirely over the internet.

There are paid services which can satisfy all of these, but AOL content is not one of them, and the company has finally reached that conclusion. In which case its revenues will drive unerringly towards zero, over a long recycling period, probably around five to seven years.

So what strategies can we come up with to help AOL?

These are probably the most obvious possibilities:

  • Try to meet all the criteria above by entering new forms of content.
  • Drive new forms of content using the huge customer base of AOL to make that content for you, creating something unique and worth charging for.
  • Sell other services to existing captive members.
  • Orchestrate a slow erosion of subscriber revenues in step with the ramping of advertising revenues, by putting some content services, with ads in a free domain.
  • Create a new arms length organisation based on advertising, repurposing some content from the paid AOL services and ramp it up while AOL itself is in decline.
  • Throw away all subscription revenues right away and pre-sell advertising like it was going out of style.

Each of these approaches have some issues. AOL has tried funding new forms of content, but has had little in the way of hit record success with the possible exception of its Live8 broadcasts.

And, of course, AOL could never move into any area of business where it was constrained by its sales capability. And if it had tried to build an arms length parallel brand, it would have had to have taken the decision years ago so that a new brand had time to take, so that's not an option now.

AOL has certainly tried to convert itself in to a shopping site, but it didn't make it as a fledgling Amazon.

It's easy to see why Miller has reached the conclusion that he's reached, throwing away all its subscription revenues over perhaps a handful of years, at the same time planting a stake in the ground aimed at ramping advertising.

This at least has the advantage that internet advertising is still growing at around 30 per cent or more, so that even if AOL revenues fall precipitously, wherever they initially land, they will being growing at something like 30 per cent.

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