America Online Inc. is launching a $35 million marketing campaign in a bid to hang on to its subscribers, even if they buy high-speed Internet access elsewhere.
For the first time, the company that brought the Internet to the masses with the slogan, "So Easy to Use, No Wonder It's #1," is rolling out a new catch-phrase: "Welcome to the World Wide Wow." The fresh pitch is targeted at the company's 27 million subscribers in the United States, who in ever-greater numbers are switching to high-speed connections, and letting go of AOL in the process.
With its large but shrinking base of mostly dial-up customers, America Online is vulnerable, as Comcast Corp., other cable firms and digital-subscriber line providers sign up customers who prefer faster Internet connections. AOL officials said most of its subscribers are not even aware that America Online has a unique broadband offering with exclusive video, audio and other features not available via dial-up or through any other service.
"We haven't been in the game, and now we have to make a broadband push," AOL chief executive Jonathan F. Miller said. "This is the beginning. Now the march begins."
While marketing can raise awareness, Miller said the real test will be whether AOL subscribers embrace a new broadband service the firm is rolling out on March 31.
"You've got to make a product people want to pay for, with the right content, service and functionality. If you do, great. If not, things won't work," Miller said.
Given the timing of the roll-out, Miller said first-quarter financials due out this spring would not indicate whether AOL has a viable broadband offering. However, he said the second-quarter numbers released this summer would illustrate important "trends" in the company's initial broadband efforts.
While adopting its new approach, AOL would not abandon its core subscriber base of dial-up customers. That profitable business may be mature and not growing, but it throws off hundreds of millions of dollars in cash annually and analysts expect it to remain viable for many years.
In that regard, AOL got some good news recently after Microsoft Corp. threw in the towel on its money-losing Internet dial-up business, saying it would no longer recruit new customers. The change is a boost for AOL, since it can go after the broadband market, the dial-up sector, and customers who want both types of access, without a deep-pocketed competitor to contend with in every sector.
Instead, Microsoft's MSN unit would essentially follow the path laid out by Miller at AOL by striving to persuade savvy computer users to pay for its online service, in addition to high-speed Internet connections sold by others.
The central question is whether savvy computer users who are willing to pay cable firms $40 a month for high-speed connections would keep America Online, too, with its exclusive content and communications. From March 31 to the end of the year, AOL plans to offer this add-on broadband service to existing subscribers for $9.95 a month, $5-a-month less than the previous $14.95 monthly fee that Wall Street analysts said was too high. The service will also include five hours per month of dial-up use.
Matt Davis, a broadband analyst at the Yankee Group, predicts that high-speed Internet use will double over the next few years, from less than 20 percent of households to more than 40 percent. Given the rapid change in the marketplace, Davis said America Online's new approach is critical to its viability.
Thus far, most attempts to get people to pay for content online, when so much is available for free, have failed. For AOL, the formidable challenge, Davis said, is to build a strong enough service that people want to pay for it, in addition to high-speed Internet connection fees paid to others.
"It is absolutely essential at this moment in time," Davis said. "It is a difficult move for AOL to move away from dial-up, which is squarely in its comfort zone, to move into this area where there is a lot more uncertainty. But it is definitely the direction they have to move. They probably should have done it a year ago."
AOL, which planned to kick off the broadband campaign with teaser ads featuring actress Sharon Stone during the Academy Awards, is to advertise on network and cable television over the next six weeks. Company officials said, however, that they will keep a careful watch on developments in the war with Iraq to determine whether marketing dollars need to be reallocated. Nevertheless, company officials said they are determined to launch AOL for Broadband to existing subscribers on March 31, even if some television advertising is delayed.
In the coming days, AOL also plans to unveil a unified voicemail and e-mail system, called AOL Voicemail. It would enable subscribers to have telephone messages at home routed to as many as seven different individual e-mail addresses, where individual computer users can then listen to their audio messages online.
Miller said voicemail and other upgrades to the new product, dubbed AOL 8.0 Plus, are to be added now while others would be introduced later this year. Some of the new features include a redesigned broadband welcome screen, new video partnerships with news organizations, enhanced search capabilities, new online safety and security features, and animated icons for new "Super Buddies" lists. New instant messaging features with options for personalization, known as "Instant Greetings," would be added as well.
With Microsoft backing away from the dial-up business, America Online's unchallenged leadership in that arena would provide the funding needed for broadband marketing and product enhancements. Lisa Hook, head of AOL's broadband team, smiled as she discussed Microsoft's backpedaling.
"Having narrowband to ourselves is huge for broadband. We can amortize the cost of product and programming development across 27 million households being left to us," she said.