Bravo! More Signs of Intelligent Life at AOL

Well, it took five years, but AOL has finally plugged the Titanic-sized hole in the bottom of its hull.  This morning, the company announced multiple broadband deals that, together, should allow it to offer an AOL broadband solution to most of the million-odd subscribers who call up to quit each quarter.

The big problem with AOL's "portal strategy" has been that the vast majority of the people who use the portal are AOL subscribers, who are unknowingly dumped there when they click links and buttons within AOL.  When subscribers defect to broadband services, therefore, they take their portal pageviews with them.  Until now, AOL has had no credible solution to offer broadband-bound defectors; rather, it has simply had to beg and plead with them to keep the AOL service or, at least, their AOL email address, and occasionally come back for a visit.  Unfortunately, only about 1 in 4 broadband defectors have been doing this.

Now, however, the company should be able to offer the broadband defectors better broadband deals than they can get with their local cable or telco (most of the new plans are priced at $25.90, less than many AOL-less broadband offerings and only a couple of dollars more than AOL's all-you-can-eat dial-up plan).  If the company can smoothly integrate the conversion process, moreover, it should be able to allow subscribers to upgrade to broadband with much less hassle than it would take to leave the company. 

Bottom line, therefore, the broadband offerings should allow AOL to increase its "save rate" of defecting subscribers, and thus retain their precious eyeballs.  The new rate may encourage some of the lazy cash-cow $23.90 subs who wouldn't have converted to convert, thus resulting in a near-term cash flow hit (because AOL is likely only getting a few dollars of subscription revenue share from its broadband partners, as opposed to $10 or more of operating profit from the fat-margin dial-up subs).  By sacrificing some cash in the near-term, however, AOL is giving itself a better chance to survive over the long term--something that Time Warner shareholders should applaud.

(For more on AOL's key problems--and why this move is critical to fixing them--please see the Cherry Hill Research report linked to in this post.  Thanks to Forbes.com for the heads-up.  Disclosure: I've owned the lead balloon known now as TWX for the better part of a decade )

Comments

[TechBoard]

This should stop the defection of AOL users. Why they didn't figure this out earlier I will never know. Did it have something to do with Time Warner cable??

It just goes to prove what a long way Time Warner management still have to go to prove they can best steer the AOL asset through the broadband era.

So, now they have some kind of a bradband strategy in place (I think) what about a mobile strategy - or will they leave this to Yahoo and Google to swipe!

[John V.]

Henry, not sure I understand what you mean when you say, "The big problem with AOL's "portal strategy" has been that the vast majority of the people who use the portal are AOL subscribers, who are unknowingly dumped there when they click links and buttons within AOL." ?? what do you mean by 'dumped?'

btw, cool blog.