Is there enough to go around?
Posted by TFG on 6th July 2006
WSJ.com - AOL Mulls Giving Away Service
In what would mark a dramatic shift in strategy, Time Warner Inc.’s AOL unit is considering offering its entire menu of services, including email, free of charge to anyone with a high-speed Internet connection, people familiar with the matter said.
Under the proposal, which AOL Chief Executive Jonathan Miller presented to top Time Warner executives in New York last week, AOL would stop charging a subscription fee for users who already have a high-speed Internet service or dial-up service from another provider. Subscribers who have traditional “dial-up” Internet access through AOL would still have to pay their monthly fee of as much as $25.90. Nearly one third of AOL’s customer base of 18.6 million already has high-speed access — but the company expects that 8 million of its existing dial-up customers would cancel their subscription to take advantage of the new offer.
Yeah, I’d definitely call that dramatic. Problem is, I can’t fathom the need for another advertising-driven portal. I particularly can’t fathom that anyone who has switched from AOL dial-up to broadband wanting to come back to the relative joys of AOL. The only thing I can see is an inertial retention of their admittedly massive subscriber base. If you apply the 80/20 rule, they hang on to 80% of those people through ‘good enough’ unknowingness. That gives about 15MM. And they plan to lose 8MM paying subscribers, so that leaves 7MM paying $25 per month, or $2.1 Billion. And that means you need to sell, let’s see here, 12MM x $25 x 12 months = $3.6 billion dollars in ad revenue per year???
I have no earthly idea about generalized advertising dollars spent today. There could easily be enough of a pie to make those numbers work. But I’ll just say that I wouldn’t want my performance bonuses tied to it. To me, it looks like a loser.
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