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AOL outpaces its rivals

STEVE CASE, CEO OF AMERICA ONLINE

Every time America Online Inc. has been counted out, it has come back even stronger.

Hammered by subscribers and regulators alike a little more than a year ago for its chronic busy signals, AOL boasted last month that it now has more than 12-million members, who access the service and the Internet using personal computers.

The Dulles, Va., company is growing so quickly that the 1-million members added in the past three months surpass the entire subscriber list of Prodigy, the first mass-market online service, which was originally backed by International Business Machines Corp. and Sears, Roebuck and Co.

Last year, AOL acquired rival CompuServe, which it operates as a separate service. It has also fended off challenges from AT&T Corp. and mighty Microsoft Corp., whose Microsoft Network was widely expected to trounce AOL when it was introduced nearly three years ago.

AOL's focus on being an online service without "hidden corporate agendas" is the reason behind much of its success, said Steve Case, the company's chief executive, known to subscribers for his monthly letters about the service.

"If you're a technology company, you want to sell your technology. If you're a communications company, you want to sell your network," Case said after speaking at the convention of the Newspaper Association of America recently in Dallas.

"With Prodigy, IBM wanted to sell computers and Sears wanted to do retail stuff. AT&T had its ventures. H&R Block with CompuServe they all had an agenda. For them, the interactive business was an extension. For us, it was the reason we got up every morning. And it still is."

Among the topics Case discussed in an interview were AOL's phenomenal growth, how CompuServe is being absorbed and concerns over junk e-mail. Here are excerpts:

Q: What do you know about who AOL's new members are, as far as their demographics or their past interest in computers is concerned?

A: We are starting to see a widening of the market. A few years ago, we were attracting people who were somewhat sophisticated about technology. Now we're attracting people who are much more representative of a mass market. They have less interest in the technology and view it as a means to an end.

A growing number of people are actually buying computers to be able to connect to the Internet. A few years ago, it was sort of a peripheral afterthought. Now it's increasingly a central part of the whole experience.

We're seeing a real broadening. One example is 52 percent of our members now are women. Five years ago, it was about 15 or 20 percent. We're seeing a wide range of people, including your friends, neighbors and relatives, who a few years ago you might not have thought would ever be connected to these services, are now connected and using them in habitual ways.

It's a pretty representative group, starting to look very much like the mass market.

Q: How is the absorption of CompuServe going? There were initially some concerns about a cultural disconnect between the two groups of subscribers.

A: I think it's going extremely well. From a customer standpoint, most customers either don't notice it or probably view it as a modest plus that at least now, the company that owns CompuServe cares passionately about this industry.

The other part is related to the people working at CompuServe. What we found there was they shared our passion about the medium but were increasingly frustrated about their inability to really do anything because they were owned by a company that was not sure it wanted to be in this business and was shopping it around. The last couple of years were a very difficult period of being in a Never Never Land. So I think they welcomed the leadership and commitment of AOL.

Q: AOL is offering long-distance services now to customers at a discount. Tell me about that.

A: The idea driving that was we want to use this new medium to create products and services that can benefit our members and create additional reasons to be an AOL member. And being able to provide AOL members long-distance service for 9 cents a minute when almost all the other national companies were charging quite a bit more we thought would be a terrific benefit.

We also are quite keen on keeping the price of the service as low as possible and therefore are trying to build new revenue streams through advertising and electronic commerce. So it further enhances the value of AOL. And also, we get a commission based on the sales so we can generate advertising and commerce revenues that takes some pressure off the business.

Q: How many subscribers are taking the long-distance service?

A: About half a million. And we have extended that model to other kinds of consumer services. We're working with other companies to create offers we think will be of interest to our members, as well as generating additional revenue streams.

Q: Let me ask you about junk mail. It's generally portrayed as an annoyance to users. What business impact does it have as the volume of messages taxes your computers?

A: The primary cost we're concerned about is the frustration of our members. If it frustrates our members, it frustrates us. That's the main reason we're focusing on trying to do something about it. There clearly is a cost associated with the additional servers we need to handle the millions and millions of junk e-mails that are sent through our system every day.

There's no magic bullet here. So we're being more aggressive with litigation, filing lawsuits against a number of companies we thought were the worst offenders. We have improved the technology both on our end and on the consumer end, so they can choose to block messages. We're also looking at possible legislative solutions.

We recognize it's a big problem. It's really got our attention.

Q: Are you ready to declare victory on handling the busy-signal problem?

A: I'm not sure I'll ever be ready to declare victory on anything. But I do think we've made good progress. The crisis that existed a year ago does not exist today. We have made huge investments to expand the network and improve the quality of service.

Certain cities at certain times of day still have more busy signals than we would like. So it's a never-ending effort. But we do feel like we made a lot of progress there, and the feedback we get from our members suggests they have the same view.

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