AOL’s subscription revenues, which come from internet access fees, are in decline, possibly terminal, while its advertising revenue is on a rapid growth clip. The company’s new strategy sees it putting its eggs in the ad basket and essentially offering a shrug to the ISP business.
President Jeff Bewkes said the move sees AOL fully align its business with the most compelling online trends. AOL’s software and services will be offered to any internet user on a broadband connection, regardless of their ISP.
He said the change in strategy removes the biggest barrier to our members staying with AOL as they move to broadband connections… Now there’s no reason for anyone to leave AOL.
The company has come in for a bit of bad press recently over its overly aggressive customer retention practices, which appear to make it difficult to cancel your account.
AOL has been churning customers for years, as its core base of dialup customers migrate to broadband services on other networks. The company will continue to offer the dialup services, but it will no longer aggressively market it and it will no longer offer broadband.
The firm is already talking to broadband ISPs about co-marketing opportunities. Bewkes said: AOL will be aligned with the cable and DSL providers. We will no longer be competing with them for subs.
By cutting its access marketing, AOL hopes to shave $1bn off its annual costs by the end of next year. The initial restructuring will cost it $150m to $200m in restructuring charges this year.
AOL’s software includes email and instant messaging with voice. It’s a substantial traffic driver to its online services, where the company displays advertising. Bewkes said that traffic from AOL software users is vital to the advertising business, so churning subs retards its growth.
If we did not change this, we’d be giving up 30 to 40 billion pages views, Bewkes said. That’s 10% of Yahoo, that’s 20% of MSN, it’s a third of Google, almost four CNets. That’s what we’d be giving up.
The company has also reported its second quarter earnings. Subscription revenue was down 11% on last year’s quarter, while ad revenue was up 40%. The newly announced strategy means those trends will continue, but AOL will likely be fiscally healthier because of it.
There’s also some concern in this news for the major security software maker that target the consumer market, such as Symantec, Trend Micro and Microsoft.
AOL plans to offer a complete set of security software, functionally equivalent to much of what’s on the market already, also free of charge, compared to $50 for Microsoft’s OneCare or $70 for Symantec’s Norton.
