It's got to hurt. Now that Time Warner's (NYSE:TWX) America Online is offering paying subscribers the right to kiss their monthly bills goodbye, it's finally beefing up its premium service to the point where it's an offering worth paying for.
"Say Hello to a New AOL" greeted subscribers on the AOL Welcome screen yesterday, detailing the advantages of sticking around as a paying member.
If you're still on dial-up, you didn't have much of a choice. AOL became a free service last month only to those who already had their own broadband access. However, dial-up and premium broadband subscribers are now being presented with some compelling reasons to stick around.
Five major features that now separate paying members from freeloaders include:
- Firewall software, along with $10,000 in identity theft insurance.
- Premium computer analytical software that comes with $1,000 in PC insurance coverage.
- Five gigs of data storage (free accounts get just half a gig), as well as unlimited email storage.
- More of the AOL and XM Satellite Radio (NASDAQ:XMSR) stations than what is offered to free users.
- Around the clock, 1-800 access to customer service support.
Between the Welcome and Goodbye screens
The defections have been brutal at AOL. Since the number of domestic subscribers peaked at 26.7 million in the fall of 2002, that figure has fallen every single quarter. There were only 17.7 million stateside subscribers at the end of the second quarter, and that number is likely to dip precipitously now that the company has introduced a free, watered-down service.
The migration isn't necessarily a bad thing. AOL has been enhancing the value of its AOL.com portal since last year. Online advertising has been one of the few growth sparks in the Time Warner income statements lately, so the emphasis there is warranted.
However, I can't help but think what kind of position AOL would find itself in today had it done more to keep its subscribers happy while attracting new ones. Instead, it chose to axe a popular newsgroup reader and its quick-loading proprietary discussion board platform.
If AOL was really bent on ripping off the training wheels, the least it could have done is invest in handlebar streamers to make itself look exciting. Instead, AOL gradually became more and more cookie-cutter, and that opened up the feeding cages for nimbler access providers like EarthLink (NASDAQ:ELNK) and United Online (NASDAQ:UNTD), along with the many other broadband providers.
You've got irony
The enhance features for paying accounts are pretty nifty. If Citigroup can milk some good mileage out of those annoying identity theft protection commercials, AOL may have a capable tool in its marketing arsenal by pitching its identity theft insurance. As companies like Google (NASDAQ:GOOG) educate the market on the merits of Internet-based application software, AOL's generous storage capacity may become a bigger selling point.
AOL wants to matter. It wants to care. The burning question probably going through many of the net 9 million bolters over the past four years is why AOL took so long to get this aggressive in upping the perceived value of its connectivity service. Doing so now is painful to watch, like an octogenarian going in for a facelift.
It's a shame that AOL couldn't set up shop in a parallel universe where it could give away the dial-up and charge for the broadband access, because it's the speedy connections that are the more valuable ones. They're the ones with the ability to fly through more pages, click on more ads, and possibly even have the means to spend more online. Making AOL free for broadband users isn't going to keep them closer or make their visits any more frequent. If anything, they, too, may come to discard AOL and devalue it the way that AOL has just literally done.
So, let's state the obvious. AOL better hope that its free stuff is sticky, too. It has to make sure that its ad-based offerings are strong enough to stand up against the competition that's just a click away.
Everyone is curious as to what AOL's subscription fee revenue will look like over the next few quarters. How deep will the defections run? How much of that will be offset by interactive marketing gains? I think the bigger question is what AOL will look like in a year or two. Can it reestablish itself as the quality brand? Can it keep the current subs happy and the free ones happier?
I'm not the type to buy into companies that have more questions than answers, but I will accept that that's often where the greatest opportunities lie. Time Warner shares have been stuck in the teens for far too long.
It's time to grow up, AOL.
Time Warner is a longtime Motley Fool Stock Advisor recommendation. XM is a Rule Breakers selection. Take the newsletter that best fits your investing style for a 30-day free trial.
Longtime Fool contributor Rick Munarriz has been an AOL subscriber since 1992, but he doesn't own any of the stocks mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
