AOL -- News Watch

David Cassel (
Thu, 10 Oct 1996 23:54:01 -0700 (PDT)

The Top Ten AOL sites of all-time are at
courtesy of the Netly News.  (Friday morning they're running a scoop on
Bill Clinton's election campaign.  Check it out at http:/

There's rumors AOL will go to flat-rate pricing.  Even as AOL spokeswoman
Pam McGraw said the company is not about to institute a flat fee, Steve
Case told another paper it was considering just that.  Partly because of
the rumors, AOL's stock hit a one-year low Monday.  (It also hit a
one-year low Tuesday--and Thursday.  The stock lost 12% of its value in
just the last week.)

AOL lowered their rates in July--and 6 months later, they do it again? 
Check out the subscriber numbers.  Between April and June, 2,147,000
people signed up for AOL...  And 1,835,000 LEFT. Net gain:  312,000. 
That's even fewer than the number of people who signed up with fake credit
cards--370,000 were dropped by AOL in the first 3 days of their account. 
[Statistics from the Washington Post, 9/16/96.]

I sat in on a conference call with Steve Case last week. He said the
company tried conducting "loyalty labs" to see what they could do to stop
the outflow of customers.  Even with their best efforts, 4 out of 5 users
still left.  But to cling to that fifth subscriber, they're mailing each
and every one of their 6 million current subscribers a promotional video
tape.  And they're spending $300 million on "Jetsons" ads on TV. 

Next time you see one of those ads, remember AOL's already racked up $300
million in "deferred" subscriber acquisition costs.  They spent over $200
for every member they added last quarter.  And they've sent out over 100
million floppy disks--one for every 2.5 people in America.  They've
covered up the massive defections by replacing them with newcomers.  But
as the inflow slows, you see millions are moving to better prices--and
software--at ISPs.  (A friend of mine said AOL's software is so
out-of-date, he expected their ads to use the Flintstones theme.) Steve
Case loves to point to the 6 million members as evidence of the service's
quality.  But he's silent on the 1.8 million departures this spring. 
20,000 people canceled AOL each day--for a "churn" rate of almost 100%. 

What happens to them?  The ad provides a hint.  Many ex-subscribers have
reported AOL continued to bill them.  I picture George Jetson yelling
"Jane!  Stop this crazy thing!" 

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