Posted by : Anonymous on Jul 07, 2006 - 07:23 PM General

AOL wants to drop subscription fees for most of its users, completing its transformation to a free service similar to chief rivals Yahoo and Google, say top executives at AOL and its parent, Time Warner.
Dial-up customers who rely on AOL as their Internet service provider would still have to pay the $25.90 monthly fee. But anyone using AOL on broadband would get the service free, including e-mail and use of the AOL software. A year ago, AOL put much of its content -- including news stories, music videos and travel information -- on the AOL.com website for free.
AOL and Time Warner executives confirmed AOL's plans, though they asked not to be identified. The switch has not gotten final approval.
The move is in line with strategies stated by AOL CEO Jonathan Miller and other AOL executives in the past year. AOL's subscription business has been waning anyway -- about 850,000 users canceled in the first quarter of 2006. So the company has been trying to flip to a new model based on using free content and services to gather a mass audience, and then selling advertising.
It's a gamble. Only 16% of AOL's 2005 revenue came from ads; the rest, from subscriptions and other fees. Still, "Everybody else in the top 10 is free," says John Battelle, who runs Searchblog. "So this sounds like a reasonable move." AOL is No. 3 on the Web in ad revenue.
Some driving reasons AOL executives want to make the move:

*Cost savings. AOL has $8 billion in annual revenue but spends $1 billion marketing its subscription service. It wants to stop marketing that service, save that $1 billion, and focus on the message that AOL offers free content.

*E-mail. AOL doesn't want to lose e-mail customers using an aol.com address. As AOL dial-up users switch to broadband, the company finds, many switch to free e-mail such as Gmail. But Web-based e-mail can be a huge driver of Web-page views, and AOL can sell ads on those pages. If AOL offers aol.com e-mail for free, current subscribers would likely want to keep aol.com addresses.

*Ad sales. While AOL would lose about $1.5 billion in annual subscription revenue, it believes it's a short-term loss for a long-term gain in ad revenue. The company reported 26% ad revenue growth in the first quarter, and analysts expect the number to be higher when AOL reports second-quarter earnings.

Skeptics say AOL is grasping at ways to keep up with its rivals. Since making its content free last June, AOL's audience growth has been comparatively weak. Google went up 26% to 95.4 million visitors in May 2006, compared with a year earlier. AOL grew 1%, to 72 million, according to Nielsen/NetRatings.

Contributing: David Lieberman

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