AOL's marketing builds service into powerhouse

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Decades of advertising have engraved certain brands in consumers' minds. They need no introduction: Pillsbury. Ford. Coca-Cola.

More recently, America Online, a relative upstart compared to longstanding traditional marketers, has joined their ranks, establishing its brand as the preeminent provider of Internet access.

Under the leadership of founder and chairman-CEO Steve Case, AOL has managed to survive, evolve and prosper over its 15-year history. AOL successfully made the transition from proprietary service to Internet heavyweight, succeeding where early leaders such as CompuServe (now part of AOL) and Prodigy floundered, and newer rivals such as Microsoft Corp.'s MSN struggled to find the formula.

These are the facts that make AOL Advertising Age's 2000 i.Marketer of the Year.

AOL is a media powerhouse -- and soon to be the No. 1 media company with its takeover of Time Warner. Its roughly 120 sales people are among the most aggressive out there. AOL never misses a chance to shove ads and promotions in front of its audience; users must constantly swat away AOL's infamous pop-up ads like gnats. But AOL became a media force because it is a disciplined marketer, using a bevy of old-school techniques to build the ultimate Internet brand.

Consumers going online turn to AOL. America Online users in the U.S. spent 21.6 billion minutes on the service in January, accounting for 38% of the total time Americans spent surfing at home and at work, according to Media Metrix.

AGGRESSIVE UBIQUITY

That tracks with a May 1999 report from consultancy Forrester Research showing that AOL is the largest Internet-access provider in the U.S., serving 39.4% of the total market. Add to that the 2.5% of the market held by AOL's CompuServe brand, and the company serves about 42% of U.S. online households.

That leaves rivals EarthLink, which recently merged with MindSpring; Microsoft's MSN; AT&T Corp.'s AT&T WorldNet; and Prodigy Internet making up only about 16% of the market. Small Internet service providers compose the rest.

Central to AOL's success has been its marketing strategy of aggressive ubiquity.

"[We are] just about anywhere there is a customer interested in getting online," says Jan Brandt, president of marketing at AOL.

AOL spent $49.4 million on ads from January through October 1999, according to Competitive Media Reporting. That's higher than the $45.7 million it spent in all of 1998.

Cable TV received the lion's share of AOL's advertising last year, followed by magazines and network TV.

In addition to offline and online brand advertising, the company places itself -- literally -- in consumers' hands through direct mailings of software. Ms. Brandt will only say the number of disks it ships annually is in the "bazillions."

TARGET: AVERAGE NET USER

AOL has positioned itself as a necessity in people's lives, something they can't live without. It knows its market well and has at every turn worked to develop products that serve that audience.

"They are being very broad in who they attract and who they keep -- pretty much the average Internet user," says Bruce Kasrel, senior analyst at Forrester.

According to Forrester, in 1998 AOL's marketing efforts enabled AOL and CompuServe to capture 54% of users who had been online less than six months and half of those online for less than a year.

For AOL, the emphasis has been on building the service, not the brand, and consumers have responded well.

"It is always wonderful to have a memorable ad, but more wonderful to have a memorable product," Ms. Brandt says.

Ms. Brandt notes the company cut back on advertising a couple of years ago once it felt it had adequately built its brand. AOL's spending dropped from $104.7 million in 1996 to $48.5 million in 1997, according to CMR data.

And Mr. Kasrel says AOL has slashed its direct marketing spending in half over the past year. "They've created enough momentum around their service that they don't need to [spend more on direct]," he says.

21 MILLION SUBSCRIBERS

Though it's cut advertising and direct spending, AOL's brand name still is anywhere and everywhere -- on TV, in magazines, in bookstores, on buses, in mailboxes and on Web sites. It links all aspects of its marketing to create one clear, consistent message across media, Ms. Brandt says. That message is ease of use.

"We really are a value-added service in terms of how we aggregate services. AOL makes it easy to find what you are looking for."

AOL's direct-marketing effort has been the cornerstone of its customer-acquisition strategy. The company has more than 21 million AOL subscribers and 2.5 million CompuServe subscribers in the U.S. The AOL-branded service last year netted 6 million new subscribers -- far more than any other ISP has in total members -- primarily through aggressive direct marketing.

AOL set its direct strategy in 1993, when it began giving away free trial memberships, first on floppy disks and then on CD-ROMs.

Disks are an expensive proposition -- it costs about 40› more to mail a CD than a package without it -- but it's an expense AOL decided early on it had to bear.

"When I started in 1993, no one had done disk giveaways before," Ms. Brandt says. "But I couldn't see how we could not do it. I felt that if I could get people to just put the disk in their computers, they'd see what [AOL's] potential was."

`EYES ON THE PRIZE'

AOL in recent years has implemented more direct marketing tactics, including radio and TV spots directing people to toll-free phone numbers to call to sign up for the service. It also received a promotional plug from the Warner Bros. film "You've Got Mail."

Gotham, New York, handles some offline advertising for AOL, which says it has no agency of record. AOL handles direct work in-house.

Unlike irreverent commercials many dot-coms use, AOL's spots are straightforward. They briefly outline its services and show representations of satisfied customers.

But they weren't always like that.

In late 1996 and 1997, AOL briefly ran ads created by TBWA/

Chiat/Day, New York, that featured cartoon characters the Jetsons. At the time, AOL was "trying to appeal to that earlier-adopter audience [with] something that was a little bit edgy," Ms. Brandt says.

The company decided a clearer approach was more appropriate.

Even AOL's pricing plan is a quiver in its marketing arsenal. Although the company now offers several pricing plans, including a $21.95 monthly flat rate, "they were the first one to come out with five hours for $9.95," says Peter Krasilovsky, program director at the Kelsey Group, an Internet consultancy. "Everyone thought they were crazy to do it, but they wanted to get customers. They had their eyes on the prize. The membership is their currency -- it's what makes them so appealing to advertisers."

`TRAINING WHEELS'

Evidently, it's working: Forrester data show AOL users stick around. Rivals such as MSN claim AOL is suffering from high churn rates, but Mr. Kasrel says AOL's customer losses have fallen to just 2.5% a year. Ms. Brandt says subscriber retention is at an all-time high.

Despite some critics' view of AOL as "the Internet with training wheels" and not sophisticated enough for seasoned Internet users, research indicates that AOL's subscriber churn isn't any higher than its competitors. In fact, in 1998, AOL had the lowest attrition rate of all ISPs, according to Forrester.

AOL's reliance on newbies for much of its growth could become an issue as the market matures. Can AOL evolve as Internet users evolve? Some argue it already has.

"They've actually been very leading-edge in providing enhanced functionality to their customers," Mr. Krasilovsky says.

BROADBAND THREAT

AOL's biggest threat right now may be broadband cable Internet penetration, which could cause users to look at other options, such as Excite@Home's @Home service.

But AOL's pending purchase of Time Warner, the No. 2 cable provider, could help resolve that by giving AOL millions of potential broadband Net customers.

In the meantime, Ms. Brandt says its collection of services meets the needs of varied customers. "If AOL is training wheels for the next 50 million people coming online, I am delighted for that challenge," she says. "There's no place I'd rather be."

AOL insists it is a multi-brand company, not a "one-trick pony," Ms. Brandt says, offering varying levels of Internet access for different segments of the population.

To be sure, AOL has wavered occasionally in defining brands. After buying CompuServe in 1998, AOL made the venerable online service its premium brand but then abruptly turned it into a value brand. AOL now lacks an upscale Net brand -- though AOL conceivably could use the Netscape brand for a premium ISP.

Ms. Brandt says AOL is constantly evaluating its marketing strategy. AOL's acquisition of Time Warner will spur an evolution of AOL marketing; Time Warner gives the online company a palette of brands to leverage and advertise.

In addition to establishing itself in consumers' minds, AOL has made itself a model of effective marketing in the Internet industry.

"AOL shows the way," Mr. Krasilovsky says. "And anyone involved in Internet marketing watches AOL. It doesn't mean that they are perfect and it could be considered a flawed product for many demographics. But given what they are promoting, they've done a great job."

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