Luring high-speed subscribers: AOL adds more free fare to spur growth

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After nearly two years of trying to entice broadband customers and offering its subscribers premium services, America Online has yet another new growth strategy: Pump up what it offers non-subscribers in order to increase eyeballs on its free areas and sell more ads.

A week after America Online announced a major reorganization of the company into four divisions, the Internet service provider is beginning to pin down the tactical methods that will inform its new advertising push. The objective is to entice non-AOL subscribers to, Netscape and AOL Instant Messenger so that larger audiences will attract more advertisers, while at the same time holding onto existing subscribers.

Analysts say AOL has scant other choice but to develop both prongs of its business. For one thing, third-quarter financials show a muscular 44% increase in ad revenue over the third quarter last year. And although the company lost members overall, with 23.4 million U.S. subscribers, "it can't afford to scuttle members," said David Hallerman, senior analyst at online market-research firm eMarketer.

To throw open the gates to non-members, the Dulles, Va., company has placed a group called AOL Media Networks, with Michael Kelly as president, which includes sales, search, commerce, marketing, brand management and customer acquisition, under the newly formed advertising division called Audience. The group will retool more along the lines of a Yahoo portal model, as a rich content area that would appeal to anyone surfing the Web. The fresh will roll out during the 2005 first quarter. Properties like Netscape, AOL's low-cost dial up business, and AOL Instant Messenger, which already draw non-AOL users, will be programmed with content appealing to typical Web users-who are broadband users.

"We want to add to our network additional, unique visitors and we want them to be predominantly broadband, high-speed customers," said Ted Leonsis, AOL vice chairman, who now heads up the Audience unit.

The objective? "We want to be one of the top three suppliers of unique [visitors] and revenue generation," Mr. Leonsis said.

The company lost 646,000 subscribers in the third quarter-overall, it gained 470,000 broadband members, according to the third-quarter financials. AOL doesn't offer its own high-speed connection, so the broadband customers buy their hook-ups elsewhere and sign up with AOL for the "premium" broadband services. There are 5 million of these subscribers.

Executives are tight-lipped with details, but would be enabled with more streaming media capability for running the film clips and live concerts that AOL has been touting through advertising. "We'll have more broadband [inventory] available to users and advertisers," said Mr. Kelly. In addition to beefing up content, existing AOL features such as sports, news, entertainment, personal finance, living and AOL Latino, will be offered.

Instant messaging is potentially a big draw because most AIM customers now are not AOL subscribers, Mr. Leonsis pointed out. Habitual AIM aficionados are young people, but consumers age 12 to 17 only make up 13% of AOL's unique audience, according to Nielsen, and 18-to-24-year-olds only make up 9%.

speed and spam

Advertising initiatives would include cross-promoting among properties and offering package deals, Mr. Leonsis said.

Ratings show that consumers like to spend time on the AOL site now. Nielsen rated AOL No. 4 for numbers of unique visitors in October behind Yahoo, MSN and But each visitor to AOL spent more than 6.5 minutes per session there, vs. about three minutes for Yahoo, 1.42 for MSN and 41 seconds for Microsoft.

But why would an AOL subscriber pay for the service when any Web surfer can click onto A company survey of members found they would be willing to pay for services such as speed and spam protection, but if they had to pony up for services such as AOL news, they would point their browser elsewhere.

Analysts said it sounds like a good idea, but the execution may be trickier. "What they've been very good at doing is driving traffic within their own network," said David Card, senior media analyst at Jupiter Research. "But they are really good at it because their members start with the members welcome screen. So one of the biggest challenges is getting people to AOL will be head-to-head with Yahoo and MSN, who are also good at programming."

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