For America Online, it seems that every silver cloud has a dark lining. While AOL recently reported solid quarterly earnings, CEO Steve Case also admitted there was ’a bit of softness’ in its global expansion strategy. In order to rectify this weakness, the company is planning to offer later this month free Internet service in the UK - an unprecedented move.
For America Online, it seems that every silver cloud has a dark
lining. While AOL recently reported solid quarterly earnings, CEO Steve
Case also admitted there was ’a bit of softness’ in its global expansion
strategy. In order to rectify this weakness, the company is planning to
offer later this month free Internet service in the UK - an
One would think that an offer of free services would provide a positive
PR boost. Yet CARMA’s examination of the media’s coverage revealed that
this was not the case. Instead, AOL’s offer was generally portrayed as a
reaction to being knocked from its industry leading position by a host
of local rivals offering free online services.
In announcing the new Netscape Online, spokespeople for AOL Europe
stated that it would target young, tech-savvy, male Internet users
without a lot of money. The company presented the service as
complementary to its AOL flagship brand for the family market and its
CompuServe brand for business. ’What is driving (AOL) is a multi-brand
strategy. It’s going to be a success story,’ explained Andreas Schmidt,
CEO of AOL Europe (Washington Post, July 19).
However, the press seemed to read between the lines. Much of the
coverage highlighted the fact that AOL’s overseas operations have
stumbled, losing market share to a host of rivals. Despite AOL’s claims
to the contrary, the media referred to the strategy shift as an attempt
to emulate Freeserve, which replaced AOL as the UK’s leading ISP in less
than a year of operation.
Several media outlets pointed out that the decision represented a
significant reversal of policy for AOL, which must have involved
swallowing a bit of pride. CNNfn (July 19) noted that as recently as
May, AOL had been on record as stating that free ISPs were ’an
unworkable business model.’
But there were a few analysts who supported the creation of Netscape
Online and AOL’s multi-brand strategy. ’What you’ve got here is that AOL
is back on equivalent footing (with Freeserve). That’s a key thing for
AOL and I believe AOL will win that battle,’ said Abhishek Gami of
William Blair & Co (Dow Jones, July 19).
The media also addressed the question of whether free Internet access
might someday be widely available in the US. The general consensus was
that it is unlikely. The British phone system was described as making
the idea feasible because, unlike America, individuals are charged for
local calls and ISPs can receive a percentage of this fee.
However Windows magazine (August 1) disagreed, publishing an editorial
arguing that, due to significant competition among ISPs, ’The Next Big
Thing will be a tidal wave of free Internet access’ here in the
Whether Netscape Online will be a success and free net access comes to
the US remains to be seen. But recent developments suggest that
established ISPs in America should be mindful of rival upstarts to avoid
a situation similar to the one AOL is experiencing in the UK.
- Evaluation and analysis by CARMA International. Media Watch can be
found at www. carma.com.