MEDIA WATCH: Amid rivals, AOL’s freebie service fails to impress

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 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

unprecedented move.



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

States.



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.



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