Time Warner Frees AOL - 03 Aug 2006

No, Time Warner isn't dropping its beleaguered AOL Internet access service. However, the company is taking drastic measures to ensure that the service continues to be viable. This week, Time Warner announced that it would begin offering all of AOL's services--including aol.com email addresses--to users for free.

After hitting a peak of more than 30 million subscribers, AOL has dropped to about 17.6 million subscribers and is losing more every month. But what subscribers are paying for, primarily, is the slow dial-up Internet access that dominated the online world a decade ago. Today, broadband Internet access is mainstream and quickly replacing dial-up, even in rural areas.

AOL's problem, of course, was figuring out how to keep making money while deemphasizing and eventually canning its dial-up Internet access service. This week, AOL parent Time Warner announced its plan: AOL's revenues will come solely from online advertising, which has already proven to be more profitable than expected. The company will also stop pushing its Internet access service and make all of its AOL-branded services free so that anyone with Internet access can use them.

AOL had previously made much of its content free. But this week's announcement frees the rest of AOL's services, including the most important one of all: aol.com email accounts. This development has two main implications: First, AOL subscribers who quit the service will be able to keep their aol.com email address. Second, non-subscribers will be able to get a free aol.com email address.

There are also some new options for existing subscribers. Most of AOL's subscribers currently pay more than $25 per month for dial-up Internet access. That fee gets them 50GB of online storage and unique security features. But AOL is now offering a $9.99 dial-up option that eschews the additional features and offers 10 hours of Internet access time per year. Or AOL subscribers can drop AOL's dial-up service altogether and access all the old AOL features online for free.

It seems like a retreat. But the reality is that AOL's subscriber base is going to continue to drop off regardless of what the company does. By letting customers keep their valuable aol.com email addresses, Time Warner can keep both users and advertisers happy. It's a win-win situation.