Wednesday, June 08, 2005

AOL's Bubble Bursts Again

Not sure if you heard the news today, but CNN had it on their Business page (I hope the link is still good) at:

America Online, the one-time darling of the internet bubble, announced that it was considering "offering for free many of the features once available only to its paying subscribers." That's right, AOL is lifting the heavy gates, providing their content to all who would enter.

The problem is that nobody's rushing in. Or ever has.

Many people think that the internet bubble burst some time around 2001. The truth is that the biggest bubble did burst then. But there are still a number of little bubbles floating around out there, waiting to be popped. AOL is just one of them.

AOL has always been a mystery brand. From the very beginning, it was a juggernaut that bypassed its competitors' membership numbers with daring and speed. While dinosaurs and fossils like CompuServe and Prodigy were fumbling around, trying to patch the leaks in their boats with band-aids and wads of cotton, AOL was littering every American checkout counter with free floppy disks and CD-ROM's. It didn't matter if you were a PC or Mac user, AOL was giving away 100, 500 or 1000 free hours of usage, signing up members faster than they could count their money.

The plan worked. Until AOL got into the game, the internet was perceived as a technical toy, too complicated for everyday people to use. AOL changed all that, by promoting its ease of use. Of course, what AOL didn't tell anyone was that the internet they provided wasn't "real" internet; it was AOL's version of the internet.

AOL didn't tell a lot of people about a lot of things. For example, while they spent a lot of time and money trumpeting their soaring membership rate, they effectively dodged every question about their abandon rate, which was rumored to be almost as high. At one time, the unsubstantiated rumblings placed that figure at 50% over an average membership life of just nine months. Which means that for every two members that came in the front door, one was walking out the back.

AOL was able to blitz the market, fueling the bubble that pumped its growth to the point where the juggernaut consumed Time Warner in one of the most laughable mergers in modern history. The buzz on the deal was that AOL had the delivery and Time Warner had the content. Together, they were supposed to be invincible, delivering content and making even more money than either could imagine.

Yet here we are today, with AOL announcing that it simply can't seem to make its subscription business work. Even with Time Warner's content -- we're talking movies, images, text and sound -- they still can't figure out how to make a buck. And for a very good reason:

AOL never has had a brand strategy.

AOL was never about building a brand. It was a stock play, pure and simple. A sales pitch, powered by opportunism and greed. Sure, light users of the web who surf and send e-mail might stick with it, but increasingly, AOL is losing members. No more do they trumpet their membership rate, because it's already fallen from the historical high of 26 million to just over 22 million. Still a lot of bodies overpaying for inferior service, but a far cry from the pre-bubble puffery and a trend that Wall Street would just as soon avoid.

Oh, to be a fly on the wall at the board meeting this week, when AOL's CEO pounded on the table, raking his minions over the coals. If you close your eyes and listen hard, you can hear it, too: "Hey, we built this company by giving it away. We gave away free floppies and CD's and built a monster. We have to get back to basics." Right. Now they're leaving the front door wide open, and the only people going through it are the ones leaving the party.

Of course, if AOL had built their company on a real brand strategy, none of this would have happened. They could have built a real core of truly loyal subscribers who'd have been only too happy to pay a premium for limited internet access. They could have cultivated a sense of brand ownership in paying customers, turning each one into an evangelist, recruiting in new members -- who would have stayed longer than nine months.

They certainly had the tools. They definitely had the technology. And they absolutely had the budget. The one thing they never had is the one thing that killed them: a solid brand strategy.

Hey -- did you hear that? I think another bubble just popped.


Blogger Rob Frankel said...

You're correct about "ease of use." That was AOL's advertising pitch for a long time. But that's all it ever was. The big mistake was that AOL based its brand strtaegy on a feature which its competition soon emulated -- and improved on.

A true brand strategy would have nested deeply into the pyches of its customers. After all, Macintosh users brag about the relative ease of use versus PC's, but simplicity alone is not what has kept Apple alive all these years.

As for the hemorrhaging of members, anecdotal evidence suggests that it's AOL's technological limitations that drive people away. Their customer service always has been great. Difficulty is sending non-users attachments, out of date simulations of the internet (as opposed to real access to the real internet) -- these are the kinds of things that become intolerable once a user has experience on the web. AOL never removed those obstacles.

If AOL really wanted to create a stable brand, they would have built a strong brand strategy on which people could base their loyalty. Instead, they simply chose sales, because that's what Wall Street and financial analysts understand.

That's what bought Steve Case his pineapple plantation in Hawaii.

6:38 AM  
Anonymous Anonymous said...

Assholes On-Line (AOL) Sucks!!!

To understand AOL and its growth one has to rewind back to the BBS days (yes these were the systems people logged onto by modem (14400 baud and below) long before the www and internet (as we know it) ever existed.

AOL took great pride in cloaking the true internet behind an easy and then innovative menu driven GUI.

Even back in these days - the entire BBS community hated the AOL'ers. In fact the moniker Assholes On Line (AOL) was very fitting as most of these so called users had no idea about the Internet, the Web (Mosaic) or any thing as complicated as Archie or other popular web utilities.

AOL's FREE CD's (once installed) married themselves to every possible element of a PC's architecture ... I know I personally reformatted many a machine that simply wanted to be free of AOL. This tactic burdened many a service technician back in those days ... they would even go so far as to re-write modem drivers ect ... PAIN!!! What a bunch of assholes!

Once the software was installed, they didn't want people to be able to uninstall it ... thus erroding their subscription base. A company who knowingly operates this way deserves to die.

AOL RIP - You Suck!!!!

11:13 PM  
Blogger Rob Frankel said...

Thanks both for your comments. I find them indicative of my own experiences. Beyond that, I find them telling of a vast, silent underground of anti-AOL opinion.

It's funny how AOL is to online what Microsoft is to software: no brand strategy, just a drive to sell what they can as fast as they can.

This lack of concern is exactly what brings down fascists and dictators. Anyone remember the Shah of Iran?

3:13 PM  
Anonymous Anonymous said...

You know, Rob, as much as I hate to cause you additional pain, I have to tell you this.

I was an AOL member ... waaaay back when they had a DOS version of AOL, and they had just what you describe:

Of course, if AOL had built their company on a real brand strategy, none of this would have happened. They could have built a real core of truly loyal subscribers who'd have been only too happy to pay a premium for limited internet access. They could have cultivated a sense of brand ownership in paying customers, turning each one into an evangelist, recruiting in new members -- who would have stayed longer than nine months.

Back then, we watched AOL grow from a few hundred to a few thousand, Steve Case used to meet us in chat rooms to find out how we were liking the service, and if we bitched about anything or if they talked about changing anything and we screamed about it, they listened.

We felt like AOL was OURS, and Steve Case worked for us. In fact, he used to say that. :)

But as they got more and more subscribers, they seemed to feel that they could afford to do what they liked with their service and ignore those subscribers when we told them it sucked. That's when we started leaving.

Ebay did the same thing. When they were small, they behaved like all small businesses do, listening carefully to their customers because ... well, when you're small, every customer matters. Then they got bigger and started pandering to the corporate consignment selling dollars and ignoring the smaller players ... and they are starting to lose those small players, too.

What is it with these companies, that they build great communities and they blow them like this as soon as they have enough customers that they feel they can "afford" to lose some? I wish I could understand the thinking here because it doesn't make a lick of sense to me!

6:16 AM  
Blogger Rob Frankel said...

Dawn, I'll go you one better: I met Steve when he was operating QuantumLink, an online service for Commodore users! How's THAT for paleolithic technology? My company actually did work for them.

The answer to your question, though, still comes down to brand strategy: if you have it when you're small, it stays with you as you grow. This is why brands like FEDEX and Apple are billion dollar brands that retain their users.

Fact is that EBAY never had a brand strategy, either. They had a product. A service. They also had a ton of venture capital behind them. They succeeded as the first major player in the space. As I write in the book, the easiest ascension to power is expansion into a vacuum. That's what EBay and Amazon did.

But NEITHER had - or has - a brnad strategy. And you're on the right track: this will be the undoing of these brands, sooner rather than later.

Thanks for your thoughts on this.

8:22 AM  

Post a Comment

<< Home