AOL tries to woo forsaken members
By Jim Krane
Associated Press
DULLES, Va. — During the Internet love fest that crowned their company's heyday, America Online Inc.'s executives prided themselves on erecting multimillion-dollar ad deals and mergers.
To make the deals happen, AOL played its members as an army of bargaining chips — not an audience to be served.
Can you blame the company's former chieftains, asks Jimmy de Castro, AOL's new president of interactive services, for taking their eyes off subscribers to pluck low-hanging bundles of cash?
De Castro describes it — figuratively — as an addiction.
"They started taking heroin when they got three-, four- and five-hundred million dollar deals thrown at them," said de Castro, a boisterous former radio executive who cuts a Don King-like figure in staid Dulles. "They sold out the service ... , forsaking the member to deliver quarter-to-quarter (earnings)."
Now, with the company's corporate reputation and stock price in the gutter, AOL has embarked on a new mission: rekindling the affections of its 35 million subscribers. The company says its release of its new software, version 8.0, is the first step.
AOL executives say they're also clearing away the underbrush of hated pop-up ads and spam e-mails, bringing clean simplicity back to the service's pages.
Other than its massive subscriber base, there is little to cheer about at AOL, now beset by a federal investigation, an angry merger partner and the evaporation of advertising revenues.
Plastered around its headquarters are fliers declaring "Members Rule!" Another poster blared "Do it for our members!"
The change in attitude owes itself to the company's short, mercurial history.
AOL reached its pinnacle in January 2000, when it announced one of the corporate coups of all time, the $106 billion merger with Time Warner's film, magazine and cable empire. At the time, the combined shares were worth $72.
Then AOL Time Warner took a spectacular nosedive. Shares of the world's largest media company now command around $12.
By any measure, the AOL division's new chief executive, Jon Miller, has a tough row to hoe. Analysts say Miller needs to extinguish legal and corporate brushfires while resuscitating the humbled entity's finances and the pride of its 18,000 workers.
Almost every facet of AOL is under review. The deal-spinning Business Affairs unit has been disbanded, its leader fired. New top managers have been hired or shifted from within.
Nothing is sacred, says de Castro, except the members.
Not even advertising.
"I am suggesting we should lose all the ads, all pop-ups," de Castro said. "Did you see our service on 9/11? We put out the most beautiful fantastic service. No ads. It was awesome."
Miller said it was unlikely AOL would dump ads and hike the $23.90 subscription fee, but similar drastic ideas are under review.
"We're having those debates, and we're getting it out in the open and we're going to wrestle these strategies to the ground," he said, sitting back in a leather club chair.
On his corner office wall hung a framed aloha shirt, a gift from AOL Time Warner chairman Steve Case.
Miller has more immediate plans. The company is now cobbling an eBay-like "marketplace" platform that allows vendors to sell directly to AOL members.
And the release of 8.0 promises to be hugely hyped. The new software boasts features like "Match Chat," which allow members to locate chat partners with similar interests. And broadband users are getting such offerings as CD-quality radio and live streaming performances of big-name music acts.
Aiming to boost its 4 million broadband subscribers, AOL has just persuaded cable providers AT&T Broadband and Comcast to host its $54.95 high-speed subscription service. It is negotiating similar deals with others.
AOL already found success with its instant-messaging tool, which is being grafted into cell phones and handheld computers.
Miller said AOL is even considering a cut-rate subscription.
With its view from the gutter, it's tough to remember what went right at AOL. The company did, after all, almost single-handedly introduce Americans to the Internet.
About four years ago, though, AOL's regard for its members began to change, said Jakob Nielsen, an Internet usability expert. Subscribers became cash cows to be milked. AOL's pages sprouted incessant ad pitches and pop-ups that herded subscribers toward big advertisers.
"They really betrayed their heritage," Nielsen said.
What's bad for customers was good for Wall Street — for a while. But when dot-coms stopped advertising, AOL's business model — and value — collapsed.
David Joyce, media analyst for Miami investment bank Guzman & Co., said investors now are "only valuing the Time Warner businesses." But he figures AOL stock will get "a nice pop" once government investigators "clear up their issues" with AOL's accounting.
In a division generating more than $2 billion in quarterly revenue, Joyce criticizes the investigation, saying it concerns just $300 million in earnings. AOL puts the figure at $49 million.
For Time Warner, an old-line media company with its own worries about ad revenue, nursing AOL back to health was the last thing it needed. Word of the federal probe sparked talk of striking AOL's name from the corporate title and unseating Case.
Through all the whitewater, AOL's users always kept it afloat.
A June Forrester study depicted AOL users as astonishingly loyal —with 79 percent of 2000 members still subscribing in 2001, trouncing MSN's 43 percent.
AOL is finally understanding who butters its bread.
