America Online, Inc.

views updated May 29 2018

America Online, Inc.

8619 Westwood Center Drive
Vienna, Virginia 22182
U.S.A.
(703) 448-8700

Public Company
Incorporated: 1985 as Quantum Computer Services, Inc.
Employees: 124
Sales: $40 million
Stock Exchanges: New York
SICs: 7375 Information Retrieval Services

America Online, Inc. is the fastest-growing provider of information services that are delivered to customers’ personal computers (PCs) over phone lines. The America Online service includes a wide variety of electronic mail facilities, bulletin boards, conferences and classes, as well as software, games, and publications. America Online’s trademark has been easy-to-use, visually oriented services which make the on-line environment accessible and not intimidating to ordinary customers.

America Online got its start in the mid-1980s as an adjunct offering for owners of one type of personal computer and expanded by branching out to other brands. In the 1990s, America Online’s offerings were restructured and updated for more current operating systems, and, after the institution of an aggressive marketing drive, the company’s customer base skyrocketed. Profitable from the start as a niche-based product, America Online later expanded through agreements with a wide variety of computer manufacturers and media companies, considerably broadening its offerings and its reach.

America Online was founded by Stephen M. Case, a marketer who worked in the consumer division of PepsiCo Inc. In 1982, Case became intrigued by the possibilities of interacting with other personal computer owners through electronic telecommunications. At the time, there were small networks available for use, including the sharing of news and other data, but they were extremely difficult and cumbersome to use, and, as a consequence, were mainly employed by computer buffs or other specialists in the field. Case reasoned that the demand for online computer communication would be much greater if it was easier for people to use.

In 1985, Case got an opportunity to put some of his ideas into practice when he formed Quantum Computer Services, Inc., in partnership with Commodore International, Ltd., a leading manufacturer of personal computers, and Control Video. Using $2 million in venture capital, Case created an exclusive on-line service for owners of Commodore computers. The deal worked well for both partners. Commodore had an added selling point for its products, and Quantum had a ready-made pool of customers for its service. Named “Q-Link,” the service consisted of a few rudimentary bulletin boards, to which users gained access from their personal computers via a telephone modem.

Within two years, the Q-Link concept had proven its merit. Quantum’s revenues had reached $9 million by 1987, and the company had started to turn a profit. With the Commodore Q-Link service as a model, Quantum then branched out to offer programs to owners of computers made by other companies. First, the company set up an alliance with the Tandy Corporation, which manufactured IBM-compatible computers. In November 1988, on-line services for owners of IBM-compatible PCs were introduced. Later, Quantum also began offering services to owners of Apple computers. This service began in September 1989, after a dispute with Apple about whether its name would include the designation “Apple.” As personal computers became cheaper and more plentiful, and new, more powerful software and modems were developed, Quantum’s subscriber base grew quickly and the company boomed.

In October, 1989, Quantum introduced a new nationwide network for computer owners under the name “America Online.” Two years later, the company changed its name to that of its main offering. At the same time, the company began to reorganize its operations, consolidating the services it offered to owners of different computers and focusing its efforts on the IBM-compatible and Macintosh market.

In addition, America Online undertook an ambitious marketing campaign to increase the number of its subscribers. Each customer who signed up for the America Online service was charged $7.95 a month for the first two hours spent on the network, and then ten cents a minute after that. In mid-1991, the company expanded its pool of possible subscribers when it introduced services for IBM-compatible computers using DOS operating systems.

As part of its push to expand its subscriber base, America Online devised a number of creative ways to attract new users. In keeping with a policy of growth through strategic alliances, America Online entered into a joint venture with the Tribune Company, the owner of the Chicago Tribune, in an effort to ease its move into the Midwestern market. America Online created a news and information service designed especially for Chicago by making use of materials from the local daily paper. The product was a success, as thousands of Chicago residents began logging on to the service to exchange opinions on local politics, team sports, and other issues. In addition, America Online gained additional capitalization from the deal, as the Tribune Company bought a 9.5 percent stake in the company for $5 million.

In another such arrangement, America Online teamed up with a group called SeniorNet, an organization formed to encourage senior citizens to use computers. With its 5,000 members, SeniorNet provided a new source of customers for America Online, which paid the group a premium for every new member who signed on. In return, America Online offered specialized programming to attract seniors, instituting special news and bulletin services covering topics of interest to them, such as health care.

Case described America Online’s strategy as being focused on exploiting niches, such as those formed by the senior citizens group. Rather than trying to enroll the general population, as some larger network services did, America Online has turned a profit catering to smaller special groups. “We see ourselves as a series of specialized magazines catering to specific interests,” he told Business Week in 1992.

In May 1992, America Online capitalized on its history of solid growth when it sold stock to the public for the first time. The company’s offering was greeted with enthusiasm, and its stock price rose sharply. At the end of June 1992, America Online reported its fifth annual profit in its last six years of operation. The company’s revenues had reached $26.6 million, yielding profits of $3.5 million, a stark contrast to the persistent red ink generated by its larger competitors in the on-line services field. Continued growth and profitability appeared likely, as America Online’s subscriber base grew rapidly, increasing by nearly 50 percent every 12 months.

At the end of 1992, America Online announced another important strategic alliance when Apple Computer Inc. signed a licensing and development agreement with America Online to use its technology in Apple’s own future information services. The company was to earn $15 million from the agreement over five years. In addition, Apple contracted to pay for America Online’s conversion of its technology for use on Apple machines. The two companies announced that they intended to improve the America Online technology and develop it into an industry-wide standard for on-line information services. This joint venture lent weight and authority to America Online’s efforts to expand its market share beyond the ten percent it then held.

In January 1993, America Online expanded its offerings further, introducing an on-line service designed especially for the Windows operating system. As users of IBM-compatible computers moved in droves to the new, easier operating system, America Online saw an opportunity to convert them to its own graphically-based on-line environment. The America Online Windows service featured the company’s trademark high-quality graphics and ease of access, and quickly became the most popular new product America Online had ever marketed.

America Online formed another corporate alliance when it reached an agreement with the Sprint Corporation, a long distance telephone company, in April 1993. In return for discounts on the telephone usage that America Online needed to send its service out to users, America Online gave Sprint a large package of stock options.

By the spring of 1993, America Online’s success had attracted the interest of another innovator in the computer industry, Paul G. Allen, a cofounder of the Microsoft Corporation. When Allen’s stock holdings in the company began to approach 25 percent of America Online’s outstanding shares, the company’s board of directors moved to prevent him from threatening America Online’s independence by adopting a secret shareholders’ rights plan that would go into effect if any one party’s holdings in the company topped one quarter. In response, Allen filed documents with the Securities and Exchange Commission indicating his interest in acquiring America Online. He also stated that he might seek a seat on the company’s board of directors and reported that he had refused to sign a statement proposed by America Online promising that he would not involve himself any further in the company’s affairs.

Case and other America Online executives were concerned that any one overwhelming alliance would limit America Online’s ability to maneuver and negotiate with other companies. “We’ve built this company by establishing strategic alliances with a wide range of companies, and we believe it’s the best strategy for the company to remain independent,” he told the Wall Street Journal. On May 11, 1993, Allen met with America Online executives and proposed that America Online and his other high tech ventures work together to develop software for use in multimedia formats. This overture was initially rebuffed by America Online. Ultimately, Allen withdrew from his attempt to increase his involvement in America Online, as the two parties worked out an agreement to collaborate on some future endeavors.

The fruits of another America Online alliance were unveiled in June 1993, when Casio, Inc. and the Tandy Corporation, two computer manufacturers, introduced the “Zoomer,” the first in a new generation of products called personal digital assistants. This device incorporated software developed by America Online to offer electronic communications, such as fax, electronic mail, and access to other on-line services. The company believed that devices of this sort would open the interactive services market to a much broader segment of the population. Consequently, it agreed to work with Apple on its hand-held Newton product and with Sharp on its Personal Digital Assistant.

By the end of June 1993, America Online’s annual revenues had topped $40 million, an increase of 50 percent over the previous year. In addition, the company’s subscriber base had grown to exceed 300,000, also an increase of two-thirds. Not surprisingly, these gains made America Online the country’s fastest growing commercial on-line services company. By September, America Online’s consumer base had grown even more, as an additional 50,000 customers logged on, pushing subscriber growth to 80 percent.

As America Online’s subscriber base grew exponentially, the company began to move away from its early emphasis on niche marketing—the strategy which had provided its initial growth and profitability—toward a stress on a broader array of services which would appeal to its new, broader selection of customers. As part of this effort, the company took a number of steps. It announced that it would offer access to the Internet, a consortium of smaller governmental and academic computer networks that was run as a cooperative. In this way, America Online hoped to tap into the popularity of the Internet, which had a reputation as the fastest-growing on-line service, with over 10 million users in more than 50 different countries. Internet was known as a difficult on-line environment to master, but America Online hoped to simplify its use by offering its customers access to the network through its own software.

In addition to its Internet venture, America Online also embarked upon a series of alliances with media companies. The service added features from the Knight-Ridder newspaper chain, Time, Omni, the Atlantic, and the New Republic, among other magazines, and from the cable network CNN. America Online also joined a branch of the Disney entertainment conglomerate called Disney Adventures.

Along with its expanded offerings, America Online instituted an aggressive marketing program to insure that its subscriber base would continue to grow at a healthy rate. The company started selling membership kits at bookstores and computer supply stores, and also began to have starter disks bound into selected computer trade magazines. In addition, America Online continued to pre-install its software in many computers, making it particularly easy for new computer buyers to join the on-line community. Manufacturers incorporating America Online software into their products included IBM, Apple, Compaq, AST, Tandy, NEC, and Compudyne. Finally, in an effort to make its service appear more economical, America Online revised its pricing structure, lowering some costs. Although this move would have a negative impact on the company’s revenues, America Online believed that this would be offset by the fact that more people would sign up, and those who were already signed up would keep paying for the service longer.

By October 1993, America Online’s campaign to increase its subscriber base and enhance its market share had pushed its number of users past 400,000, as its blistering pace of growth continued. The size of the company’s customer core had more than doubled in the last twelve months. This was followed in the same month by a report that quarterly revenues had also doubled for a year before. In addition, the company’s web of media linkages became more complex, as it brought on-line National Public Radio, the San Jose Mercury News, and a number of publications produced by Matra Hachette, the world’s largest magazine company. In November 1993, America Online sponsored an “interactive event” with Christian evangelist Billy Graham. At a pre-arranged time, America Online users could send messages to Graham through their computer and receive general or, possibly, personal messages in return.

At the start of December 1993, America Online took another step to maintain its position on the cutting edge of information technology when it announced that it would join with three other companies to take part in a trial in California in which America Online’s interactive service would be delivered to customers through a cable network, instead of through a telephone line hooked up to a modem. Cable delivery paved the way for fuller integration of video and sound into the multimedia mix of text and graphics already provided through personal computer-based services. In this way, America Online hoped to position itself to survive and thrive in a changing information services market and mitigate the danger that advances in technology would leave its offerings behind, or that huge information, communications, and computing behemoths, such as AT&T and Microsoft, would move into a revolutionized marketplace and squeeze smaller competitors such as America Online out of business. To this end, the company also announced plans to work with General Instrument, a manufacturer of cable television equipment, to develop services for interactive television.

In addition to these futuristic plans, America Online continued to strengthen its position by adding subscribers, whose number had passed the half-a-million mark by the end of 1993, and by adding media partners, including Rodale Press, a health and fitness magazine publisher, a re-invented on-line Saturday Review, and the New York Times. In the area of hardware alliances, America Online added Dell and US Robotics to the list of manufacturers which incorporated America Online products into their own.

By the end of January 1994, America Online’s subscriber base had topped 600,000 members, and quarterly revenues had grown by 130 percent, as the company’s customer base continued to skyrocket. “The unprecedented demand for America Online has caught us by surprise,” Case announced in a company press release. “Our focus now is on expanding our infrastructure.” As part of that process, America Online cemented its second agreement with a major television network when it added NBC Online to its offerings. In addition, at the end of January 1994, the company announced a further use of the network’s interactive capabilities when it joined with Shopper’s Express to provide a grocery and pharmacy ordering and home delivery service.

As America Online moved into the mid-1990s, the company appeared to be ideally situated to prosper in the ever-accelerating field of interactive information networks and services. Although the rapid pace of technological development and the uncertain nature of the future market made the survival of any participant in the industry far from certain, America Online, with its easy-to-use product and policy of forming strategic alliances, appeared more than capable of continuing its success.

America Online, Inc.

views updated Jun 11 2018

America Online, Inc.

22000 AOL Way
Dulles, Virginia 20166
U.S.A.
(703) 448-8700
(800) 827-6364
Fax: (703) 265-2039
Web site: http://www.aol.com

Public Company
Incorporated: 1985 as Quantum Computer Services, Inc.
Employees: 7,371
Sales: $42.6 billion (1998)
Stock Exchanges: New York
Ticker Symbol: AOL
SICs: 7375 Information Retrieval Services; 7379 Computer Services, Not Elsewhere Classified

America Online, Inc. is the largest provider of branded information services that are delivered to customers’ personal computers (PCs) over phone lines. The company’s America Online service and CompuServe service, acquired in 1998, include a wide variety of electronic mail facilities, bulletin boards, conferences, and classes, as well as software, games, and online shopping. America Online’s trademark has been easy-to-use, visually oriented services that make the online environment accessible and not intimidating to ordinary customers. America Online got its start in the mid-1980s as an adjunct offering for owners of one type of personal computer and expanded by branching out to other brands. In the 1990s, America Online’s offerings were restructured and updated for more current operating systems, and, after the institution of an aggressive marketing drive, the company’s customer base skyrocketed. Initially a niche-based product, America Online later expanded through agreements with a wide variety of computer manufacturers and media companies, considerably broadening its offerings and its reach.

Company Origins

America Online was founded by Stephen M. Case, a marketer who worked in the consumer division of PepsiCo Inc. In 1982, Case became intrigued by the possibilities of interacting with other personal computer owners through electronic telecommunications. At the time, there were small networks available for use, including the sharing of news and other data, but they were extremely difficult and cumbersome to use and, as a consequence, were mainly employed by computer buffs or other specialists in the field. Case reasoned that the demand for online computer communication would be much greater if it was easier for people to use.

In 1985, Case got an opportunity to put some of his ideas into practice when he formed Quantum Computer Services, Inc., in partnership with Commodore International, Ltd., a leading manufacturer of personal computers, and Control Video. Using $2 million in venture capital, Case created an exclusive online service for owners of Commodore computers. The deal worked well for both partners. Commodore had an added selling point for its products, and Quantum had a ready-made pool of customers for its service. Named “Q-Link,” the service consisted of a few rudimentary bulletin boards, to which users gained access from their personal computers via a telephone modem.

Within two years, the Q-Link concept had proven its merit. Quantum’s revenues had reached $9 million by 1987, and the company had started to turn a profit. With the Commodore Q-Link service as a model, Quantum then branched out to offer programs to owners of computers made by other companies. First, the company set up an alliance with the Tandy Corporation, which manufactured IBM-compatible computers. In November 1988, online services for owners of IBM-compatible PCs were introduced. Later, Quantum also began offering services to owners of Apple computers. This service began in September 1989, after a dispute with Apple about whether its name would include the designation “Apple.” As personal computers became cheaper and more plentiful and as new, more powerful software and modems were developed, Quantum’s subscriber base grew quickly and the company boomed.

In October 1989, Quantum introduced a new nationwide network for computer owners under the name “America Online.” Two years later, the company changed its name to that of its main offering. At the same time, the company began to reorganize its operations, consolidating the services it offered to owners of different computers and focusing its efforts on the IBM-compatible and Macintosh market.

In addition, America Online undertook an ambitious marketing campaign to increase the number of its subscribers. Each customer who signed up for the America Online service was charged $7.95 a month for the first two hours spent on the network, and then ten cents a minute after that. In mid-1991, the company expanded its pool of possible subscribers when it introduced services for IBM-compatible computers using DOS operating systems.

Strategic Alliances in the Early 1990s

As part of its push to expand its subscriber base, America Online devised a number of creative ways to attract new users. In keeping with a policy of growth through strategic alliances, America Online entered into a joint venture with the Tribune Company, the owner of the Chicago Tribune, in an effort to ease its move into the Midwestern market. America Online created a news and information service designed especially for Chicago by making use of materials from the local daily paper. The product was a success, as thousands of Chicago residents began logging on to the service to exchange opinions on local politics, team sports, and other issues. In addition, America Online gained further capitalization from the deal, as the Tribune Company bought a 9.5 percent stake in the company for $5 million.

In another such arrangement, America Online teamed up with a group called SeniorNet, an organization formed to encourage senior citizens to use computers. With its 5,000 members, SeniorNet provided a new source of customers for America Online, which paid the group a premium for every new member who signed on. In return, America Online offered specialized programming to attract seniors, instituting special news and bulletin services covering topics of interest to them, such as healthcare.

Case described America Online’s strategy as being focused on exploiting niches, such as those formed by the senior citizens group. Rather than trying to enroll the general population, as some larger network services did, America Online turned a profit catering to smaller special groups. “We see ourselves as a series of specialized magazines catering to specific interests,” he told Business Week in 1992.

In May 1992, America Online capitalized on its history of solid growth when it sold stock to the public for the first time. The company’s offering was greeted with enthusiasm, and its stock price rose sharply. At the end of June 1992, America Online reported its fifth annual profit in its last six years of operation. The company’s revenues had reached $26.6 million, yielding profits of $3.5 million, a stark contrast to the persistent red ink generated by its larger competitors in the online services field. Continued growth and profitability appeared likely, as America Online’s subscriber base grew rapidly, increasing by nearly 50 percent every 12 months.

At the end of 1992, America Online announced another important strategic alliance when Apple Computer Inc. signed a licensing and development agreement with America Online to use its technology in Apple’s own future information services. The company was to earn $15 million from the agreement over five years. In addition, Apple contracted to pay for America Online’s conversion of its technology for use on Apple machines. The two companies announced that they intended to improve the America Online technology and develop it into an industrywide standard for online information services. This joint venture lent weight and authority to America Online’s efforts to expand its market share beyond the 10 percent it then held.

In January 1993, America Online expanded its offerings further, introducing an online service designed especially for the Windows operating system. As users of IBM-compatible computers moved in droves to the new, easier operating system, America Online saw an opportunity to convert them to its own graphically based online environment. The America Online Windows service featured the company’s trademark high-quality graphics and ease of access and quickly became the most popular new product America Online had ever marketed.

America Online formed another corporate alliance when it reached an agreement with the Sprint Corporation, a longdistance telephone company, in April 1993. In return for discounts on the telephone usage that America Online needed to send its service out to users, America Online gave Sprint a large package of stock options.

Company Perspectives:

America Online’s Vision: To build an interactive medium that improves the lives of people and benefits society as no other medium before it. America Online’s Mission: To build a global medium as central to people’s lives as the telephone or television... and even more valuable.

Rebuffs Microsoft

By the spring of 1993, America Online’s success had attracted the interest of another innovator in the computer industry, Paul G. Allen, a cofounder of Microsoft Corporation. When Allen’s stock holdings in the company began to approach 25 percent of America Online’s outstanding shares, the company’s board of directors moved to prevent him from threatening America Online’s independence by adopting a secret shareholders’ rights plan that would go into effect if any one party’s holdings in the company topped one quarter. In response, Allen filed documents with the Securities and Exchange Commission indicating his interest in acquiring America Online. He also stated that he might seek a seat on the company’s board of directors and reported that he had refused to sign a statement proposed by America Online promising that he would not involve himself any further in the company’s affairs.

Case and other America Online executives were concerned that any one overwhelming alliance would limit America Online’s ability to maneuver and negotiate with other companies. “We’ve built this company by establishing strategic alliances with a wide range of companies, and we believe it’s the best strategy for the company to remain independent,” he told the Wall Street Journal. On May 11,1993, Allen met with America Online executives and proposed that America Online and his other high-tech ventures work together to develop software for use in multimedia formats. This overture was initially rebuffed by America Online. Ultimately, Allen withdrew from his attempt to increase his involvement in America Online, as the two parties worked out an agreement to collaborate on some future endeavors.

The fruits of another America Online alliance were unveiled in June 1993, when Casio, Inc., and the Tandy Corporation, two computer manufacturers, introduced the “Zoomer,” the first in a new generation of products called personal digital assistants. This device incorporated software developed by America Online to offer electronic communications, such as fax, electronic mail, and access to other online services. The company believed that devices of this sort would open the interactive services market to a much broader segment of the population. Consequently, it agreed to work with Apple on its hand-held Newton product and with Sharp on its Personal Digital Assistant.

Booming Subscriptions in 1993

By the end of June 1993, America Online’s annual revenues topped $40 million, an increase of 50 percent over the previous year. In addition, the company’s subscriber base surpassed 300,000, an increase of more than 60 percent. Not surprisingly, these gains made America Online the country’s fastest-growing commercial online services company. By September, America Online’s consumer base had grown even more, as an additional 50,000 customers logged on, pushing subscriber growth to 80 percent.

As America Online’s subscriber base grew exponentially, the company began to move away from its early emphasis on niche marketing—the strategy that had provided its initial growth and profitability—toward a stress on a broader array of services that would appeal to its new, broader selection of customers. As part of this effort, the company took a number of steps. It announced that it would offer access to the Internet, a consortium of smaller governmental and academic computer networks that was run as a cooperative. In this way, America Online hoped to tap into the popularity of the Internet, with over 10 million users in more than 50 different countries. The Internet was known as a difficult online environment to master, but America Online hoped to simplify its use by offering its customers access to the network through its own software.

In addition to its Internet venture, America Online also embarked upon a series of alliances with media companies. The service added features from the Knight-Ridder newspaper chain, Time, Omni, the Atlantic, and the New Republic, among other magazines, and from the cable network CNN. America Online also joined a branch of the Disney entertainment conglomerate called Disney Adventures.

Along with its expanded offerings, America Online instituted an aggressive marketing program to insure that its subscriber base would continue to grow at a healthy rate. The company started selling membership kits at bookstores and computer supply stores and also began to have starter disks bound into selected computer trade magazines. In addition, America Online continued to pre-install its software in many computers, making it particularly easy for new computer buyers to join the online community. Manufacturers incorporating America Online software into their products included IBM, Apple, Compaq, AST, Tandy, NEC, and Compudyne. Finally, in an effort to make its service appear more economical, America Online revised its pricing structure, lowering some costs. Although this move would have a negative impact on the company’s revenues, America Online believed that this would be offset by the fact that more people would sign up and those who were already signed up would keep paying for the service longer.

By October 1993, America Online’s campaign to increase its subscriber base and enhance its market share had pushed its number of users past 400,000, as its blistering pace of growth continued. The size of the company’s customer core had more than doubled in the previous 12 months. In the same month the company reported that quarterly revenues had also doubled in the year before. In addition, the company’s web of media linkages became more complex, as it brought online National Public Radio, the San Jose Mercury News, and a number of publications produced by Matra Hachette, the world’s largest magazine company. In November 1993, America Online sponsored an “interactive event” with Christian evangelist Billy Graham. At a prearranged time, America Online users could send messages to Graham through their computer and receive general or, possibly, personal messages in return.

At the start of December 1993, America Online took another step to maintain its position on the cutting edge of information technology when it announced that it would participate in California with three other companies in delivering its interactive service to customers through a cable network, instead of through a telephone line hooked up to a modem. Cable delivery paved the way for fuller integration of video and sound into the multimedia mix of text and graphics already provided through personal computer-based services. In this way, America Online hoped to position itself to survive and thrive in a changing information services market and mitigate the danger that advances in technology would leave its offerings behind, or that huge information, communications, and computing behemoths, such as AT&T and Microsoft, would move into a revolutionized marketplace and squeeze smaller competitors such as America Online out of business. To this end, the company also announced plans to work with General Instrument, a manufacturer of cable television equipment, to develop services for interactive television.

In addition to these futuristic plans, America Online continued to strengthen its position by adding subscribers, whose number had passed the half-million mark by the end of 1993, and by adding media partners, including Rodale Press, a health and fitness magazine publisher, a reinvented online Saturday Review, and the New York Times. In the area of hardware alliances, America Online added Dell and US Robotics to the list of manufacturers that incorporated America Online products into their own.

By the end of January 1994, America Online’s subscriber base had topped 600,000 members, and quarterly revenues had grown by 130 percent, as the company’s customer base continued to skyrocket. “The unprecedented demand for America Online has caught us by surprise,” Case announced in a company press release. “Our focus now is on expanding our infrastructure.” As part of that process, America Online cemented its second agreement with a major television network when it added NBC Online to its offerings. In addition, at the end of January 1994, the company announced a further use of the network’s interactive capabilities when it joined with Shopper’s Express to provide a grocery and pharmacy ordering and home delivery service.

The company’s subscriber base grew rapidly throughout 1994, soon exceeding a million subscribers. The same year, American Online acquired Redgate Communications, a multimedia developer, and Booklink Technologies, an Internet browser software developer. Strategic alliances continued to play a prominent role in America Online’s growth. To gain access to the European market, the company joined forces in 1995 with the media conglomerate Bertelsmann to offer online services. Within two years, the partnership had more than 800,000 subscribers in Europe. That same year, an alliance with Intuit, maker of the popular financial software Quicken, brought electronic banking services to America Online users.

Facing increased competition from direct Internet providers, America Online sought to add value to its Internet access. In 1995 the company bought WAIS and Medior, two Internet-related businesses, to help AOL subscribers publish their own Web pages. By 1996, however, America Online was still losing customers to direct Internet providers. To stem the tide of canceled subscriptions, America Online began providing Internet access for a flat rate.

Struggling with Rapid Growth in the Mid-1990s

New subscribers, however, more than made up for those lost to direct Internet providers. Aggressive marketing brought in hordes of new subscribers. A major marketing tactic employed by America Online was to send out millions of free trials of AOL on diskettes, bundled with products as various as magazines, boxes of cereal, and Blockbuster video rentals. By the end of 1995, America Online could boast 4.6 million members, more than quadruple its subscriber base from a year before. However, the marketing costs and the rapid expansion in infrastructure required by so many new subscribers ate every dime of profit. Although America Online had reported a few scattered profitable quarters, it could only do so by treating its marketing expenses as capital costs. Although not illegal, the practice was heavily criticized, and America Online changed its accounting methods in 1996. As a result, the company took a $385 million write-off that year.

Rapid growth had other drawbacks as well. In December 1996 America Online changed its subscription fees from a per-hour access charge to a flat monthly rate with unlimited access. The resulting boom in online usage by its subscribers not only left many customers unable to access the system, it also resulted in the system overloading and crashing several times. Facing lawsuits from several states, America Online was forced by regulators in 1997 to offer refunds. Despite the refunds, the debacle left customers, content providers, and advertisers all distrustful of the online service’s reliability.

The company attacked the traffic problem by building up its infrastructure. To accommodate almost three million new subscribers in 1997, America Online had to invest $700 million in its access network and in customer service. Although the company cut back on marketing (reducing the cost of attracting a new subscriber from $375 in 1996 to $90 in 1998), the shift in funds was not enough. Cost-cutting, including employee layoffs, played a significant role, but generating revenue from advertisers and retailers was the real savior. America Online worked out lucrative deals with retailers who wanted access to AOL’s subscribers. For example, Preview Travel paid $30 million to be the exclusive travel agent on AOL, and Barnes & Noble struck a similar deal for $40 million. Although advertising took off more slowly, it still proved an important source of income for America Online. The brokerage firms E*Trade and DLJdirect both paid almost $500,000 in 1998 for ad space on AOL’s personal finance channel. Revenues from advertising and commerce were 93 percent higher in the last quarter of 1997 than they were in the same quarter in 1996.

As profitable quarters accumulated, America Online’s stock rose in value, reaching $80 a share and then splitting two for one in 1998, the fifth time since 1994. The company still struggled with customer service problems, however. System outages and e-mail problems occurred occasionally, and some customers complained about the proliferation of pop-up advertisements and distracting banners.

America Online began an aggressive program of acquisitions in 1998. In February AOL acquired CompuServe’s 2.6 million subscriber base, its content operations, and $175 million in cash through the sale of CompuServe’s transmission network to telecommunications provider WorldCom. Because CompuServe focused on more sophisticated online users, including small businesses and professionals, America Online decided not to merge the service into its existing offerings. The company established separate divisions, AOL Interactive Services and CompuServe Interactive Services, which together controlled over 60 percent of the market. In June of the same year, the company purchased ICQ, the largest Internet chat service in the world.

But in November, America Online announced an agreement for its biggest purchase yet, and one that could transform the company into a serious rival of industry giant Microsoft. The $4.2 billion deal to buy Netscape Communications would give America Online the expertise of a highly influential Internet access provider and its respected software tools. In addition, America Online brought in Sun Microsystems, maker of high-end workstations and the programming language Java, as a supporter of the merger. Sun agreed to license the AOL/Netscape software for three years for $350 million, and AOL agreed to buy server computers from Sun worth $500 million. According to the Economist, the combination held a great deal of promise: “The strategy looks impeccable. AOL has shown a capacity for reinventing itself that has dumbfounded rivals and skeptics alike. Sun is a genuine technology heavyweight; together, the two companies certainly have the ability to make more of Netscape’s assets than Netscape could have done on its own. But it will not be easy.”

Principal Subsidiaries

The Imagination Network; Redgate Communications Corp.; CompuServe Interactive Services, Inc.

Principal Divisions

AOL Interactive Services; AOL Studios; AOL International.

America Online, Inc.

views updated May 14 2018

America Online, Inc.

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22000 AOL Way
Dulles, Virginia 20166
USA
Telephone: (703) 265-1000
Fax: (703) 265-1101
Web site: www.corp.aol.com

AOL LATINO CAMPAIGN

OVERVIEW

America Online, Inc. (AOL) emerged in the 1990s as the largest Internet service provider (ISP) in the United States, a feat it accomplished in large measure through the mass distribution of start-up CD-ROMs and free trials. Many of its customers were families and people new to the Internet who were won over by AOL's claims that it was easy to use. By the early 2000s, however, AOL's strong growth came to an end, and it began to lose subscribers to cheaper dial-up ISPs as well more expensive but much faster broadband providers. On its rise to the top AOL had netted a great deal of Hispanic customers, and as a matter of course AOL became the leading portal for Hispanics. They were an alluring demographic—fast growing, family oriented, and cost conscious—making them an ideal source to replace the dial-up customers that AOL was losing at an alarming rate. To better attract and serve this market, AOL launched a Spanish-language portal called AOL Latino in September 2001. While AOL reached out to the Latino market with Spanish-language advertising, the commercials were merely translated versions of material developed for the general population. In 2003 AOL finally hired an Hispanic advertising agency, Casanova Pendrill Publicidad, Inc., and released an advertising campaign that was specifically developed for the Hispanic market.

The AOL Latino campaign, the budget of which was not made public, unfolded in waves and included television, radio, print, outdoor, and Internet elements. The early TV spots highlighted AOL features that were popular with Hispanics: music downloads, education support, and instant messaging. Later the campaign emphasized the theme of empowerment, stressing the idea that having the Internet in the home was important in the educational development of children.

AOL was pleased with the results of its Latino campaign. Although the company did not reveal subscriber gains, the campaign clearly solidified AOL Latino's position as the number one Spanish-language ISP. Furthermore, it helped mitigate AOL's continuing loss of general-population subscribers.

HISTORICAL CONTEXT

The precursor of AOL was Q-Link, an online service established in 1985 for owners of Commodore personal computers. The company that operated it, Quantum Computer Services, changed its name to America Online in 1991. With the advent of the World Wide Web in the 1990s, an increasing number of people bought personal computers to take advantage of the Internet. AOL vied with two other early online entrants, CompuServe and Prodigy, to become the market leader among Internet service providers (ISPs). AOL was relentless in its efforts to distribute start-up CD-ROMs and enticed new subscribers with free trials of its service. AOL was successful in selling itself to parents who wanted to maintain limits on content for their children; it also attracted customers who were simply new to the Internet and preferred more guidance than was available with other services. In 1997 AOL became America's largest online service, boasting 8 million subscribers, a number that would double just a year later.

During its rise to the top AOL attracted a large number of Hispanics. It was not until September 2001, however, that it launched AOL Latino to cater specifically to the Spanish-speaking market. In July 2002 the company established a U.S. Hispanic interactive-marketing unit. By this time AOL had merged with Time Warner, creating the largest media company in the world, and the online unit came under increasing pressure as the subscriber base, which had reached about 25 million in the United States, began to erode. AOL was losing out on one end to cheaper dial-up services and on the other end to providers of faster high-speed Internet connections. As a result it began to view the Hispanic market as an important source for replenishing its pool of customers. In January 2003 Advertising Age reported, "2.5 million Hispanic households [were] likely to go online for the first time in 2003, and … those new to the Internet [were] increasingly Spanish-dominant." In January 2003 Casanova Pendrill Publicidad, an ad agency that was part of Interpublic Group and was based in Irvine, California, was awarded AOL's Hispanic advertising account. In May of that year AOL released its first-ever comprehensive campaign targeting Hispanics, both to reinforce its position as the top ISP for Spanish-speaking Americans and to attract new business. Prior efforts were simply Spanish-language versions of advertising created for mass audiences.

TARGET MARKET

In 2000 the Hispanic population in the United States numbered more than 40 million, or about 13 percent of the overall population. It not only was the largest minority group in the country but also was growing at a fast clip: about 5 percent each year, four times faster than the general public. Thus, according to the U.S. Census Bureau, by 2010 there were expected to be 50 million Hispanics in the United States, making them an increasingly inviting opportunity for marketers of all stripes. The AOL Latino campaign targeted bilingual and Spanish-dominant speakers who either planned to switch ISPs or intended to begin using an ISP in the next 6 to 12 months. Within that group AOL looked to appeal to families, as it did with the general population. Mary Ann Donaghy, AOL's executive director of marketing strategy and new-product development, explained to Advertising Age, "Hispanic Internet users tend to be younger than other users, are more likely to use instant messaging and to download music and videos, and spend more if they shop online, especially on music and DVDs." Therefore they were an ideal audience for AOL's product-enhancements pitch, which addressed these activities.

CORPORATE LOVE

America Online, introduced by Stephen M. Case in 1985 as a small dial-up Internet service called Q-Link, evolved into a media powerhouse 15 years later. In 1999 it acquired the companies Netscape Communications (known for its Web browser), MovieFone (a ticketing service), and two major Internet music providers: Spinner Networks and Nullsoft. A year later it added the mapping-services company MapQuest, and in 2001 it merged with Time Warner in a $183 billion deal that created the largest media company in the world. Case was named chairman of the new behemoth.

COMPETITION

In appealing to the Hispanic market AOL faced much of the same competition as it did with the general population, because many in the target demographic were bilingual and might easily choose an English-language Web interface over a Spanish-language one. Hispanics tended to be very price sensitive, so they generally opted for dial-up connections. Thus, AOL had to contend with cheaper dial-up ISPs, such as Earthlink, the NetZero and Juno brands of United Online, Yahoo!, lesser-known brands such as Copper and Toast.net, and local ISPs. In the broadband category AOL competed against telephone companies offering DSL service and cable TV operators offering cable-modem service, which was even faster than DSL. An increasing number of consumers opted for a high-speed connection, foregoing AOL's offer of premium content at an additional cost. AOL also had to contend with small Spanish-language ISPs—such as Pasito.com, which teamed up with the popular Hispanic portal Para—and a more formidable challenge from Microsoft's MSN, which in 2001 bought Yupi Internet, a Spanish-language Internet portal. Although it faced a lot of competition for the business of Hispanics, AOL was the unchallenged market leader.

MARKETING STRATEGY

The AOL Latino campaign, estimated to be budgeted at $10 million, broke in May 2003 and included television, radio, and print elements. The focus was on music downloads, education support, and instant messaging, features that Hispanic consumers used more than the general population. Writing for Adweek Online, Ann M. Mack reported that the two initial 30-second television spots played on "the themes of family, friends and education, and emphasize[d] AOL features that are appealing to Hispanics, such as entertainment and the ability to communicate with people domestically and abroad via the Web." The spots relied on the tagline "Get closer to your world"; one showed a boy clicking a mouse to explore a botanical garden online, and another showed a girl clicking on a link to listen to the words of Abraham Lincoln. The spots ran on the popular Spanish-language television channels Univision, Telefutura, and Galavision in several of the top-10 Spanish-speaking markets, including Chicago, Miami, New York, and Los Angeles. They were aired again in July 2003. A print component of the campaign also began in May, and radio spots were unveiled in July.

A second phase of the AOL Latino campaign began in November 2003 and included television, radio, print, and outdoor advertising. Three of the television spots featured AOL's Running Man icon. For example, the spot titled "School" depicted the character in a classroom. While writing in Spanish on a blackboard, a teacher heard a disruption and turned around to ask, "Who's passing notes?" ("Notes" in Spanish translated as "messages," thus drawing a connection to AOL's instant-messaging feature.) The children in the room then pointed to an unlikely student, the Running Man, AOL's icon for instant messaging, who looked away in an attempt to appear innocent. The spot closed with him dashing out as class was dismissed, with a voice-over commenting, "America Online learned Spanish … introducing the new AOL Latino." Writing for Adweek, Rebecca Flass explained, "In showing Running Man learning Spanish, AOL is hoping to convey that it now speaks the language of Latinos." The second Running Man spot, "Housekeeper," featured a mother apparently interviewing an unseen person as a housekeeper, asking how the person intended to protect the kids. The punch line of the spot was the revelation that the woman had been addressing the Running Man and talking about AOL and its parental-control features. The third spot, titled "Love," followed the same pattern, this time with a man in a cubicle talking to someone offscreen, presumably a lover. "Finally we understand each other," he said. "We're talking the same language." Once again the Running Man was revealed as the silent partner. The tagline for these spots was "Acércate a tu mundo" (Get closer to your world).

Other television spots in this phase of the campaign were 30-second vignettes that, according to company literature, were "meant to supply tips to users that address offerings like homework help, instant messaging, and parental controls." The campaign's radio spots, featured on the 66 stations of Univision Radio, focused on Hispanic families' affinity for Spanish even when communicating online. Billboard ads were placed in the top 10 Hispanic markets, print ads appeared in leading Spanish-language magazines, and Spanish advertising was run on websites. In addition, AOL began an aggressive distribution of CDs containing AOL Latino 9.0 Optimizado (the Spanish version of the new version of AOL, AOL 9.0 Optimized) through direct mail.

In June 2004 AOL began a final campaign phase that ran through the end of the year. The advertising shifted its focus to the theme of empowerment; this idea was based on market research showing that 70 percent of Hispanics believed that having an Internet connection in the home increased a child's performance in school, thus giving them a better chance to go to college and ultimately land a good job. The first television spot in this series, titled "The Talk," showed a young boy asking his parents why the family did not have Internet access at home. The spot then showcased AOL Latino's educational features, such as bilingual homework help. The father then brought home a computer with access to AOL Latino; the family began to experience the Internet, and the spot closed with the boy bringing home an excellent report card.

AOL also introduced a pair of supporting programs. One, the "Sign On a Friend" promotion, paid a $50 bounty to an existing member when he or she referred a friend to AOL Latino. The other was the introduction of the AOL Optimized PC, a personal computer priced at $299.99 with a one-year AOL membership commitment of $23.90 a month; it was available at Office Depot stores and other retailers. In addition to a computer and a printer, the system came bundled with a suite of software that included word-processing and spreadsheet applications. Although the PCs were made available to all consumers, they were especially suited to cost-conscious Hispanic families and could be purchased preloaded with AOL Latino service. Moreover, the PCs could easily switch from Spanish to English to accommodate bilingual consumers and families with members who preferred one language over the other.

OUTCOME

AOL continued to experience serious erosion in its overall number of U.S. subscribers and subscriber revenues, losing out to high-speed providers as well as less-expensive dial-up ISPs, but AOL Latino was able to make gains with the Hispanic population to offset losses in the general public. The campaign succeeded in doubling normal call volume to AOL member-services centers, as the target audience embraced the opportunity to receive more information about a free trial. The company did not reveal the exact number of Hispanics it added to its customer base other than to say that AOL Latino "significantly increased memberships." Focus groups and other research, according to the company, also showed that the campaign was well received by the target audience.

WELCOME TO THE WORLD WIDE WOW CAMPAIGN

OVERVIEW

America Online, Inc. (AOL) used a strategy of mass distribution of start-up CD-ROMs and free trials along with unsophisticated late-night television spots to become the largest Internet service provider (ISP) by 1997. Because it relied on dial-up service, AOL faced a major challenge with the advent of broadband (high-speed) Internet access provided by telephone and cable TV companies. Moreover, AOL joined forces with Time Warner in a celebrated 2001 merger, creating a media giant. Expectations for performance were heightened, but AOL found the business landscape shifting and began to lose subscribers, both to cheaper dial-up ISPs and faster broadband service providers. AOL, pigeonholed as a dial-up ISP in the minds of consumers, attempted to become a broadband provider but soon abandoned that strategy. Instead it decided to reposition itself as a premium-content provider—an add-on service for people acquiring broadband connections from other sources. In an effort to rebrand itself and pitch the broadband package, in January 2003 AOL hired Len Short, formerly of Charles Schwab & Co., to serve as chief of brand marketing. Short recruited a new ad agency, BBDO New York, to develop a campaign to sell AOL Broadband.

In March 2003 AOL unveiled a $35 million, two-month campaign with a new tagline, "Welcome to the World Wide Wow." Unlike previous efforts, the new AOL television spots possessed all the glitz expected from a Madison Avenue advertising agency. They aired during prime time rather than being relegated to cheap late-night slots. The campaign also included an online blitz that saturated the Web with ads touting AOL Broadband. The television spot that received the most attention featured movie star Sharon Stone in a nightgown in bed, a life-size version of the AOL running-man icon, and a bit of double entendre.

The campaign's "World Wide Wow" tagline was questioned by critics, and the Sharon Stone spot was singled out for vituperation. While Short maintained that he was pleased with the campaign and insisted that it had met its intended goals, his words were belied by his actions. He asked for new ideas from ad agencies, and a few months later AOL trotted out a new approach and a fresh tagline. Despite the changes, AOL continued to lose subscribers and failed to win many converts to its broadband service. By February 2004 Short had left the company, and AOL reverted to its previous marketing strategy.

HISTORICAL CONTEXT

America Online, an early participant in the Internet revolution, had by 1997 emerged as the leading Internet service provider (ISP), relying mostly on the mass mailing and distribution of program CD-ROMs and free trials. Beyond that, the company's marketing was a ragtag affair that included buying television time on the cheap and airing crude spots late at night; it possessed no coordination and achieved little impact. Adweek critic Barbara Lippert described AOL commercials as "cheap-looking, numbed-out affairs featuring an array of smiley, zomboid converts at their keyboards, spouting lines stiffer than the ubiquitous sign-up discs." The tagline was "So easy to use, no wonder it's No. 1!" Nevertheless, AOL thrived because of it ease of use and low price, both of which appealed to the millions of consumers who began to buy their first computers and were unsure about how to navigate the new world of the Internet.

The scattershot approach worked until the 2000s. After it merged with Time Warner in 2001, creating the largest media company in the world, AOL began to see subscriber growth slow down. The market was becoming more sophisticated about computers and the Internet, as many people opted not to pay for AOL's proprietary content and to simply subscribe to a less expensive, bare-bones Internet connection. Moreover, as a dial-up service AOL was beginning to feel pressure from broadband service providers, such as telephone companies offering DSL service and cable television companies offering even faster cable-modem service. AOL launched its own broadband service, offering a connection and AOL content while touting speed and ease of use. Given that all broadband products presented the same advantages, however, AOL struggled to differentiate itself from the competition. The company then changed course, electing instead to bundle its content with broadband carriers at an extra charge to consumers. The add-on service included more video clips, better parental controls to keep children within the confines of the AOL site, virus protection, and a block on pop-up advertising.

To support the broadband service and meet challenges in the marketplace, AOL hired a new brand marketing head, Len Short, formerly with Charles Schwab & Co. In early 2003, after just one week on the job, he fired the company's advertising agency, Gotham, which had held the account since 1997 and had not impressed Short with its approach to selling AOL Broadband. He then asked other agencies to pitch ideas for a broad $150 million campaign to rebrand AOL, but it quickly became apparent that the crux of the rebranding effort would be promoting the broadband service, and that $35 million job was given to BBDO New York. According to Julia Angwin, writing for the Wall Street Journal in March 2003, "The stakes are high. The AOL Time Warner unit is under fierce pressure to show results by the end of this year, or face the possibility of being spun off or sold."

TARGET MARKET

In general AOL appealed to the family market. The service was not only easy to use for all age levels but also provided parents with a measure of control, preventing children—especially AOL's large base of teenage customers—from being inadvertently exposed to the seamier side of the Internet. The company also touted the service's ease of use for people new to home computing and first-time users of the Internet, those in need of "training wheels."

The broadband campaign targeted a narrower subset of the family market: people with enough disposable income to upgrade from dial-up Internet service to a high-speed connection, costing $40 to $50 per month, and who were also willing to pay an additional premium, $14.95 ($9.95 for AOL subscribers), to receive the AOL interface and content. A major part of the campaign involved Internet marketing, which would inundate the Web with advertising urging current broadband users to subscribe to AOL's content. But the campaign's top priority, according to the Wall Street Journal's Angwin, was "to convince its 35 million subscribers to keep their America Online service when they upgraded to a high-speed Internet connection."

COMPETITION

Although AOL viewed itself as a step up from Internet service providers (ISPs), which merely offered a connection, it still faced stiff competition from dial-up ISPs such as Earthlink and United Online (created by the 2001 merger of ISPs NetZero and Juno). These providers offered accelerators to boost dial-up Internet speeds. To compete on this end of the market, AOL added its own speed-enhancing upgrades. The company also received competition from telephone companies offering DSL service and from cable TV operators with their cable modems. By no longer offering broadband connections and repositioning itself as an add-on service, AOL skirted direct competition and formed partnerships with many of these broadband providers, making AOL available to their customers at an extra charge.

Nevertheless, many of these broadband customers would be content with a bare high-speed connection and would therefore forego AOL's exclusive content and added features. Moreover, customers could increasingly turn to other sources for the types of services that AOL offered; as Angwin reported in the Wall Street Journal, "cable and phone companies … are adding snazzier features to their broadband services." To make the landscape even more competitive, Internet portals such as Yahoo and Microsoft's MSN also added virus protection and pop-up blockers and teamed up with telephone companies to offer high-speed Internet connections at a lower price than broadband plus AOL. In an interview with Catharine P. Taylor of Adweek, Short said that AOL Broadband's competition was essentially "everybody," adding, "But in some ways, we don't have competition, because our product is fundamentally compatible with all the connection providers, and we have proprietary content. However, at this early stage of broadband, some people are making a decision between us and another broadband provider, because they see us a dial-up connection. That's going to get eliminated as we go forward."

MARKETING STRATEGY

To promote AOL Broadband, in March 2003 AOL released a $35 million, two-month advertising campaign developed by ad agency BBDO. The first two commercials, using the tagline "Welcome to the World Wide Wow," were unveiled on the Academy Awards telecast. One of the spots, "Six Million Dollar Man," was a parody of the opening of the old television show about a man with artificial parts that gave him superhuman powers. Instead of actor Lee Majors the spot featured AOL's familiar Running Man icon being rebuilt "better than before," making the case that AOL Broadband was a quantum leap above the old dial-up version of the service. The second spot featured actress Sharon Stone rolling around in bed, apparently after making love, telling someone off-camera, "that was the most amazing experience I ever had. So, can you stay? Or do you have to run?" A life-size version of the Running Man was then revealed. As he rushed offscreen, an announcer said, "The new AOL for Broadband is just a little sexier than you might have imagined." Left alone, Stone muttered in disgust, "icons," as if saying, "men!" Subsequent spots in this initial phase of the campaign showed a model whose body was covered with pop-up ads that were removed by AOL's new blocking software, and monks, who had taken a vow of silence, communicating to one another through AOL's instant messaging feature.

COMMODORE ONLINE

America Online was launched in 1985 as Q-Link, an exclusive online service for owners of Commodore personal computers that was introduced by Quantum Computer Services, Inc. Tandy computer owners were added in 1987 and IBM-compatible computers a year later. A Macintosh version of Q-Link was introduced in 1989, the same year that Quantum Computer Services unveiled a nationwide network for personal computer owners called America Online. In 1991 Quantum assumed the America Online name.

In addition to the television spots, the campaign included a large Internet component. Some of the animated Internet ads were designed for specific types of content. On the Weather Channel's website, for example, clouds forming the Running Man floated across the home page, then the clouds dissolved into an ad with the headline "Life needs a better outlook." The goal was to reach more than 80 percent of the online population within two days.

OUTCOME

The broadband campaign met with quick criticism. The "Welcome to the World Wide Wow" tag was widely ridiculed. In a review for Adweek, Barbara Lippert asked, "Has anyone actually uttered the words World, Wide and Web together since, like, 1999?" Simon Dumenco wrote in New York magazine, "The only wow factor is roughly along the lines of, 'Wow, does Sharon Stone need money that badly?'" As much as the tagline was criticized, the Sharon Stone spot was eviscerated. Lippert wondered, "And what is the take-away here? That if you sign up for AOL Broadband, like Sharon, you'll get screwed? And unlike what you see from an ISP, why would you want a lover who is superfast?" Dumenco further commented, "The irony is that in aligning itself with a silver-screen temptress whose moment has come and gone, AOL has only reminded us all how precipitously it, too, has faded."

After two months AOL once again put up its advertising account for review in what was called a "repitch." Catharine P. Taylor, writing for Adweek, cited sources who said that AOL was dissatisfied with BBDO's broadband campaign. Short disputed this contention, maintaining that the campaign had met all of its objectives. "This is a two-stage game," he said. "And I'm dead serious about stage one and I'm dead serious about stage two."

Stage two was the release of AOL 9.0 Optimized, a new version of the AOL software that included a fuller package of the company's broadband capabilities as well as enhanced features for dial-up users. Despite a new series of television spots, a new tagline ("Life needs …"), another online advertising blitz, and partnership deals to add popular content such as professional-sports video highlights, AOL continued to lose subscribers to faster or cheaper competitors. Very few of its dial-up customers making the switch to broadband elected to pay extra for AOL's premium-content package. Media analyst Tom Wolzien explained to Ann M. Mack of Adweek, "You can have the greatest advertising in the world, but if the value proposition isn't appropriate to your consumers, nothing's going to work." After little more than a year on the job, Short's tenure with AOL came to an end in February 2004. The advertising budget was also slashed by about a third, and the company reverted to a more conservative marketing approach.

America Online, Inc.

views updated Jun 27 2018

America Online, Inc.

also known as: aol founded: 1989

Contact Information:

headquarters: 22000 aol way
dulles, va 20166 phone: (703)448-8700 fax: (703)265-2039 url: http://www.aol.com

OVERVIEW

America Online (AOL) was originally started as a service provided by a company called Quantum in 1989. Quantum changed its name in 1991 to America Online, offering PC users Internet access, e-mail, and an array of information and services. America Online, Inc. ranks as the world's top online service provider.

American Online, Inc. has three major divisions. First is its AOL Networks unit. This segment is accountable for consumer access to the Internet. AOL Studios, a second division, creates new online features. A third division, ANS Communications, arranges high-speed networking for its customers. The company's reorganization into these three divisions was part of its strategy to build online advertising and commerce revenues.

COMPANY FINANCES

In 1997, America Online's total revenues were $1.68 billion, $1.43 billion (85 percent) of which was derived from its online service revenues. This represented a substantial increase from total 1996 revenues of $1.09 billion and online revenues of $991 million. Though data for the full year of fiscal 1998 (ending 6/98) was not available, America Online had already increased revenues over 1997 in its first three quarters, earning $1.80 billion as of 3/31/98.

In May of 1998, AOL stock was trading between $85 and $90 per share. The company's 52-week high was $92.25 and its 52-week low was $24.12. AOL earnings per share were $.32.

ANALYSTS' OPINIONS

Many analysts see online services as a market with tremendous growth possibilities. Given the Internet's growth in recent years, America Online and other companies providing online service face new market concerns. Briefly, there was controversy stemming from America Online's financial position. Using questionable accounting practices, the company postponed marketing costs, showing higher profits as a result. In September of 1996, the company absorbed a $385 million write off to account for these postponed expenses. That left some analysts to question the company's actual financial status. Even with cost cutting efforts (AOL's flat rate offer), America Online just began to see green again in early 1997. Still, many analysts saw this as a positive sign for the company since much smaller online companies couldn't possibly compete with such low prices. Other critics say America Online will run out of money before it can accommodate all of its customers. The only way for the company to turn a profit, they say, is to charge for prime services and generate advertising profit with company sponsors.

America Online Inc. also faced scandal with flooded lines as a result of drastic price reductions. This led some analysts to see a positive indication of the company's advantage in a profitable market. Most users did wade through the flood of the masses trying to get online during the price war. Users like America Online's user-friendly format, and critics say it's the easiest to use on the market. While America Online's software is not updated as rapidly as downloading from the Internet, it has been praised for giving its customers more than their money's worth.

AOL surpassed analyst estimates for the first three quarters of the 1998 fiscal year, however, and its stock rose from the $30 per share range up to $115 per share. The company was adding approximately 10,000 users per day. Analysts at Zacks Investment Research reached a general consensus rating of "moderate buy" for AOL, expecting the company to continue its growth.

HISTORY

Stephen Case, America Online Inc.'s CEO, was a development manager at Pizza Hut when he became interested in a new online service called Source in the early 1980s. His interest led him to Control Video, a company that ran an online service for those using Atari computer games. In 1985, after financial struggles, the company was renamed Quantum Computer Services and began a new service called Q-Link, an online service for those using Commodore computers. By 1987 Quantum made agreements with Apple and Tandy due to Q-Link's popularity, and a service called America Online was introduced in 1989 for IBM-compatible and Apple computers. Quantum Computer Services changed its name in 1991 to America Online.

Stephen Case became the company's CEO in 1992 and launched an aggressive marketing campaign in an effort to beat competitors like Prodigy and CompuServe. Other features were added to America Online including Time Warner's Time magazine, General Media International's Omni magazine, and news from Turner Broadcasting's CNN. The company also added a Windows form of its online software.

By 1995 America Online tapped into the Internet, allowing its users access to unlimited information as well. That same year the company introduced Global Network Navigator, a service solely geared toward the Internet. America Online also signed an exclusive marketing deal with Intuit, inventor of Quicken financial software. American Online went on to sign similar deals with AT&T, Netscape, and Microsoft. In an effort to remove some of its competition, the company reduced its rates in 1996, causing its lines to flood with response. As a result, many users were denied access due to busy signals. The company faced law suits and millions in reimbursement costs to customers.

STRATEGY

Since Stephen Case took over as CEO, America Online Inc.'s strategy has been one of continued growth at any cost. He hoped to reach 10 million subscribers by 1998, and actually reached 12 million—14.5 million including the company's acquisition of CompuServe, with 2.5 million additional customers. Another part of his strategy has been the endless searching for ways to increase the company's revenues. Increasing competition and technology have motivated American Online to surge ahead.

In May of 1998, America Online announced it would acquire NetChannel, Inc. a Web-enhanced television company. The company claimed the acquisition would further its "AOL Anywhere" strategy of making the AOL brand available on all emerging interactive platforms. It would also allow them to capitalize on NetChannel's experience and technology to accelerate AOL's own development of a branded service offering interactive content developed for television.

Among other strategies was AOL's drive for increased revenue. In March of 1997 America Online announced it planned to incorporate company-sponsored advertisements in its chat rooms (online discussion areas for individuals and groups of 23 people or less). These chat rooms, called "People Connection," totaled 14,000 possible areas of simultaneous discussion. The hope had been that companies would buy space in these rooms to advertise their various products or services. Ads were being rotated every 60 seconds in windows in these designated discussion areas.

AOL's growth strategy applied to its approach overseas as well. Case hoped to become the leading universal consumer online service some time after 1998. He entered a joint operation with German media master Bertelsmann in 1995. With services operating in France, Germany, and Britain, the two hoped to dominate the European market by 1998. Plans to move into Asia, Japan, Australia, and/or India surfaced as well.

April 15, 1997 marked the day America Online had planned to introduce its online service in Japan using Japanese language, content, and customer benefits. America Online aimed to make Japan its biggest international market. Japan held 5.7 million potential online members. Other market figures included the estimated 500,000 America Online members in Europe and the 100,000 members of America Online Canada (AOL Canada). Overall, international subscribers accounted for 750,000 market members.

INFLUENCES

Since Q-Link's popularity in 1985, America Online has geared itself toward expansion. Acquiring business deals with big names like Tandy, Apple, and Commodore, America Online established itself as an online developer. At a time when the market was growing due to increasing technological capabilities, America Online expanded quickly.

FAST FACTS: About America Online, Inc.

Ownership: America Online is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: AOL

Officers: Stephen M. Case, Chmn. & CEO, 39, $271,250; Bruce Bond, Pres. & CEO, ANS Communications, Inc., 51, $513,216; Robert W. Pittman, Pres. & CEO, AOL Networks, 43, $460,064; Theodore J. Leonsis, Pres. & CEO, AOL Studios, 41, $283,125

Employees: 7,371

Chief Competitors: AOL is one of the leading providers of consumer online services. As such, its primary competitors are: AT&T Corp.; MCI; Microsoft; NETCOM; People World; Prodigy; and Time Warner. Other online competitors include: Dow Jones; News Corp.; PSINet; Reuters; Star-wave; and Thomson Corp.

America Online created a service for Apple Computers called Applelink Personal Edition, which Apple planned to introduce with the Macintosh and Apple II's. Apple's decision to cancel the deal left America Online (then called Quantum Computer Services) with time, money, and energy invested in a new service with no market outlet. The company decided to release the service under the name America Online, but faced financial frustrations concerning marketing its service. With little money to spend on advertising, the company decided to launch its service (1989) by using mailers, exhibiting software at trade shows, and by putting its name on magazine covers.

After five years, America Online acquired 5 million subscribers. The company was growing so fast it was in the number three slot of online service companies, behind Prodigy and CompuServe. America Online soon passed both companies to be the number one online service company in the world. By early 1998, America Online had 12 million subscribers, plus CompuServe's 2.5 million subscribers.

Not only did America Online grow rapidly, but so did the competition, forcing the company to compete with companies like AT&T and Microsoft Corp. In a continuing effort to increase its customer volume, America Online offered free trial offers of software sending diskettes out in the mail all across the country. This direct marketing effort proved to be wildly successful. The company also reduced its prices in 1996 from $9.95 for five online hours, plus $2.95 for each additional hour, to a flat rate of $19.95 for unlimited online hours. No company to date had such competitive prices.

America Online increased its customer volume faster than it anticipated—500,000 new subscribers in the month of December alone joined in. The number of online visits by customers went from 6 to 11 million in a matter of months in late 1996. The company, anticipating some growth, added modems and connection lines, but still was unable to meet customer demand. Busy signals turned signed up customers away, causing attorney generals in 20 states to threaten the company with law suits if it continued to make promises to its customers it couldn't keep. After attempts to fix the overload failed, the company offered refunds to dissatisfied customers, totaling a loss of $24 million. Despite these setbacks, most America Online users stuck through the frustrations for the lower price.

CURRENT TRENDS

America Online continued its aggressive approach to growth by keeping the flat rate price of $19.95. It also made other attempts to increase customer volume by adding new communication lines at a fast pace. In 1996, the company had 143,000 modems in its U.S. "AOLnet"—by the end of 1997, they had 350,000 modems. Also, the company hired Bob Pittman, co-founder of MTV, to devise a strategy to keep new members from turning to another online service, as the turnover rate had reached 25 percent in 1997. He developed plans for the company to feature hot options, similar to his creations with cable channels. These options would include company-generated content as well as agreements with new programmers.

Other attempts by America Online to increase customers and revenue have included joint efforts with big name rivals like Microsoft and AT&T. America Online agreed to boost Microsoft's Internet browser software in exchange for packaging America Online's software with every copy of Windows '95. AT&T agreed to supply a communication link to the company from its WorldNet service. And in 1997 American Online acquired one of its chief competitors, CompuServe. America Online planned to maintain CompuServe as a separate service, primarily due to the two services' separate target audiences—AOL targeted the mass market, while CompuServe targeted the business and professional audience.

CHRONOLOGY: Key Dates for America Online, Inc.

1989:: Founded as Quantum
1991:: Changes name to America Online
1992:: Stephen Case becomes CEO
1995:: Introduces Global Network Navigator
1996:: Reduces rates and gains 500,000 new subscribers in one month
1998:: Acquires NetChannel

PRODUCTS

AOL service includes news, entertainment, information, online shopping, buddy lists, and AOL's web site, which provides AOL NetFind and AOL Instant Messenger services. The newsstand section offers more than 90 magazines accessible to AOL subscribers online. AOL also provides chat rooms for real-time conversations with other members (and sometimes with celebrities) and email service for sending mail, data files, Internet hyperlinks, photos, and sound files to AOL members and worldwide Internet users. As part of its online service, the company provides parental and mail controls and a secure Internet browser.

One of the company's newest products, announced in May of 1998, was "You've Got Pictures!," a joint project with Kodak. According to the company's press release, You've Got Pictures! will "make online pictures as easy to obtain as prints, as easy to send as e-mail and easier to organize, store and personalize than ever before."

CORPORATE CITIZENSHIP

America Online has a philanthropic division named the AOL Foundation. The Foundation's mission is "To pioneer the development of strategies and programs that leverage the power of the emerging global medium to benefit society by improving the lives of families and children, and empowering the disadvantaged." The Foundation's first major grant program was announced in February of 1998. It was called the Interactive Education Initiative and represents an effort to develop and spread effective uses of technology in schools. Another example of the company's charitable activities was its participation in the fight against breast and ovarian cancer as a part of Revlon's Run/Walk for Women.

GLOBAL PRESENCE

Adding local services in Britain, France, Germany, and Canada, America Online's international enterprises have grown by half a million since their 14 month-old beginning. Standing as the largest online service company in the world, America Online Inc. has made tremendous efforts to work out the bugs to open its communication lines aiming to maintain this title. America Online currently offers special versions of AOL for residents of Canada, Germany, France, the United Kingdom, Sweden, Japan, and Australia. Global partnerships for international consumer online services include Bertelsmann AG, Europe's largest media company. In Japan, AOL has forged alliances with Mitsui, one of the world's largest trading companies, and Nikkei, one of the leading Japanese publishing firms.

SOURCES OF INFORMATION

Bibliography

"abc news announces plans to launch a 24-hour online news service in partnership with america online, netscape and star-wave." yahoo!, 3 april 1997.

alsop, stewart. "a few kind words for america online." fortune, 17 march 1997.

"america online, inc." hoover's online, 20 may 1998. available at http://www.hoovers.com.

"america online, inc. to acquire netchannel, inc." america online press release, 6 may 1998. available at http://www-db.aol.com/corp/news/press/view?release=348.

"america online to launch service in japan." reuters, 25 march 1997.

"aol and kodak announce "you've got pictures!" america online press release, 19 may 1998. available at http://www-db.aol.com/corp/news/press/view?release=353.

"aol chief faces the music." cable news network, 24 january 1977. available at http://www.cnn.com.

"aol membership passes 8 million mark." fox news, 17 january 1997.

"aol plans ads in chat rooms stock climbs." reuters, 5 march 1997.

cortese, amy. "america online's global push." business week, 22 april 1996.

dubrowski, jerry. "disney's abc, aol, netscape form online news partnership." reutrers, 3 april 1997.

eng, paul. "the online world of steve case." business week, 15 april 1996.

gunther, marc. "the internet is mr. case's neighborhood." fortune, 30 march 1998. available at http://www.pathfinder.com/fortune/1998/980330/aol.a.html.

himowitz, michael j. "cyberspace: the investor's new edge." fortune, 25 december 1995.

"internet market changing after aol's flat-rate troubles." fox news, 7 march 1997.

jackson, david s. "aol buys some time." time, 10 february 1997.

yudkowsky, chaim, and terry brock. "aol is moving fast to make sure it stays no. 1." washington business journal, 30 september 1996.

For an annual report:

on the internet at: http://www.aol.com/corp/inv/reportsor write: secretary, america online, inc., 22000 aol way, dulles, va 20166.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. america online's primary sic is:

7375 information retrieval services

Company Profiles for Students

AOL

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AOL (USA) absent over leave
• Admiralty Oil Laboratory
• Computing America Online
• (USA) Atlantic Oceanographic Laboratories (Environmental Science Services Administration)
• (Canada) Atlantic Oceanographic Laboratory (Bedford Institute of Oceanography)

The Oxford Dictionary of Abbreviations FRAN ALEXANDER , PETER BLAIR , JOHN DAINTITH , ALICE GRANDISON , VALERIE ILLINGWORTH , ELIZABETH MARTIN , ANNE STIBBS , JUDY PEARSALL , and SARA TULLOCH

AOL

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AOL Abbrev. for America Online. An American ISP.

A Dictionary of Computing JOHN DAINTITH

America Online, Inc.

America Online, Inc.

Further Reading:

America Online, Inc.

America Online, Inc.

Company Origins

Strategic Alliances in the Early 1990s

Company Perspectives:

Rebuffs Microsoft

Booming Subscriptions in 1993

Struggling with Rapid Growth in the Mid-1990s

Principal Subsidiaries

Principal Divisions

Further Reading

America Online, Inc.

America Online, Inc.

AOL LATINO CAMPAIGN

OVERVIEW

HISTORICAL CONTEXT

TARGET MARKET

CORPORATE LOVE

COMPETITION

MARKETING STRATEGY

OUTCOME

FURTHER READING

WELCOME TO THE WORLD WIDE WOW CAMPAIGN

OVERVIEW

HISTORICAL CONTEXT

TARGET MARKET

COMPETITION

MARKETING STRATEGY

COMMODORE ONLINE

OUTCOME

FURTHER READING

America Online, Inc.

America Online, Inc.

Contact Information:

OVERVIEW

COMPANY FINANCES

ANALYSTS' OPINIONS

HISTORY

STRATEGY

INFLUENCES

FAST FACTS: About America Online, Inc.

CURRENT TRENDS

CHRONOLOGY: Key Dates for America Online, Inc.

PRODUCTS

CORPORATE CITIZENSHIP

GLOBAL PRESENCE

SOURCES OF INFORMATION

Bibliography

For an annual report:

For additional industry research:

AOL

AOL

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