AOL makes software free to boost ad revenue

In a move to increase its online advertising revenue, AOL Wednesday said it will make a range of its software and services free for broadband users.

This is the latest move in AOL's ongoing transition to an ad-supported business model from its traditional subscription-based model. The company wants to bolster a healthy portal and an online advertising business built on content from parent company Time Warner Inc. With this offer, AOL is hoping to attract new users, as well as retain a relationship with the subscribers who drop their AOL dial-up accounts.

"By giving AOL's valuable members the opportunity to stay with us free of charge as they shift to broadband, we will significantly accelerate AOL's transition to an advertiser-supported business model," Time Warner's Chairman and CEO Dick Parsons said in a conference call.

It's critical to retain former dial-up subscribers as AOL users, said Time Warner President and COO Jeff Bewkes. AOL members make up 36% of U.S. monthly unique visitors to the AOL network of sites and services, but they generate 80% of the page views, he said. This means that they have a disproportionate positive effect on the consumption of AOL online ads.

Key to this deep engagement is their use of the integrated AOL proprietary PC software, which subscribers lose access to when they cancel their dial-up accounts, Bewkes said. "We're fixing that problem. We're going to stop sending our members to our competitors," he said.

Although the company said in a statement that it would offer the freebies specifically only to broadband users, AOL representatives later clarified that dial-up users also qualify.

AOL also will stop aggressively marketing its dial-up business and will stop investing in trying to retain the less loyal, one-third of subscribers who have been members less than two years, said Jonathan Miller, AOL's chairman and CEO. This will help AOL save about $1 billion in operating expenses by the end of 2007, he said. "We are now at the point where we believe we can compete on the Web at scale," Miller said.

AOL has retained the e-mail addresses of users who discontinued the service over the last two years so they'll be able to reclaim them.

People have been cancelling their AOL subscriptions en masse in recent years. AOL ended its 2002 second quarter with 26.5 million subscribers in the United States, but, four years later, that figure stood at 17.7 million in this year's second quarter, ended June 30. Advertising revenue, however, rose 40 percent in this year's second quarter.

AOL will now offer two dial-up subscription plans. The premium plan, costing $25.90 per month, will include 50G bytes of storage and premium customer care, including phone support. A $9.95 monthly plan will not feature the 50G bytes of storage but does include phone support, AOL said.

AOL will also stop marketing its co-branded broadband offers with telecommunications providers, but the services will continue to be offered to existing subscribers, AOL said.

The free products will include AOL's communications software, with a local phone number offering unlimited incoming calls. Other features include security controls for parents to manage their child's Internet use. The plan will be "fully operational" in early September.

In the coming weeks the company plans to roll out new products in safety and security, storage, personalized e-mail domains and video and search-related offerings. The overall AOL software package will also be updated.

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Copyright © 2006 IDG Communications, Inc.