AOL Reports First-ever Drop In Subscriber Base

Mega-ISP America Online reported that it lost 170,000 subscribers in the fourth quarter of 2002, after of years of steady growth. Still, more people access the internet through AOL than any other source, but several factors have made AOL less relevant and more susceptible to competition in the past few years.First and foremost, AOL is traditionally a dial-up service, catering to casual home users. As broadband becomes more prevalent worldwide, AOL dial-up customers are moving to high speed services like DSL and Cable, which give a distinct advantage to entrenched cable and phone companies. AOL’s exclusive services saved it when it faced its first onslaught from the Internet and dial-up ISPs offering unlimited access.

While AOL was primarily a closed community with a gateway to the Internet and per-hour access fees, the internet was a vast and uncontrolled source of virtually everything AOL had to offer and more. The internet’s vastness was one thing in AOL’s favor, as it was intimidating to new users. AOL switched to unlimited service, and to virtually everyone’s surprise, thrived.

But now, casual home users are now not as common, as most internet users are becoming quite savvy and are no longer as interested in “wading in the kiddie pool.” They want speed, and AOL’s controlled environment increasingly means being bombarded with solicitations.

AOL Time Warner hopes that its exclusive content will keep people on board this time around too. They have announced plans to try offering news and entertainment from its CNN, Time, and Warner Brothers divisions, among others, on AOL exclusively.

How this works out for AOL will depend on how modern internet users think about their internet service providers. Are the interchangeable providers of bandwidth, or are they are community and portal to news and entertainment?

One of AOL’s biggest threats right now is Microsoft, which is seemingly willing to throw money at its MSN service until it attains critical mass. MSN is trying to out-AOL AOL, with its own email service, IM, content, and other services. MSN’s services, though, for the most part are available to non-MSN bandwidth consumers too, which is an interesting difference. MSN also has made a big push to partner with high-speed bandwidth providers, like Qwest, with aggressive promotions.

Will AOL surprise everyone again and triumph, or become a belated dot.bomb?


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