David Cassel (destiny@wco.com)
Mon, 9 Feb 1998 16:31:08 -0800 (PST)
H i g h w a y R o b b e r y ? ~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~ A 10% price increase was announced Monday for AOL's dial-up customers. "The good news is that you have integrated AOL more and more into your daily lives," a smug Steve Case wrote in a letter to subscribers. The bad news? Starting in April, dial-up customers will pay an extra $2.00 a month -- $24.00 per year -- to access AOL. The change comes at a time when studies indicate AOL has one of the worst performance records in the industry. On average at least 30% of calls to AOL failed to connect between June and November, PC Week reports, citing one study showing call-failure rates as high as 41%. ( http://www5.zdnet.com/zdnn/content/zdnn/0204/282378.html ) They note the industry average is 67% smaller -- a failure rate of just 10-13%. C|Net adds that AOL still performs worse than that average, coming it at a whopping 16% failure rate for December ( http://www.news.com/News/Item/0,4,18824,00.html ) And a November survey by PC Week ranked AOL as having the worst performance, with the worst speed of repair, the least-knowledgable technical support staff, and the lowest customer satisfaction score. Only 18% of the users surveyed felt AOL's connections were reliable. ( http://www.aolwatch.org/pcweek97.htm ) "The deteriorating service is now being matched by a price increase!" one angry subscriber complained. AOL still suffers from ongoing reliability problems -- as this internal service report from last Tuesday shows. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3:33 pm - 5:35 pm -- Some members have had problems listing, reading and sending mail. 1:40 pm - 3:02pm -- 3% of mail was unreadable. 5:30 am - 5:45 am -- 3% mail read was down, 2% mail sent was down. 11:25 pm - 2:58 am -- 14,000 members were without IMs or Buddy List. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - "Its wrong AOL is doing this," one Community Leader conceded about the price hike. ("But I really don't care, as long as I still get it for free with my Community Leader account.") Concerns about AOL's reliability are widespread. TechWeb reports 26 lawsuits were filed last year related to service outages. ( http://www.techweb.com/wire/story/TWB19980204S0015 ) -- and arguing against an acquisition of Netscape, even AOL's own Motley Fool noted that AOL "could use some help in making its network thoroughly robust and fault-tolerant" ( http://fnews.yahoo.com/fool/98/02/06/dna_980206.htm ) In fact, though AOL has said the #1 complaint from subscribers is unsolicited commercial e-mail messages, AOL hasn't even allocated sufficient resources to handle complaints. "Unfortunately, you may encounter full email boxes periodically," one form letter states, "and we apologize for this inconvenience. We are currently working on ways to improve the capacity of these boxes..." Significantly, the announcement about the price increase came ten days after AOL acquired control of CompuServe's subscribers. "The monopoly pricing has begun," one AOL Watch reader commented. Friday AOL also announced plans to start delivering advertisements to CompuServe's subscribers ( http://www.news.com/News/Item/0,4,18916,00.html ) -- even though three days earlier, CompuServe's subscribers received e-mail from Steve Case promising to "preserve the service's look and feel". ("This is a NON-Reply Mailbox," Case's message concluded. "Messages sent to it will be returned.") But the price increase actually indicates the failure of AOL's current advertising strategy. "The more we do on the advertising and commerce front, the more likely we'll be able to preserve the existing pricing," Steve Case told Robert Seidman, in an interview published yesterday. ( http://www.onlineinsider.com/html/current_issue.html#SC ) 24 hours later, the existing pricing had been shelved. Case's announcement Monday concedes advertising revenues "aren't yet keeping pace with the phenomenal increases in usage"-- and also suggests why on-line games were the first target of price increases. "[E]ven though members pay a fixed rate, we pay additional costs for every minute a member spends online." Subscribers are expected to bear the brunt of AOL's push for advertising revenue. Unfortunately, high-bandwidth ad banners in chat rooms currently strain the memory capacity of their subscribers' computers -- a point AOL staffers privately acknowledge. "They have been able to reproduce the problem with the ad banners in chatrooms," one in-house memo commented two weeks ago, noting "This is the first step towards fixing the problem. At this time, we have no concrete date for a fix..." And subscribers who haven't blocked pop-up ads at keyword "Marketing Preferences" are also receiving more and more advertisements. "Today, I have set a new record," one subscriber told AOL Watch. "Before I signed on, I had to look at 6 ads, 2 of which were the same." (Implausibly, Steve Case told Seidman that AOL's pop-up ads are different than spam e-mail, "because part of the problem with spam is that there is no quality-control aspect.") But AOL's scramble for profitability doesn't end there. AOL also laid off 500 CompuServe employees Monday, "to operate its service more efficiently, and take full advantage of shared AOL resources." ( http://biz.yahoo.com/bw/980209/america_on_3.html ) The lay-offs constitute more than a third of CompuServe's workforce -- and the press release indicates a "review" was also initiated for CompuServe's internet service SpryNet. This raises troubling questions about AOL's profitability. "Analysts expect the online giant to post its fourth consecutive quarter of profits," C|Net reported erroneously Wednesday -- then quickly scrambled to correct the story. ( http://www.news.com/News/Item/0,4,18848,00.html ) AOL didn't show a profit in its third and fourth quarters last year. "The company lost $4.7 million, or $0.05 per share, for the third quarter," read one AOL press release, and though AOL had erroneously declared a profit for the second quarter, the SEC ruled otherwise. ( http://www.aolsucks.org/list/0066.html ) Subscribers are becoming cynical, one recent comment suggests. "Funny how Steve Case keeps bragging about all the profits AOL is making and how much revenue the ads are generating -- yet they still have to raise prices to make money." In fact, Steve Case told Reuters that AOL's rate hike won't improve the company's profitability. "The price increase basically will not drop to the bottom line because of the increased network costs that we are experiencing," he claimed. Reporter James Pierpoint noted that Case "declined to disclose how much revenue the rate increase will generate..." ( http://biz.yahoo.com/finance/980209/online_aol_5.html ) And occasionally, new expenses appear. One enterprising individual registered the AOL.com domain in Australia (aol.com.au), a Sydney newspaper reports. They're currently asking AOL $50,000 for the rights to it. (http://www.smh.com.au/computers/content/980203/news/news1.html) Yet AOL still has little financial justification for their rate hike. "AOL is relatively flush with cash," the Wall Street Journal reports today. "It recently sold a debt issue of $350 million and received $175 million from the sale of its third main division, Internet-access-provider ANS, to WorldCom Inc." In addition, AOL boasted in a press release that "its public company investments alone are valued at about $200 million" ( http://biz.yahoo.com/bw/980209/america_on_1.html ) Nonetheless, AOL is instituting their rate increase -- which AOL Watch estimates would bring in just $168 million per year if applied to AOL's current U.S. membership. 15% of AOL's subscribers reside outside the United States, Steve Case recently reported (http://www.news.com/News/Item/Textonly/0,25,18689,00.html) -- and as AOL's billing FAQ notes, "Only US customers of the current $19.95 unlimited use plan will be affected." In addition, Reuters notes approximately 25% of AOL's subscribers haven't signed up for unlimited access ( http://biz.yahoo.com/finance/980209/online_aol_5.html ) Subscribers are angry. Monday morning one user forwarded information about the new billing plans to 39 friends -- and a subscriber who'd paid for a year's service in advance told AOL Watch they had closed their account Monday. Another subscriber told C|Net "After more than five years with AOL, I've cancelled my subscription in protest of the rate increase." ( http://www.news.com/News/Item/0,4,18957,00.html ) C|Net notes MCI customers can get internet access for $14.95 a month, and Reuters adds the same rate is available from Mindspring and Erols. http://biz.yahoo.com/finance/980209/aol_aol_n__1.html "AOL is pricing themselves out of the market," Earthlink Chairman CEO told Reuters. "They already have hundreds of thousands of people churning off their service every month...now I think a lot of people who are on the fence will be pushed off by this price increase." There's another reason local internet services may benefit. With the new billing in place, subscribers will save $12 per month if they access AOL through an ISP. "The price will not be increased for members who are on the 'light usage' plan ($4.95 for 3 hours per month, with additional hours at $2.50)," Steve Case wrote -- or for subscribers on "the 'limited' plan ($9.95 for 5 hours per month with additional hours at $2.95) or the $9.95 'bring-your-own-access' plan (unlimited AOL accessed via a non-AOL Internet Service Provider)." Users can find a local internet service by entering their area code in the on-line listings at http://www.thelist.com In anticipation of a negative response, AOL's billing FAQ included answer to the most important question of all: "What if I decide to cancel my account?" Its answer: phone 1-888-265-8008. Otherwise, customers will face a $2.00-a-month price increase starting in April. "Warm Regards," Case's message concluded. THE LAST LAUGH In January at least 2335 AOLers received copies of a false rumor warning that "AOL IS TAKING AWAY UNLIMITED ACCESS AT THE END OF MARCH." AOL's newly-announced per-month price increase will begin in April; the message was at least partially correct. Ironically, one AOL Watch reader recently complained that "Steve Case's Mailbag" hadn't been updated in nearly four months. With Monday's price increase, the first letter showed a remarkable synchronicity. "Dear Steve," it read, "I've got some questions about my AOL bill..." David Cassel More Information -- http://www.aolwatch.org http://www.salon1999.com/21st/feature/1998/02/06feature.html ~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~++~ Please forward with subscription information and headers. To subscribe to this list, type your correct e-mail address in the form at the bottom of the page at www.aolsucks.org -- or send e-mail to MAJORDOMO@CLOUD9.NET containing the phrase SUBSCRIBE AOL-LIST in the the message body. 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