I am not sure that I can add anything to the chorus of debate surrounding AOL’s new foray into broadband services — many of the nation’s leading business publications have made this very topic a cover story. I do, however, think that some of the market pundits are missing some of the key points. AOL’s struggles to remain viable in a broadband world are not just about the shift from dial-up to broadband; the struggle is really about remaing relevant in a world where AOL’s traditional value proposition is less compelling for consumer.s
Historically, AOL has had three core value propositions for consumers:
Ubiquity – AOL dial-up numbers were everywhere and their modem banks were large. As a result, it was always easy to get a connection to the service regardless of whether you were in a dense metropolitan area or a far-flung rural location.
Simplicity – AOL hid much of the complexity of connecting to and making use of the Internet. Their mail client was dumb simple. Photo sharing was a breeze. The same could be said of commerce. For Internet neophytes, AOL was a convenient way to get on the Internet.
Unity – AOL provided a nice “walled garden” of services. One could browse the Internet, send and receive email, use instant messaging, and shop online all under the safety and convenience of a branded AOL experience.
In a broadband world, these value propositions are less compelling. Ubiquity doesn’t matter as much in a world where your home connection is an always-on connection with a dial-up number for roaming provided by your ISP. Simplicity is less relevant as always-on broadband connections are just that — always on. This reduces the complexity of setting up and maintaining an Internet session.
The real thorn, however, is the last element — unity. Why is the de-emphasis of unity the weakest and most damaging link in this equation? Now that we have established that consumers are willing to buy things online and pay for value-added services (photo finishing and production, expanded email, and even music), what is the value in going with AOL’s bundle of services? If you are a music enthusiast, why not sign up for your favorite music service? Do you want a bigger, better email client? Sign up for a Yahoo! email account with a larger quota. Want to share photos online? Try Shutterfly or Ofoto.
So, if I am going to shell out $10 per month on top of the cost of my broadband access, why should I give it all to AOL? Wouldn’t I be better served to carve that money up among the service providers that I prefer? I am not convinced that the bundle of services that AOL is offering is 1) worth an incremental $10 per month or 2) the set of services that I would choose were I to spend $10 on top of my current broadband bill.
I am not willing to proclaim the death of AOL — they will continue to generate billions of dollars in EBITDA from their dial-up customers. I am also sure that there are some customers willing to pay $10 per month simply to avoid the hassle of getting all of their friends to learn their new email address. The world will not go broadband overnight. But when it does, AOL will need more of a story than the AIM icon on a treadmill to remain relevant to consumers.