“What?” you ask. “Isn’t that the company that considers itself the nation’s premier online service and Internet gateway-but gives its 8 million customers mostly busy signals? The one that was charged in class-action suits and exhortations by state prosecutors as a hotbed of consumer fraud, misrepresentation and outright greed? The one that promises in its commercials that it will make its users’ lives as spiffy as the Jetsons’ but sticks them in voice-mail hell when they try to get a customet-support person? The one that’s now being called America Off-line? A good week?”
Well, yes, considering how bad things looked the week before, when AOL’s Dulles, Va., corporate bunker must have been as cheerful as Chernobyl. After changing its pricing scheme from an hourly fee to an unmetered $19.95 flat rate, AOL found to its horror that its users got online and stayed online, shutting out others trying to connect. This shouldn’t have been a surprise: if you allow a hundred people to make unlimited long-distance calls but provide them with only three telephones, there are going to be long waits and hot tempers. As AOL-heads got angrier, they filed class-action suits. The media piled on, and soon AOL had a disaster that made New Coke look like Dom Perignon. But now CEO Steve Case and Bob Pittman, who heads the AOL Networks subsidiary, can begin spinning the overload as a nasty but temporary patch in the firm’s fortunes. They speak in the slightly dazed, cautiously euphoric cadences of plane-wreck survivors on the morning after. We’re alive!
What happened? For one thing, the worst didn’t happen: no mass exodus to the Microsoft Network or Internet service providers like AT&T WorldNet. While there were indeed defectors, the general attitude of AOL people was “Pissed Off But Still There.” Why? “We’re the only real mass-market consumer brand out there,” explains Pittman. AOL has positioned itself as the entry point to the online world, an especially inviting location for techno-klutzes who can’t tell a modem from a mastodon. It cost AOL a fortune in ads and freebie disks to build a huge customer base–“Larger than any city in the U.S.,” boasts Case-but now there’s a payoff: people either like the service enough to put up with the busy signals or are too bound by inertia to explore other possibilities. Case even feels confident enough to mock the efforts of his competitors to lure away his dissatisfied users (such as Compuserve’s now notorious “AOL busy signal” Super Bowl ad): “It’s like people saying that they should come to our restaurant because it’s empty.”
AOL’s other good news came in the form of 36 state attorneys general, who at first threatened action against the company and then reached a “settlement” that could have been written by AOL’s accountants. There’s no way this rinky-dink consumer issue should have skyrocketed to top priority among officials charged with protecting public safety and prosecuting real crimes, but once the watchdogs got active, they should have at least gotten frustrated AOL users automatic refunds. Instead, users must apply to get a few crummy bucks back, and they also get a promise that the company will temporarily suspend its relentless stumping for new users. (Steve Case told me that’s what he had been planning to do anyway.) Essentially, these headline-grabbing government officials have granted AOL’s rehabilitation effort an official imprimatur, at very low cost to the company. In fact, analysts have noted that the refunds will be covered by a mere fraction of the dough that AOL will save by not running television ads for a few months.
But if AOL dodged a bullet this week, its long-range prospects are as cloudy as ever. AOL’s sustaining challenge is to justify its existence as a proprietary online destination when the rest of the wired world is flocking directly to the Internet. As the Net becomes more popular, this goal seems almost quixotic, and drastic adjustments will have to be made to stay in the game. The reason the company had to go to low flat-rate. priming in the first place was that its Internet competitors already offered the same deal. A drastic but necessary move.
Case and Pittman insist that AOL can thrive by offering the best of two worlds: a gateway to the Internet, and compelling content of its own. But much of AOL’s news and entertainment offerings are already matched by similar offerings on the Web. The only area where the service rules supreme is the realm of bulletin boards and chat rooms, where users have bonded to form tight, loyal and sometimes bawdy communities. So guess what the next big wave of Internet businesses is focusing on? That’s right–chat areas and virtual communities.
If that isn’t enough trouble, consider this: those AOL busy signals may not end any time soon. Even after spending $350 million to upgrade its network, the company will be able to handle only 5 percent of its customers at once. That might have been sufficient when people used AOL with an invisible money meter running. Now the meter’s gone, and the big trend in computing is getting stuff “pushed” onto your desktop. To take advantage, you need to stay connected all the time. That means continual strain on AOL’s network.
No, America Online isn’t dead yet. But sooner or later Case and Pittman may learn just how many busy signals it takes to drive its customers straight to the Internet.
