AOL Attempts High-Speed Reinvention

by Gavin O'Malley, Jan 30, 2006, 11:16 AM

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In a move some analysts describe as long overdue, America Online on Friday announced plans to reinvent itself as a high-speed Internet provider via partnerships with BellSouth, Verizon, Time Warner Cable, and Qwest. AOL today is expected to launch a multimillion-dollar ad campaign to tout the new broadband service.

The deal follows AOL's attempt late last year to reposition itself as a free broadband-heavy Web site.

Pricing for AOL's high-speed service ranges from $25.90 to $29.90, depending on the market--just a few dollars more than its $23.90 dial-up offering. What's more, AOL is going out of its way to make the upgrade from dial-up to DSL as simple as possible for existing subscribers.

"It's all about price and simplicity for consumers," said Joe Redling, President of AOL's Access business. "There's a huge opportunity for mainstream adoption here."

About three-quarters of AOL's 20 million Internet subscribers still use dial-up, according to Redling--and it's those 15 million households that AOL is really shooting for.

AOL is relying on BBDO to execute the "AOL High Speed" ad campaign over the Web, TV, print, and radio. The spots--which feature average Joes and Janes effortlessly holding their own in competitions with professional skiers, cyclists, swimmers, and other athletes--are meant to show consumers how easy it is to be fast (online) with AOL.

Broadband subscribers are far more valuable to AOL than dial-up subscribers for a host of reasons, Redling said. "Customers stay with us longer when they move to high speed," he explained. "And with advertisers, we're seeing such a move into rich media on our sites, so high speed opens the way for many more opportunities."

This reasoning, however, raises the question of why AOL waited until now to push broadband. "I was waiting for this sort of deal to happen over three years ago," remarked Joseph Laszlo, broadband research director at Jupiter Research. "AOL has tried a whole bunch of strategies--trying to buy access wholesale and reselling to subscribers, then they moved in the direction of bring your own service, where they told consumers to bring their own service."

Laszlo added that while AOL is embarrassingly late with its competitively priced strategy, the company still has the opportunity to capture market share in the area. "They're late to the game, definitely--but it's not too late in my opinion, because adoption is still pretty strong, and they do have a huge base."

Jupiter estimates that 55.2 percent of online U.S. households had broadband lines by the end of last year. That percentage is predicted to increase to 61.8 percent this year, and 78.2 percent by 2010.

But, while broadband is expected to become more prevalent, not all analysts were optimistic that AOL would become a major provider. "Broadband access is a highly fragmented business, especially broadband access to small and medium businesses," explained Yankee Group's Steve Hilton in an e-mail exchange with OnlineMediaDaily.

"AOL's market leadership can only be recovered if they proactively offer highly demanded content, applications, and solutions to the appropriate target segments. Otherwise, they'll be an also-ran in a highly competitive market space," Hilton said.

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