• by Masha Geller , July 25, 2003

AOL today gave us all a good topic to ponder over the weekend. In its latest quarterly earnings report, the troubled AOL TW division said the number of subscribers fell by 846,000 to a base of 25 million U.S. customers since the end of March, down from a high of 26.7 million last Sept. 30. The Wall Street Journal went to work investigating the reason for such a huge drop and ran a story today that points to "inflated numbers."

Based on what various sources told the WSJ, in 2000, AOL started selling limited-use Internet accounts to its marketing partners such as Target, Sears, Roebuck and J.C. Penney. These companies offered these accounts to their employees in bulk for as little as $1 to $3 a month per subscriber, and where subsequently free to sell the accounts to their workers at a more expensive rate, keeping the difference. In the end, it seem that these accounts were the reason AOL gained at least 830,000 subscribers, amounting to subscriber growth of 16.7% in 2001 and 2002.

AOL spokespeople are not quick to comment on the matter, but according to CBS Marketwatch they're saying that "about half the defecting customers were basically deadbeats and that AOL was better off without them."

What does it all mean? While initially, the story sent tremors through all corners of the universe, it's turning out to be a non-story. CBSMW cited Jessica Reif Cohen, a Merrill Lynch analyst who rushed out a report to investors this morning, calling the controversy a "nonevent," adding that ML thinks the company is on the right track to 'right-sizing' the AOL business.

Bottom line? I still think AOL is running out of time to come up with a plan to keep their subscribers happy before it starts losing advertisers, but a clean database has never hurt anyone.