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AMERICA ONLINE (AOL).
Term Paper ID:25167
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Essay Subject:
Internet service provider's marketing strategy, product, competition, distribution, promotion, pricing.... More...
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5 Pages / 1125 Words
8 sources, 11 Citations,
MLA Format
$20.00
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Paper Abstract:
Internet service provider's marketing strategy, product, competition, distribution, promotion, pricing.
Paper Introduction:
Introduction
America Online (AOL) offers subscribers on-line content through their personal computers and phone lines. The company competed against CompuServe and Prodigy in the early 1990s, but these competitors are no longer in the market and AOL has more than 10 million subscribers (Sacharow 35). By offering competitive pricing and content which had mass market appeal, AOL built its customer base. The company now faces a challenge as increasing numbers of companies are offering high-quality content through their Web sites without charge. So long as consumers can access the site, they can receive the content. AOL is seeking to avoid becoming merely an Internet service provider, and is positioned, at this time, to continue to provide content. This research considers the company's marketing strategy and its future direction.
Text of the Paper:
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Online Deal Signals Major Shift at AOL." ADWEEK Eastern Edition (Feb 16, 1998): 35. AOL is seeking to avoid becoming merely anInternet service provider, and is positioned, at this time, to continue toprovide content. Introduction America Online (AOL) offers subscribers on-line content through theirpersonal computers and phone lines. and others to market their $19.95 per month service ("NicheOnline" 4 6B 91 ). Companies such asAOL are also looking for ways to increase the transmission rate of theirconnections and to offer more information through wider bandwidths. This represents a major shift for AOL, but also frees up internalresources (Sacharow 35). Company Objectives AOL has as its objective nothing less than to be the premier providerof on-line access and on-line content in the world. AOL is notlimited to consumers in the USA, but can access consumers throughout theworld. AOL generates considerable revenues from sellingadvertising and marketing the products and services of other companiesdirectly to AOL subscribers. However, AOL has demonstrated that it is able to form strongalliances with other organizations, and should build on that success. By offering competitive pricing and content which had mass marketappeal, AOL built its customer base. Internet service providers have created a situationwhere there is little product differentiation, and consumers areincreasingly viewing AOL and its competitors as selling a commodity:Internet access. As consumers are able to gain access to "free" Web content,there will be increased pressure on content providers such as AOL to offerincreased value to their customers. The advertisements are typicallydisplayed while subscribers are accessing other information, or they may bedisplayed directly to consumers if the user "clicks" on a particular icon."Pop-Up" screen advertisements are also used to promote products andservices, such as AOL's low long-distance rate (a direct response tocompetition from MCI and Yahoo!). AOL uses traditional promotional strategies combined with newtechnology to build market share. This means thatconsumers need to be able to find access numbers quickly and easily, andthat once the number is dialed, it connects. Opportunities in this market come from continuing to offer superiorcontent and from the international nature of the Internet. The company mustensure that it has adequate access for consumers. The company had to investheavily in enhancing its infrastructure in order to handle additionaltraffic, a problem which resulted in lost subscribers. Recommendation The strategy which resulted in AOL being successful to this pointshould be furthered, but the company must also strive to enhance itstechnology. Unlike other companies which must determine how they will distributetheir product or service (retailers, wholesalers, etc), AOL can onlydistribute its product through computers. To accomplish this, the company is focused on enhancing its contentthrough affiliations with third-party providers as well as its in-housedevelopment efforts, and continuing to enhance its infrastructure toprovide better access to AOL services (1997 AOL 1 -K SEC Filing 2). However, where product information cards would once havebeen the medium of choice for product inserts, AOL offers a disk giving theuser a predetermined number of free hours (usually 5 ) during which theconsumer can try out the various features of AOL. Online todo this. This research considers the company's marketing strategyand its future direction. While AOL's primary product is content and programming and itscustomers are consumers using their computers, there is a secondary productand market here, as well. This puts pressure on prices and provides incentive tocompanies such as AOL to differentiate themselves from the competition(Clark 17). Prepayment (by either check orcredit card) resulted in a discount. This put the company a full $2per month above the competition, and has opened the way for companies suchas Yahoo! This poses a serious long-term threat to AOL and isan issue which the company needs to address if it is to continue to besuccessful. Because of this, AOL has continued to invest in its contentdevelopment, and its financial area (for example) was recently judged thebest on the Web ("Niche Online" 4 6B 91 ). In early 1998, the company moved away fromdeveloping its own entertainment content and contracted with E! "Big Deals are a Lot for Cybermeals to Swallow." Puget Sound Business Journal (Jan 16, 1998): 7.Clark, Drew. While the company has beensuccessful at gaining subscribers through acquisitions, it needs tomaintain a strong financial presence if it is to continue to be able tofund the content growth which will separate it from other Internet serviceproviders. But as it learned in late 1996when it changed its pricing schedule, there are considerations which cannotbe ignored so far as its distribution is concerned. In early 1998, AOL had teamed with morethan 15 strategic partners, including Barnes and Noble, in this way("Provident American" 327B 912). Advertisers are willing to enter intomultimillion dollar contracts with AOL in order to gain visibility amongAOL's more than ten million subscribers. Makes Exclusive Deal with America Online." Knight-Ridder/Tribune Business News (Mar 27, 1998): 327B 912.Sacharow, Anya. The company lost more than $4 million in fiscal 1997 (1997 AOL 1 -K SEC Filing 1 ), a loss which itcannot sustain over a long period of time. During this time, AOL priced itsservice at approximately the market average. Works Cited1997 AOL 1 -K SEC Filing. It encouraged the use of credit cards, and added a surcharge ifsubscribers wanted to pay with checks. The company now faces a challenge asincreasing numbers of companies are offering high-quality content throughtheir Web sites without charge. AOL's primary weakness is financial. Corporate sales are built onpersonal selling and long-term contracts (Baker 7). Foryears, it followed the market and priced access to its service at a fixedrate for a given number of hours (usually ten per month), then a per-hourrate. Subscribers often receivedbusy signals when trying to access AOL, a frustrating situation of whichother providers took full advantage ("Increase in AOL Prices" 3 3B 916). Its subscribers are able toaccess entertainment news, financial information, the ability to "chat"with other AOL members, multiplayer games and other content specific to AOLas well as read and post to Internet newsgroups and access the World WideWeb. The company competed againstCompuServe and Prodigy in the early 199 s, but these competitors are nolonger in the market and AOL has more than 1 million subscribers (Sacharow35). Consumer Buying Behavior Where consumers were once interested in AOL because of the contentthat the company offered, many consumers now view it simply as a way toaccess the World Wide Web and the large amount of content available there.Consumers are still interested in the AOL content, but not to the levelthat they once were. By the end of 1996, a number of Internet service providers had movedto flat-rate pricing. Having increased the number of modems available and resolved the issueof access, and having purchased other Internet service providers in themeantime, including CompuServe, AOL again raised its rates in early 1998 to$21.98 per month for the flat-rate service. "On-Line Banking." American Banker (Feb 26, 1998): 17.Hamblen, Matt and Bob Wallace. Marketing Strategy AOL provides a variety of on-line content to its subscribers as wellas Internet access through its Web browser. Dulles, VA: America Online, 1997.Baker, M. By forming alliances with companies such as Intuit and E!Online, AOL continues to differentiate itself from other Internet serviceproviders. "Internet Service Acquisitions May Raise Prices and Quality." Computerworld (Feb 23, 1998): 28."Increase in AOL Prices May Mean More Business for Other Service Providers." Knight-Ridder/Tribune Business News (Mar 3, 1998): 3 3B 916."Niche Online Services Challenge America Online's Apparent Dominance." Knight-Ridder/Tribune Business News (Apr 6, 1998): 4 6B 91 ."Provident American Corp. Competitive Analysis AOL's primary strength is its large customer base and high level ofbrand recognition. Initially, the company's product was its own content at a time whenCompuServe and Prodigy also offered similar product. In the last fewyears, however, the availability of content on the Web itself, and theavailability and declining prices of fast modems, has meant that thecontent available on the Web far outstrips that available to AOLsubscribers. Television advertising is supported withdirect mail, and inserts are used with magazines that target high-technology users. However, the company must also recognize that it is perceivedas an Internet service provider, and that the Internet itself is offeringhigh-quality content. AOL has not been an innovator when pricing its product line. Sharon. The company alsoactively markets to its corporate partners in order to garner additionalrevenue from this highly lucrative source. Its content is well-respected and it can use its marketpresence to form alliances with other companies in order to provide high-quality content to providers. AOL also moved to this one-rate pricing plan, at $19.95per month, while maintaining additional price structures for those whowanted to pay on an as-you-use basis. This offered unlimited Internet access for a setrate per month. So long as consumers can access the site,they can receive the content. "E! Threats, however, come from current content providers as well asfrom companies who use their Web sites to offer comprehensive contentselections. This combination of Internet accessand access to AOL's own content resulted in a flood of new subscriberswhich overwhelmed the company's infrastructure. AOL currently servesconsumers in more than 1 countries, and is looking to expand its globalreach. Thus,even while the company's distribution is limited, the strategic choicesavailable to the company from this standpoint are not (Hamblen and Wallace28).
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