Aol Case Study
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Prior to 1995, why was America Online (AOL) so successful in the commercial online industry relative to its competitors, CompuServe and Prodigy?
The success of America Online (AOL) prior to 1995 as compared to CompuServe and Prodigy can be mainly attributed to its huge subscriber base. By early 1995, AOL accumulated about 4.0 million subscribers, while CompuServe and Prodigy had 2.8 million and 1.6 million, respectively. This meant that AOL captured about 48% of the online consumer services market. Monthly subscriber fees and excess usage fees largely drove revenues that made AOL the industry leader.
AOL used the following strategies to capture and retain members to their service:
Simple subscription fee model
In contrast to its competitors, AOLs fee structure was the easiest for consumers to comprehend and predict. Essentially, members need only to pay a monthly fee of $9.95, which allowed up to five-hour access each month. Additional usage incurred a $2.95 per hour charge. AOLs two competitors, CompuServe and Prodigy also had standard pricing but added fees for downloading and premium services.
Establishment of key partnerships with providers
AOL was the pioneer in the industry to create exclusive partnerships with content providers. Their partnerships included established companies and prestigious businesses. These partnerships created attractive services; which kept subscriber retention in place, increased their monthly usage, and attracted new subscribers.
Aggressive marketing activities to attract new subscribers
AOL poured most of their resources into their marketing initiatives. Because the industry was young and fast growing, and their fees were standard, they knew that revenues would be driven largely by increasing their number of members. Hence, their aggressive marketing efforts included independent efforts such as direct mail offers, television and print advertising. They also had partnerships with computer hardware and software producers as well as computer magazine publishers. These partnerships bundled AOLs free-trial software with their products.
Retention activities to keep existing subscribers
Due to the expensive tab on marketing expense (about $40 per new subscriber), AOL had to ensure that they retained most of their existing subscribers and lengthened new subscribers subscription life. They poured efforts in creating online events and conferences, regular addition of new contents, services, and programs, as well as continued promotion of these events and contents. These activities kept most of their customers satisfied, thereby increasing retention.
Wide-array of products and services
AOL targeted the mass consumer market. This meant that they needed to provide a diverse package of products and services to keep existing subscribers as well as attract potential subscribers. Thus they had everything from entertainment down to travel and shopping references and services.
It should also be noted that online communication service was a key feature of the AOL service. Although CompuServe had a similar service, its main audience was the computing group (a special interest group involving computers). Prodigy on the other hand, focused on providing viewership on its contents. AOL bested its two competitors by having a mix of both content and online communication, as well as catering to the mass market.
As of 1995, what are the key changes taking place in the commercial online industry? How are they likely to affect AOLs future prospects?
By late 1995, technological advancement enabled the proliferation of the World Wide Web. Whereas the online services companies like AOL acted