>
CA, you are right, something is out of whack with the above numbers. AOL spends $40-45 per year in cash marketing expenses, on average, to attain each new "registration". (initial sign up).
In YE 6/30/96 they spent $360 mill cash on subsciber acquisition marketing. They added net subscribers of 3 mill. $120 each, right?. If the average of $40 per registration held, that means they must have registered 9 million new sign-ons ($360 mill divided by 9 mill = $40), but 6 million must have churned off the system. That leaves us with the 3 million net adds. In the final quarter of the year, churn was even worse, causing the current panic in Reston, Va. They signed on 2.1mill in the quarter, churned off 1.8 mill, for a net add of only 300,000 members. Doing the division for that quarter resulted in something like the $200 per net add figure for marketing expense.
So the market concludes Case is getting lousy value for his marketing dollar, and that is partially correct, but it mixes up to issues. Cost to acquire, and retention (or failure to retain.) It is failure to retain that is blowing up their model, and it is due to lack of a capped price option.
What is particularly ironic to me is that the average monthly bill on AOL is $18 and a few pennies. You get this by 80% paying the minimum $9.95 plus a little, and the other 20% paying and using well over the 20 hours per month range. So you have a painful crunch if you slash price to heavy users, but what about those $9.95 folks? I say make the minimum charge $14.95 and be done with it. Run a few over to that $10 per month ISP we are hearing about. (is that one year paid in advance, or did I imagine that?)
AOL can double its growth rate by cutting the churn. It is the price causing it. If they don't get it right when they announce this month, you shorts will be right. If they do get it right, don't be short. The Robertson /Stephenson analyst covering AOL estimates its value as a plain vanilla ISP is in the $15-20 range.
Good luck,
Brian
|
