Welcome cruncher,
Why did AOL raise their monthly rates?
Was it because the demand for their service and customers so loyal that they thought it would fly.
Or was it the rate of new subscribers coming on line was starting to fall and they thought by increasing monthly rates would keep their estimates for this year in line.
Both!
Obviously, they would never had raised rates if THEY thought it wouldn't fly.
I think the rate increase is a HUGE overreach on AOL's part. What happened to economies of scale? Shouldn't more clients allow AOL to lower rates? Yes, you say? -- aha -- this means AOL implicitly admits that their position becomes worse and worse as each new subscriber is added. Which proves that, for a company with AOL's costs (and this would include many other internet companies, as well), being an ISP is, ultimately, a money-losing activity. Which, not incidentally, explains why AOL was so easily able to grab market-share. Hence, AOL's need to raise rates.
Most other companies understood that the cost structure in this line of business wouldn't really work at $20/month and decided to stay out until it became (becomes?) clearer exactly what synergies are available and what revenue model might turn a decent, sustainable profit. Well guess what, the synergies are inconsistent and slow to materialize, and the unlimited $20/month revenue model basically loses money, especially if you're not able to piggy-back internet activities onto your own existing telecommunications infrastructure. I think MCI has the right idea: use internet access as a loss leader to promote your core business.
Other ISPs are in business to make money, careful to not bite off more than they can chew, keeping an iron in the fire, watching, waiting, and building a smallish, yet solid client base of satisfied customers. AOL is a bizarre, reckless experiment seeking a tragic conclusion.
I have NEVER accepted the rationale of what AOL is doing or the way they are doing it: blindly grabbing as many subscribers as possible, serving up a substandard on-line experience, losing money on each client added, and all the while hoping and scheming that the internet can somehow be magically converted into some sort of obnoxious profit-generating system above and beyond the meager monthly access fees collected.
It still sounds like a crap-shoot to me. Whenever and wherever REAL internet revenue can be sustainably had, there will be too much competition and too few barriers to entry.
Meanwhile, AOL keeps going up -- at least through the split. :o) |
