IT'S STARTING...!
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Silicon Valley
Aug 11, 1999
How Evolving Features Enable AOL to Spin a Stickier Web Site
By George Mannes
Staff Reporter
Today it's instant messaging. Tomorrow, it's sharing pictures online. And after that, maybe it's paying bills.
As America Online (NYSE:AOL - news) cuts deals to expand the reach of its AOL Instant Messenger product, squaring off again against Microsoft (Nasdaq:MSFT - news) , the Dulles, Va., company is already looking to other applications to make its site even more habit forming. And that search could bring the nation's largest online service to ambitious projects including, say outsiders, a possible buy of electronic personal-finance software maker Intuit (Nasdaq:INTU - news) .
The buzzword at AOL, as well as other online services and Web sites, is stickiness -- a measure of how long users stay at a site. Compelling content, along with AOL's move to flat-rate pricing in 1996, is the main reason that nowadays the average AOL user spends 52 minutes a day online, compared to just 13.5 minutes three years ago.
What's at stake is creation of an all-encompassing online utility -- a place where you can stay in touch with friends, share pictures, keep your health records, pay your bills, and maybe even pay your taxes, all under a single password. It's a far cry, says Barry Schuler, president of AOL's Interactive Services group, from when AOL promoted itself as the place where you could read 100 magazines online. "We used to think it was about leisure-time activity," he says. "Entertainment is a piece of [going online], but people are using it to save time and money."
What AOL is also doing is defending its turf against Microsoft, which has crashed AOL's instant-messaging party and is also planning to launch a low-priced or free Internet service to compete with AOL, as reported by The Wall Street Journal last week. An online persona "is not only a switching barrier, but it's a bridge to new things," Schuler says.
Although AOL can make money selling advertising space on the Instant Messenger platform, the company uses the real estate mostly for internal promotion -- pitching its Netscape Netcenter Web site and a 100-free-hour promotion for signing onto AOL. "It's more about stickiness than it is about specific revenue concerns," says Schuler.
To cement its position, AOL has made deals with ISPs EarthLink Network (Nasdaq:ELNK - news) , MindSpring Enterprises (Nasdaq:MSPG - news) and Juno Online Services (Nasdaq:JWEB - news) to distribute AOL Instant
Messenger. No licensing or revenue-sharing money is changing hands, a source says, but AOL will get its name, along with advertising space to use and sell, on AIM's floating windows.
The other sticky application of the moment is AOL's You've Got Pictures initiative, which the company is testing in conjunction
with Kodak (NYSE:EK - news) in three cities -- and showed off to visitors to its headquarters last month.
With You've Got Pictures, AOL members who get their photos processed at participating stores can pay extra to have copies stored online, accessible soon after processing simply by logging onto AOL. The idea is to create an easy way for people to share pictures with friends and family online.
That's not a new idea. AOL itself in 1995 launched a similar online picture-sharing service called PicturePlace, later renamed PictureWeb, but the service appears to have disappeared.
AOL is positioning YGP as only a slight variation on conventional email. In test market cities, a YGP icon appears near the
mailbox icon on the opening screen. AOL recruited Elwood Edwards, the recognizable voice behind the audio clip "you've got mail," to record "you've got pictures." In a world in which images are supplanting text as a form of communication and electronic images are superseding negatives and photographic prints, AOL is hoping that YGP will become as habit forming as text email.
And this time around, beyond an initial $5.95 charge for digitizing a roll of pictures, members can keep 50 pictures online for free, as opposed to a $24.95 annual fee for 100 pictures that AOL was charging in 1995. Though posting photos online under YGP is available only to AOL members, they can share their benefits with nonmembers (who can then order reprints), giving the company a chance to put its brand and services in front of nonmembers.
Within the next few months, more applications will keep users glued to AOL. In its next version of AOL software, the service will provide an online calendar for its members, the same way that the Yahoo! (Nasdaq:YHOO - news) portal site does. In a few months, the medical information site drkoop.com (Nasdaq:KOOP - news) hopes to have a system for AOL users to maintain their personal medical records online. Further down the road is online bill paying. "I affectionately call it You've Got Bills," Schuler says.
As much as Schuler might like the bill-payment idea, it's not an easy one to implement. "You've got huge infrastructure issues," he says. "It's coming, but it's a ways off."
One tack, Wall Street players say, for AOL to take is to acquire Intuit, the personal finance and record-keeping company that,
among other consumer services, allows people to file their taxes online. (Intuit already offers home-banking services through
AOL.)
Such a deal isn't out of the question. In 1995 Intuit agreed to be bought by Microsoft (though the deal was later scuttled over
antitrust concerns). One investment banker, though, suggested that Intuit managers might expect to create greater value for
shareholders independently by developing Internet-related business than by selling out at current prices to AOL. Intuit declined
to comment. Speaking generally, Schuler says only that AOL is trying to speed up online bill-payment's acceptance by getting
the right players together, whether through deals, partnerships or strategic acquisitions. "We're busy working on it," he says.
Adding sticky applications is "extremely important" for AOL's future growth, says Peggy Ledvina, Internet analyst at Dain Rauscher Wessels. "Once you have the consumer, you need to expand the wallet share," she says. Storing medical and financial records online, as well as photographs, is a way of generating revenue and keeping people on the site, Ledvina says, though she cautions that some people won't want personal information stored in a remote database.
It's important for AOL to offer features like these, even though they aren't necessarily distinctive, says Paul Cook, lead portfolio
manager of the Munder NetNet fund. Companies like Seattle FilmWorks (Nasdaq:FOTO - news) , for example, already give people a chance to share photos on the Web, he says. But, "it's really important for [AOL] to be able to offer a real, significant subset of the features that are available on the Internet." You don't want to give people, he says, an opportunity to say, "I love AOL, but they just don't give me this." |
