Microsoft's Opening Shot At AOL?
Without a media event or even a press release, Microsoft launched a low cost Internet Service Provider last week. The ISP, marketed in Costco stores, is sold as a package that includes 3 months of internet access for $35.97, or $11.99 a month. Pricing after the initial three month period is unknown to our staff at report time.
The popular press will most likely portray the new service as a potential AOL access fee killer. However, an examination of the facts will all but destroy this assessment.
First, Costco is a warehouse club with 13 million members that caters to the needs of the middle class. A majority of these members already own computers and have an Internet service. The average Costco consumer is a member of a multi-person household, one of whom likely values content and community. The price sensitivity of these consumers is higher than most, but not so much that $7 a month will justify a severe lack of the content and community that a service like America Online readily offers.
Secondly, in a world of trial offers and "Free" service it is unlikely that consumers will pay $36 for a generic service without strong consumer support. Consumers don't want commitment, they want a courting period to figure out if the service is right for them. Why pop the question before the first date?
It may make more sense to use Costco as a distribution outlet for the new Internet service (similar to Dixon's distribution of FreeServe in England), and charge the consumer after a free trial.
Finally, this new service is generic. Costco Online sounds about as flashy as Campbell's Soup Online (how about it, Internet access with your Tomato soup). Consumers will most likely not be compelled to buy a service whose selling point is that you can pick it up in a warehouse.
America Online threat? I don't think so. A threat to other ISPs? Probably not. Media storm? Likely
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