AOL Subscribers Count
(This post is long, but I think you'll find it useful.)
AOL counts free-trial memebers because these members are part of the advertising audience for AOL. When the trial members log in, they are potential customers to 1-800 Flowers just like regular members. That's why they count them as subscribers although they do not contribute to the bottom line via membership fees.
There are two other components to AOL's revenue: advertisement on AOL and merchandise purchasing thru AOL. The advertisement aspect is easy to calculate. How much would SyQuest pay to AOL if it knows 9 million computer users would see its ad? This kind of advertisement is quite valuable because the target audience is well defined (forgot the catch phrase). But this targeting is limited to computer related audience. AOL could offer target advertisement for database users, computer game players, etc. But AOL could not offer target advertisement to cat lovers, because the audience would not be just cat lovers, but cat lovers who are computer users and on-line with AOL.
The third component is merchandise purchasing thru AOL. This is similar to the advertising component. If AOL can target a particular audience, let say computer game lovers, and get them to purchase merchandise thru AOL, then AOL could take a portion of that profit. Advertisement could also be viewed this way, as taking a portion of the final sales, a smaller portion.
So the question to ask, is how much money does AOL subscribers spend on average to purchase merchandise directly thru AOL or as result of seeing some ads on AOL. I believe the $1,000 price tag on each subscriber reflect not only the membership fee, but the money he/she will spend as result of AOL. Let's say $200 out of the $1,000 is the membership fee minus operating costs, and $800 is the profit from merchandise purchase.
If one pays $50 for a piece of software, how much of the $50 was the cost of advertising that product? And how much of the $50 is profit for the store (I think it's call mark-up)? I don't know the percentage so I will use these figures: 5% and 15%. Then if the $800 is divided half and half to advertisement profit and mark-up profit, then each subscriber will need to purchase $10,666 worth of merchandise in relation to AOL. Is that realistic?
How much have *YOU* spend as result of seeing an ad on the Internet or purchase items thru the net? (Seeing a TV ad then look it up on the web doesn't count, you must see the ad on the net first.) Personally I've spend maybe at most $1,000 per source. This is because each source competes with each other on price. And AOL in a sense is just another source for the purchase, it needs to compete with Dell, Compaq, Cyberian Outpost, PCConnections, on-line games, and etc. So the $10,666 figure is definitely too high of an expectation for AOL.
I think each subscriber is worth at most $200. And maybe $300 more for the merchandises. So AOL should be half of its current valuation.
I am short AOL.
Yikes |
