Dial-Up Access Starts to Die
WSJ, April29, 2003
It's official. Dial-up is dying.
The big three providers of "premium" dial-up Internet access -- that is, access that costs somewhere around $20 a month -- all reported significant declines in dial-up customers in the latest quarter, a steady drop that is expected to continue. As far as we can tell, this is the first time all three reported losses in the same quarter. It will take years, but terms like "handshaking" and "fifty-three-six-k" are headed for the data dustbin.
In its first-period earnings report, released last week, AOL Time Warner's America Online said it lost 290,000 subscribers in the U.S., which accelerated from the fourth quarter, when AOL lost 176,000 subscribers, its first decline ever. AOL blamed a "maturing narrowband universe," and interestingly, the war in Iraq, for slower signups to replace defecting users in the first quarter. Many of these defectors are moving to broadband services.
Over at Microsoft's MSN -- which has been gaining ground on AOL in recent years -- matters were just as bleak, at least in terms of numbers. These losses come even as MSN is running some truly hilarious commercials featuring its chubby butterfly spokesman. In one, the butterfly guards a user's front porch from anthropomorphized spam, pulling a trap door on pitches deemed inappropriate or unwanted. "I have a Webcam," says one trashy spam before dropping into the abyss.
Amid this expensive ad campaign, MSN lost 300,000 subscribers in the quarter, to 8.7 million from nine million the quarter before, when subscriber numbers were flat. MSN blamed expiring multiyear rebate programs and users' shift to broadband access. "The subscriber reduction phenomenon is one we expect to continue," the company said in its conference call.
Now for Microsoft, this is no big deal. MSN's dial-up service has always been a sideshow to Windows and Office. Even Microsoft's .Net, the Keyser Soze of software, has gotten higher billing. Moreover, the rest of MSN -- the portal, search, Hotmail, Slate -- are showing strong revenue growth, thanks to paid search and tight integration of properties.
At EarthLink, the No. 3 provider, dial-up subscribers dropped too -- though this was expected, as EarthLink has been aggressively switching customers to the broadband version of its service (which, as with AOL and MSN, are provided through cable and phone company partners). EarthLink picked up 112,000 broadband subscribers in the quarter but dropped 74,000 dial-up customers. The trend, the company said, reflected "the maturing of the premium dial-up access market and the continued migration of subscribers to broadband access."
The implications of this are pretty obvious -- and, no surprise, bode poorly for AOL, which has the most to lose of the big three. For starters, content isn't king; access is. With few exceptions, surfers will jump boards in a heartbeat if it speeds up their connection. People want fast, always-on access to the Internet so they can find the stuff they really want, which isn't necessarily the Tiger Beat-style content that megaportals too often serve up on their front pages.
Users may hang on to their e-mail address through a cheaper, "bring your own access" plan, but that's no long-term strategy for the providers. Dial-up connections will increasingly become an emergency backup -- or a way to easily get online when on the road. They'll also serve as the cheap alternative for the cost-conscious chatters and dabblers, remaining a source of growth for no-frills upstarts such as United Online, which charges about $10 a month.
Will dial-up ever disappear, or will it adapt to new technological competition, just as radio did with TV? Write to us at realtime@wsj.com, and we'll post your comments this Thursday. If you want to share your thoughts but don't want your letter published, please make that clear. |
