AOL offers $25 to ring in phone customers
Taking a cue from telecommunications leaders, America Online is luring potential customers to its co-branded long distance service with cash.
Talk.com, the company that provides AOL's long distance telephone service, is sending people checks for $25 in a direct-mail promotion. If the check is cashed, a customer's long distance service will be switched to the AOL-branded service.
Although this cash-for-customers campaign is a first for AOL, it's a 
familiar tactic of players like AT&T and MCI WorldCom. As AOL continues to face large customer turnover, it is adopting long-standing practices used by telecom carriers that confront similar challenges in their battle for primacy in the long distance market.
AOL's primary goal--called "AOL Anywhere"--is to have its own proprietary service show up on any Net-connected machine, be it a PC, television, or telephone. But new competitors outside the Net sphere are forcing AOL to alter its strategies: AT&T's package of voice, video, and high-speed Internet services will be rolled out to the mass market next year, while last week Qwest Communications International announced a package of long distance service and unlimited dial-up Net access.
Talk.com, the long distance phone company formerly known as Tel-Save, also has much at stake and has adopted its cash-for-customers initiative as part of its most recent drive to bring AOL members into its fold. Talk.com markets its services to AOL members under the AOL brand--a privilege for which it paid $100 million two years ago.
Even if AOL itself isn't directly behind the campaign, the $25 checks show how tightly linked the two companies have become.
Talk.com needs AOL's brand to sell its service and depends on marketing data from AOL that allows it to target the most valuable potential customers. Its latest campaign, for example, is focused on high-end Internet subscribers who use America Online as just one part of their communications portfolio.
"This has a very high payback," said Ed Meyercord, the company's chief financial officer. "These are, for the most part, technologically advanced families who like to chat online and offline."
By the same token, AOL benefits from being able to offer an inexpensive long distance telephone service, throwing it in the ring with telecom competitors like AT&T, BellSouth, or Qwest, which increasingly are offering packaged deals of phone service and Internet access.
Meyercord said the company would cap its cash offer at $25, ignoring the lead of AT&T and MCI WorldCom, which have been involved in a type of long distance brinksmanship to garner more market share. During the peak of their battles a few years back, each of those companies had offered as much as $100 to subscribers who switched to their long distance services.
Talk.com has become the seventh-largest long distance provider, in part from its relationship with America Online. With its new name, a new CEO hired from domain name giant Network Solutions, and marketing agreements with companies including various magazine distributors and AOL competitor Prodigy, the company is now trying to diversify its customer base.
Nevertheless, close to 70 percent of the company's 1.5 million customers are still drawn from AOL subscriber base, Myercord said.