AOL: Under the gun online

Popularity can kill.

No one knows that better than executives at America Online (AOL), who are sweating under pressure from bad publicity and swollen ranks of angry users, some vowing legal retribution.

The legal heat on AOL could increase considerably. Attorneys general from 19 states, who previously joined together to force AOL to alter the way it implemented its pricing change, are likely to become involved in this issue as well, James Haney, spokesman for the Wisconsin Attorney General's office, said today.

Busy signals have skyrocketed since December when AOL introduced its new unlimited $19.95 a month access plan. AOL users in three states have filed class-action suits against the company.

Today, David Gang, vice president of product and marketing, laboring with just three hours of sleep due to this crisis, said AOL understands how serious the issue is, and is working on the problem around the clock.

"Obviously, it's horrible for our business, horrible for our members. I want to make it better." But, he added, "what's lost in all the publicity is we have 10 million successful connections every day."

Some members, frustrated by continual busy signals when they try to log onto the "world's most popular Internet online service," as AOL calls itself, filed the suits this week, claiming AOL is not providing the services they promised.

Either AOL was unprepared for increased usage when it introduced the plan, or it miscalculated just how much its service would grow--from 7 million to 7.5 million in just a few months.

For now, AOL is saying it will win the class-action suits. But legal experts say the cases are far from open and shut. There are merits on both sides, said Jeff Neuburger, an attorney specializing in technology with Brown Raysman Millstein Felder & Steiner.

Neuberger added that no matter what happens on the legal front, the publicity is going to sting. "They're facing a very competitive environment right now," he said. "It's just another problem to deal with."

The problem of user frustration smarts, too. While some users are sympathetic about AOL's dilemma--being so popular that people are virtually lining up to get in--others look at the repeated busy signals as a last straw and they're bailing.

"What is the point of paying and not being able to connect?" wrote one user on an Internet bulletin board. "I am NOT recommending AOL to anyone and I shall be disconnecting my AOL account soon. I have been with AOL for 4 years but their services are going downhill!!!!"

AOL has weathered other crises, including an 18-hour outage in August and legal action over past billing practices. That means this latest issue has to be viewed within that bigger context: Users who have been willing to put up with a few snags may have reached their personal breaking point, according to Kate Delhagen, an analyst who covers AOL for Forrester Research.

"They're at risk for a real backlash," she said. "These are people who have been hurt before. [For many,] this is the last straw. This is repeated denial of service. [AOL] collects money whether you connect to the network or not."

Up until yesterday, AOL's standard response was to point to the $250 million that it's spending to increase network capacity. AOL is adding 30,000 modems a month through June to give more people access to the network. AOL's goal is to allow 400,000 simultaneous users by July 1. Right now, AOL's system allows 250,000 of its 7.5 million members to log on at the same time.

But saying they're adding more capacity just isn't enough anymore, Delhagan said. "This isn't about saying, 'We're working on it, we're working on it.' This could really hurt them."

"There's more and more effort going into this every day," AOL's Gang said. "There are a lot of things we're doing which I can't tell you about today."

Busy signals used to be a fairly common occurrence back in the old days. AOL was just an online service and most customers were early adopters who were willing to deal with the bugs and problems in exchange for the opportunity to check out the new online world.

AOL has been able to dramatically improve its performance over the years to a point where few people were getting busy signals and there were far fewer disconnections during sessions. But when it went to flat-rate pricing in December, that changed. There still have been fewer disconnections, but users coming online in record numbers and staying there longer have overwhelmed the system.

Today's users are not as forgiving as yesterday's. Many not only use the Internet and AOL for entertainment but also for business. So when trouble hits, they know they have alternatives.

Other online services sitting in the shadow of the giant AOL are aware of that. "It's a big deal, and if I were a small ISP, I would jump right on this opportunity," Delhagen said.

The customers seem to be coming of their own accord. Prodigy, for instance, the smallest of the online services, reports a 400 percent increase over the last two weeks.

"Our advertising for '97 kicked in in January," said Prodigy's Mike Darcy. "But we're also receiving anecdotal evidence that a lot are coming on board because they're having problems accessing other services, one of them being AOL."