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Commentary: AOL's broadband bet

To ensure the success of its broadband aspirations, America Online should focus on usability and communications, not just proprietary content.

Commentary: AOL's broadband bet
By Forrester Research
Special to CNET
December 4, 2002, 9:30AM PT

By Chris Charron, Group Director

America Online has finally faced its day of reckoning and announced a broadband strategy. To thrive on broadband, it should focus on usability and communications, not just proprietary content.

As we've warned for two years, AOL's dial-up focus and expiring advertising deals threaten its growth. Now AOL says it will promote unique content from its sister companies like Time Inc., CNN and Warner Music, a return to the synergies that drove AOL to merge with Time Warner. To retain its spot atop the online heap, AOL should do the following:

• Avoid a dependence on proprietary content. Exclusive news, sports and lifestyle content will help retain users but won't generate much revenue. Even AOL's best bets, exclusive programming from HBO and tracks from Warner Music, won't pay off for 18 months. Proprietary content makes for nice icing, but AOL needs to bake the broadband cake first.

• Rebuild the interface for always-on service. New broadband users would rather communicate than watch video. While AOL has the highest loyalty of any online service, Web-based e-mail is shaking users loose. To reinforce user loyalty, AOL should focus on

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the usability that was its original differentiator, reinventing and improving features like instant messaging, personalization and spam-blocking to match up-and-comers like Yahoo and MSN. One in three consumers watches TV while online, so AOL should create a broadband zone with applications for these subscribers, starting with its own WB Television Network, TBS and CNN content.

• Create broadband subscription tiers. AOL costs $14.95 per month for consumers who bring their own access, but broadband wanna-bes expect to pay less than current broadband subscribers. With improved usability, AOL should soak up as many bring-your-own-access subscribers as it can at $9.95. Then it can move higher-value video and music services into an elite $14.95 tier, competing with RealOne.

© 2002, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.