In a bid to keep subscribers from defecting, AOL plans to let its 6.2 million members phone each other on their PCs for free.
In a wide-ranging interview at Macromedia's user conference in San Francisco today, AOL executives also disclosed that the nation's number-one online service will also support new technology such as Macromedia's Shockwave to allow AOL content developers to refresh and spruce up their offerings. The company also is considering revamping its pricing plan.
But the launch of Net phone service is AOL's most surprising move, and one calculated to show why AOL's insistence on maintaining a proprietary network is a good idea. "We expect this to be the most exciting news to come from AOL in a long time," said David Gang, AOL's vice president of product marketing.
The technology will let AOL users talk to each other with the click of a button, Gang said. Members speak into a microphone on their multimedia PCs, which are connected to a local AOL server. This way, the Net call remains local and virtually free. Pricing has not yet been set.
Telephony software companies including NetSpeak, VDONet, and VocalTec are rushing to offer telephone service over the Internet, but Gang says the chronically congested Internet will undermine the reliability and sound quality of these products, whereas AOL's privately maintained network will prove itself a better forum for such technologies.
"The Internet is not yet ready for this kind of technology," he said.
Gang conceded that even when using the AOL service, conversations may be regularly interrupted by delays and static. The company plans to expand the offering to allow members to talk to all Internet users next year.
But Gang thinks that AOL's version of online telephony will be far superior to Net-based products for a while, at least. "It's going to be a long time for Internet telephony to be the same as picking up the phone and calling your friend," he said. "There will be some delay, but it will work."
Telephone companies apparently think so, too. The Internet phone market has already raised concerns from more than 130 phone companies, which recently asked the Federal Communications Commission to ban Net phones. But FCC Chief of Staff Blair Levin recently said that restrictions should not and will not be placed on Internet telephony companies.
There has also been speculation that AT&T and GTE are preparing to block AOL from snapping up their long-distance customers, but AT&T officials denied that. In fact, they may jump into the burgeoning market themselves.
"We have always said that government regulation should not stop Internet telephony," AT&T spokesman Kevin Compton said. "We as well as others are looking at the opportunity."
AT&T already has plans to dip into the consumer Internet phone market with its technology, code-named Project iA (instant Answers). Web sites that use iA technology will let Net surfers click on an icon that makes a phone call to a customer service agent, and then allows both parties to talk to each other.
Internet telephony isn't the only plan AOL has to keep its subscribers. While its two rivals CompuServe and Prodigy are both moving to the Web in the near future and away from their private networks, AOL has been under pressure to demonstrate that going alone as the last proprietary online service is a solid strategy. To do that, the company is trying to show that its service can adapt to take advantage of the latest technological bells and whistles.
For example, the company said today that its members will get "shocked" with all of Macromedia's technologies including Shockwave, and will receive automatic installation of popular plug-ins including Real Audio and QuickTime by year's end.
The company hopes content developers will step in and create compelling sites using Shockwave. "We're hoping that users will create their own virtual places with Shockwave and further the community experience" as well, said Gang.
Gang also disclosed that AOL is testing 40 different pricing models as a result from user complaints. Said one user today: "I joined your service two months ago, but my kid got hooked on the Internet and I can't afford it. I had to sign on with an ISP."
Members shouldn't expect an "all-you-can-eat" price anytime soon, but may be able to log on during off-peak hours for a cheaper price, according to Gang.
"You can't make money from charging $20 a month for unlimited access," said Gang. "That's not to say that we won't change our pricing model, but we have to make money for our stockholders," he said.