AOL: Businesses benefit, members grouse

Just as advertisers support television programming, marketers are supporting AOL's online content. If nothing else, perhaps the last few days have shown members how this new landscape works.

5 min read
America Online (AOL) members might complain about all the little annoyances associated with being online. But for the most part, they've been willing to put up with it all: pop-up screens, ads in chats, and junk email.

Some users even like the ads and look out for online shopping deals. Those who pay attention to AOL's business model also understand that when the online giant went to flat-rate pricing in December, the company would have to find new ways to make money.

AOL's business partners
of deal
Expected payment
July Amazon.com, bookseller $19 million
July 1-800-Flowers, florist $25 million
June CUC International,
shopping club service
$50 million
February Tel-Save Holdings,
long distance provider
$100 million

In other words, they understood there was a trade-off when AOL cut deals with the likes of CUC International, Tel-Save Holdings and 1-800-Flowers. These companies are paying AOL tens of millions (and in the case of Tel-Save, $100 million) for the privilege of marketing their services to members on AOL.

The partnerships AOL has been making have been widely praised by investors and analysts. In fact, it is these deals that have allowed AOL to turn the corner into profitability. Like advertisers support television programming, marketers are supporting AOL's online content. If nothing else, perhaps the last few days have shown members how this new landscape works.

Instead of paying hourly fees that could run into hundreds of dollars a month, members under the flat-rate scheme are going to get bugged, unless they like ads and sales pitches.

Members are going to see more ads and they're going to get more telephone calls. Even though AOL took back its plan to make members' phone numbers available to marketers, AOL still reserves the right to call members and market products, including the goods and services of its business partners.

A good number of them clearly don't like the new arrangement and have been firing off emails to AOL executives and crowding into the Marketing Preferences area on the service, where they can ask to have their names taken off mailing and advertising lists.

Also, AOL watchers are asking the questions they always ask: Is AOL's bottom line going to be affected by this fiasco? Are so many members going to quit the service or take themselves off the relevant marketing lists that AOL will lose money?

The answer is nobody knows for sure. While many think that AOL ultimately came out on top, others wonder if this will be the proverbial straw that breaks, or at least damages, the camel's back.

People might get incensed, but past experience shows that anger doesn't always lead to action; the chances are that most people will stay and most will not bother taking their names off lists, said Abhishek Gami, an analyst with Nesbitt Burns Securities.

"Maybe 10 percent, maybe 15 percent will opt out, and if so, that's not a backbreaker for them," he added.

On the other hand, the Marketing Preferences area, previously unknown to most members, was so crowded today that members queued up to get into it.

Business partners such as CUC, Tel-Save, and 1-800-Flowers don't seem terribly worried about this problem. These companies said today that they were not relying heavily on telemarketing to let members know about their services. Instead, they were relying on AOL to put them up front and center. "They have 8.5 million eyeballs," said Ken Young, a spokesman for 1-800-Flowers. "That's a huge number of eyeballs."

In addition, just because AOL's partners won't be making the sales calls doesn't mean members aren't going to be getting them. AOL's CEO Steve Case clearly said AOL will continue to telemarket directly to members, something they've been doing rather successfully in the past few months.

It might just step up its program for its partners: "AOL, as part of its telemarketing programs, will make members aware of various CUC services and programs," a CUC spokesman said. Tel-Save said that the change in AOL's policy would have no effect on its deal with AOL. "Not only are we getting the same deal we've always had, but the use of telemarketing, if it is used by AOL, will play a minor role in the overall marketing plan," the company stated in a statement. "Online advertising will be the largest percentage of marketing."

But even if AOL's bottom line is not affected, it still might be wise to pay attention to what happened and why, because once again, AOL clearly had struck a nerve. As it continues to offer its customer base to marketers, it may be better for the company to learn how to do that without alienating its customers.

Take Jim Stoddard, an AOL member who spends on average of three hours a day on the service. Stoddard said he understands AOL's need to do online promotion. All he's asking for in return is some information given in a timely and clear manner.

He didn't like finding out through the press that his phone number could be given to outsiders, even if they were AOL partners. As far as he's concerned, the service could have avoided the mess by telling customers on one of its infamous pop-up screens that they planned to give out their numbers and then instructing them how to avoid those calls if they wanted to do so.

As it was, members would have had to ferret out the information themselves, not an easy task. "The thing that bothers most members I've talked to is when AOL tries to not notify members," Stoddard said. "I don't think members really mind the deals they make. But when they take your personal information without telling you, that's something different."

He added: "When they sell our names and addresses and phone numbers, most people get a little edgy."

With online privacy at the forefront of the collective Net consciousness and AOL saying it's leading the charge to protect consumers' privacy, the policy to give out phone numbers came as a shock.

Netizens have been reading all about the potential loss of privacy online. They've read about companies tracking their movements. They've read about companies gathering their likes and dislikes, keeping track of their surfing habits (something that AOL does), but here was a piece of actual evidence that it really was happening.

While it's hard to put your finger on what can be done with your surf habits, it's easy to understand a telephone call waking you up on a Saturday morning.

"This is a public admission that Big Brother is watching and your privacy is being invaded in a very real way," Gami said. "Before this, you read in books and online that your privacy was being invaded, but you didn't see it in a very real way."

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