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AOL relaunches business service

The online giant is planning to take another shot at AOL Enterprise, a version of the service for corporate customers.

America Online (AOL) is planning to relaunch a version of its online service for corporate use, according to analysts briefed on the matter.

AOL refused to confirm reports of its plans. But the company did discuss the service with securities brokerage CIBC Oppenheimer, among other analysts. Oppenheimer mentioned its discussions with AOL in a report earlier this month.

According to the report, AOL Enterprises will let businesses create customized areas within AOL's proprietary network, in which employees can dial in remotely and use AOL's instant messaging service and other tools. The service will cost a little more than half what competitors charge, according to Oppenheimer.

AOL Enterprise, as the service is known, originally launched two years ago but met with meager response.

"The first try was an absolute disaster," said David Simons, managing director of New York investment research firm Digital Video Investments. "AOL projected it would have $200 million in revenue by June 1997, but a year after it was launched the whole thing was abandoned."

AOL's motivation in signing up business users has as much to do with the booming market for corporate networking as with the lopsided usage patterns of its consumer users. Those users, who make up the vast majority of AOL's 11 million-strong member base, tend to log on in the evenings. AOL in turn has to provide the bandwidth to handle those peak times 24 hours per day, leaving a substantial portion of its costly network potential wasted during business hours.

Simons said the first incarnation of AOL Enterprise ran into trouble for two related reasons. The first was that AOL's reputation as a consumer-oriented media company preceded it and repelled business customers. The second was that AOL's reputation for inconsistent network performance came back to haunt the online service.

"It's one thing for your average consumer user to not get email for 20 minutes or an hour," Simons said. "But if you're running a business and are dealing with purchase orders, contracts, and other time-sensitive business documents, losing access can mean losing of thousands of dollars. AOL's image in terms of robustness and reliability is incompatible with the image required for a vendor of services for business."

AOL has faced intense criticism--and the scrutiny of law enforcement officials--for past service problems. Members found themselves unable to log onto the service after the company was flooded with new members when it adopted $19.95 per month rates for unlimited service. The company has since beefed up its network and settled lawsuits, but less severe problems with service continue to dog the online service.

In addition to facing the hurdle of its own image, AOL will come up against considerable competition in the business network market. Competitors include heavy hitters AT&T WorldNet, IBM, and AOL's own telecommunications providers UUNet and WorldCom.

"There is a huge array of formidable competitors," said Simons. "AOL is starting from ground zero."

Oppenheimer applauded the relaunch, however. Enterprise "could contribute meaningfully to the bottom line in 1999 and thereafter," wrote the Oppenheimer report's author, Henry Blodget.

In other news, Oppenheimer said AOL had signed Ralston Purina for an exclusive "pet inventory" advertising deal, and was close to signing a deal with Proctor and Gamble for a system-wide advertising contract.

In the March 10 report, Oppenheimer raised its 12-month price target on AOL's stock to $145 from $125. AOL the following week underwent a 2-for-1 stock split.