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Tech Industry

Churn, baby, churn

As they strive to keep their customer numbers as high as possible, online services and other ISPs increasingly are subject to the phenomenon known as "churning," the often wildly fluctuating subscription totals that result from customers dumping one ISP for another.

Ever been awakened by a Saturday morning phone call asking whether you want to subscribe to a newspaper you already get? In the Information Age, expect more of the same.

As they strive to keep their customer numbers as high as possible, online services and other Internet service providers increasingly are subject to the phenomenon known as "churning." The term refers to the often wildly fluctuating subscription totals that result from customers dumping one ISP for another--therefore causing a churning effect in the accounting books, not to mention executives' stomachs.

"It's like being addicted to heroin," a former San Francisco newspaper executive once uttered in dire tones. "Once you start, you can't stop."

The reason companies can't stop the cycle is simple: Once they've sold ads and projected earnings based on inflated numbers, they must do whatever it takes to maintain those subscription levels. As this trend accelerates, we can expect the new media to turn to decidedly old-world sales tactics to drum up business, like cold calling.

So far, concerns over the effects of churning largely have been confined to the ISPs themselves and the Wall Street soothsayers who follow them. But to those of us who have seen sunset industries such as newspapers turn to desperate measures to float their numbers, it seems only a matter of time before the practice begins to affect the mass consumer market, online and off.

According to a study released last week by the Strategis Group, Internet service provider customers are canceling their service at rates five times higher than that of telecommunications companies. With retention records as volatile as these, how long can it be before we all start getting those dreaded calls on a regular basis?

It seems that churning does little except feed companies' addictions to inflated statistics--and, in the process, their nonstop marketing blitzkriegs eat up more resources. As a result, customers may see their service suffer and leave to join a competitor, only to be tempted back again with promotions and promises.

These practices already have been well-established by two forebears that are now competitors with online services, print media, and telephone companies. And what has churning done for them?

In the case of newspapers, it has cost a bundle just to keep paid circulation numbers above the water line. Phone carriers have alienated a good many customers with issues ranging from those irritating weekend calls to an illegal practice known as "slamming," or changing consumers' long distance service without telling them.

Telephone carriers and publishing companies spend millions of dollars a year on hiring warehouses full of telemarketing operators to seize unsuspecting consumers at home. Online services are going well beyond such pedestrian tactics, even going so far as to tackle the holiest of all advertising grails, television.

America Online, the undisputed lord of the churn, has resorted to the most amazing promotional tactics to support its habit. Its inescapable software disks have been shrink-wrapped to peanuts on United Airlines flights, as well as to general interest magazines. Now AOL even burns its software into music CDs.

The churning addiction has yet another complication: Companies aren't always equipped to handle the sudden swells in customer rolls that can result from the practice.

Newspapers, for example, have done a notoriously poor job of providing reliable doorstep delivery. This is especially true as readerships have continued to stray deeper into the suburbs, far from downtown printing plants, extending the drive time for delivery trucks. The service gets even worse when addresses constantly drop on and off their routes.

America Online and other ISPs have their own traffic problems related to churning. AOL nearly suffered a full-scale revolt by its members only a year ago when its marketing campaigns brought in a new tide of subscribers who unwittingly tied up the service's already-taxed servers and dial-up lines.

Still, traffic jams and other service lapses may be inevitable as ISPs continue to search for new revenue models tied to membership numbers. AOL may have weathered the criticism over this week's price increase, but its sales reps likely will be looking for other ways to goose earnings soon.

And when they do, operators will be standing by.

Every month, Mike Yamamoto writes from the Bullpen, an old newspaper term for the newsroom.