As the three largest portals seek to squeeze profits from the Internet, they are turning the clock back in some respects: bundling Internet access with content, offering tiered pricing to attract more users and emphasizing community-building tools, while at the same time downplaying advertising.
Whether these retread models ever will attain the elusive long-term profits has been debated since the dawn of the commercial Internet.
The question takes on new urgency now as AOL, Yahoo and MSN retool their business strategies in the wake of the technology bust.
The high-profile October release of new software tools from AOL and MSN, and Yahoo’s quieter September launch with SBC of a co-branded high-speed Internet access service, underscore the increased competition as growth of the Internet audience slows.
In some ways, they are taking many of their business cues from cable television: bundle offerings in attractive ways to convince people to pay for something that used to be free.
Enter tiered pricing: Broadband services are being priced based on Internet connection speeds and access to content now comes in prepaid packages, more closely tying the two services than in previous incarnations.
“If you ask people if they are willing to spend a few dollars a month more for a package of cable channels, most say yes,” said Charlene Li, an analyst with Forrester Research. “Now Internet companies are bundling like cable TV.”
What’s still missing in this formula, say analysts, are any offerings–beyond basic dial-up access–that a mass audience actually might be willing to pay a few dollars a month for. Broadband access is in only 12 percent of U.S. households, and a recent Commerce Department report said its adoption was largely driven by people working at home.
“What is so compelling that people will be willing to pay for? Quite frankly, I don’t think we still know,” said Mark Kersey, a senior analyst with ARS, a technology research firm. “These guys are promoting convenience more than content; faster, always-on connections without having to tie up the phone line.”
But, say Kersey and others, the odds of success may be improved this time.
For better or worse, the technology-stock bust has virtually cleared the playing field of all but the largest competitors.
At AOL, the company is at crossroads. It remains the nation’s largest ISP by a huge margin, with 26.5 million subscribers, but its bread-and-butter business of dial-up Internet access is growing slowly, and others are undercutting its price.
Most of the new features offered in AOL 8.0 focus on rebuilding the company’s reputation for fostering an online community.
They include efforts to keep the dial-up audience from bolting, promising, for example, to no longer allow advertisers to use pop-up advertising on the site.
On the broadband front, AOL recently struck a partnership with AT&T Broadband and Comcast for high-speed access, which it also provides through Time Warner Cable. Broadband gives users such offerings as CD-quality radio and live streaming performances of popular musicians.
Unlike the dial-up market, where AOL, as market leader, essentially sets the price, broadband is a different story. AOL’s prices are high and, for now, it offers no tiers.
No major Internet company has retooled its Internet strategy as often or at such enormous cost as Microsoft.
The software giant’s MSN service remains a distant second to AOL, with 9 million subscribers, although an intensive marketing campaign, including undercutting AOL’s dial-up and broadband pricing, has shrunk the gap.
Returning to its software roots, MSN’s Internet strategy lies predominantly in creating a broadband network over which to sell software services, giving it a leg up in the race to capitalize on online transactions. MSN said it has spent $500 million developing and promoting MSN 8.0.
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The theory goes if consumers are willing to pay for one service, they will be more open to paying for others down the line. Microsoft even is offering discounting on home-networking gear for connecting to digital subscriber line and cable service.
With its introduction of 8.0, MSN will separate for the first time what features it offers on the free MSN site from those available to Internet-access subscribers.
Paying customers will get the more technologically advanced features. Consumers who use a different ISP can access them for $9.95 a month.