America Online Inc Case Write-up
1. Prior to 1995, why was AOL so successful in the commercial online industry relative to its competitors CompuServe and Prodigy?
In relation to its competitors, America Online was very successful in 1995 due to the following:
• Implementation of their software for the leading computer platforms over the past decade: Commodore in the mid-eighties, Apple in the late eighties and onwards, Windows since 1992.
• Inclusion of a wide array of products and services for their members. Beyond the basic online community services like e-mail, chat rooms and forums, AOL’s service included computing, education and reference materials, news and personal finance, travel and shopping, and entertainment.
• For each of the services listed above, AOL established partnership with leading publishing and service companies in their category. For example, for personal finance, AOL included content and services from Morningstar and Fidelity.
• Implementation of aggressive retention and acquisition programs. AOL realized that the way to keep its business profitable was to keep growing its customer base and retain it for as long as possible. Exhibit 2 shows the effectiveness of their marketing campaign; AOL managed to increase customer retention by 37% from 1993 to 1995.
• Use of a simple pricing approach. Compared to competitors, AOL’s rate structure was the easiest to understand and anticipate by consumers.
• Development and marketing of proprietary software like 2Market.
• AOL’s good foresight for the future of technology. AOL understood that online services should not just be a text-based communication; therefore, they invested heavily in developing and improving the multimedia content of their service.
• Finally, AOL realized that a big component of online services is building a strong community. AOL molded their service to build this notion with their customers.
2. As of 1995, what are the key changes taking place in the...