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AOL May Bet Company; Scary But Smart

The WSJ reports that AOL is considering making online access to its service–including, importantly, email–free.  (AOL email users currently have to pay for one of the company’s subscription plans, although much of the rest of the company’s content is already free.)  Per the WSJ, this move would vaporize about one-quarter of the company’s revenue, or $2 billion.  The company estimates that it would also result in the loss of 8 million paying subscribers.

This is a scary, but smart, move.  AOL is between a rock and a hard place.  If it does nothing, it dies slowly.  If it makes moves like the one described above, it deeply wounds itself but hopes that it will recover and have a long-term future.  Neither option is appealing.  But only one–the latter–gives the company a chance of being around for the next few decades.

If it chooses this route, of course, the company will have to do a lot more than cut and pray.  It will have to immediately retool its email system to make it competitive with other free options, such as Yahoo and Gmail.  It will have to build a clear portal identity–and target audience (presumably the MySpace and existing AOL-user crowd)–and win over a segment of the market that has not yet pitched camp at Yahoo, Google, and MySpace.  It will have to find something, anything, that it is better at than anyone else, (which will probably be communications-related).  And then, ultimately, it will have to combine with one of the dominant portals.

Will it be able to do all this?  The odds are probably less than one in three.  But even these odds are better than certain death.

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