In 1997 America Online greatly increased its subscriber base.
With a complete change in its pricing policy, the company went from about 5 or 6 million subscribers to 14 million in a matter of months. That sudden growth caused huge bottlenecks in the dial-in networks. It seemed that every AOL subscriber, new or old, was angry with the company.
Sure, prices were for the most part lower because AOL had dramatically changed its policy from an hourly charge to a monthly flat fee. But, now the network was so crowded that customers often couldn’t connect. There were more than twice as many subscribers with the same number of dial-in connections to serve them. And because AOL had changed to a flat rate, those who were able to connect were staying online for a long time.
AOL was like the dog that caught the car: its marketing was too successful and it couldn’t handle all of the resulting business. The company was stretched for resources and facing a dilemma. The managers didn’t want to back off on rapidly growing the customer base, but they did not have the resources to grow the physical network quickly enough to keep pace. AOL was at risk of losing customers as fast as they signed up.
The managers needed to do something -and quick. They examined their options and prioritized. They realized that, as the Internet evolved, the value of their service was moving from dial-up networks to content. So they sold the physical network portion of their business to MCI-WorldCom. They used the cash from that transaction, along with other borrowed money, to fund their core business, which was taking care of their subscribers and generating content. They advertised like crazy and continually improved their content.
The plan worked. MCI-WorldCom used its strategic competencies to do what it does best -build a world-class computer network for AOL –and AOL was able to generate the resources to keep most of its customers and continue growing. Now AOL is the No. 1 choice for Internet access: about 60% of all new Internet users choose to enter with AOL.
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