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Case Study

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  • Jan. 16, 2013
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Case study 4: American online

Question 1: Prior to 1995, why was American Online (AOL) so successful in the commercial online industry relative to its competitors CompuServe and Prodigy? America Online was successful due to the pricing rate structure. Compared to its competitors, American Online’s rate structure was the easiest to understand and anticipate. Only paying $9.95 per month, the customers of AOL are provided to use American Online’s entire services for up to five hours. $2.95 was charged for each additional hour and no additional downloading fees were charged. Although, CompuServe and Prodigy charge the same price, charged additional fees for premium services and downloading. Customers would like to choose the lower price service. That is why AOL was so successful in the commercial online industry.

Question 2: As of 1995, what are the key changes taking place in the commercial online industry? How are they likely to affect AOL’s future prospects? In 1995, the Internet Would Wide Web and Microsoft Network were started to be used. From then on, content providers had alternative distribution channels that offered greater control over their products and potentially higher revenues. First of all, the only way to reach cyberspace browsers was through one of the big three online service, AOL, CompuServe and Prodigy. Microsoft kept 30 percentage commissions out of fees by acting as a middleman between these three companies and customers. As the advent of the Internet and the entrance of Microsoft Network, many content providers were beginning to take advantage. Thus the monopoly of AOL was damaged, and just retain around 20 percent market share.

Question 3: Was AOL’s policy to capitalize subscriber acquisition costs justified prior to 1995? Prior to 1995, AOL spent a large amount of cost in attracting new subscribers by using independent marketing efforts and co-marketing efforts. Customers gain access to AOL’s online service easily by personal...