Case study: America Online, Inc.
Q1.Prior ro 1995, why was America Online, Inc (AOL) so successful in the commercial online industry relative to its competitors CompuServe and Prodigy? The America Online, Inc. was so successful due to its pricing rate structure, which was the easiest for consumers to understand and anticipate, compared to its competitors. AOL charges a cheaper monthly fee of $9.95 for the access to all of America Online’s service for up to five hours each month. Each additional hour was $2.95 and no additional downloading fees were charged. Its competitors, CompuServe and Prodigy, offered the same standard pricing but charged additional fees for premium services and downloading. AOL tried to differentiate itself by leading the development of the new interactive services industry. It had signed new strategic partnership with American Express, Business Week Online, and NTN communications. These deals, along with AOL’s growing membership base, its enhanced look and feel, and its ability to program content to appeal to users, uniquely positioned America Online to lead the development of the new interactive services industry.
Q2. 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 key change is the advent of the Internet world wide web and the entrance of Microsoft Network, content provider had alternative distribution channels that offered greater control over their products and potentially higher revenue. These changes threatened AOL’s future prospects. Microsoft would act like a bookstore, one in which every author was his/her own publisher. It kept a 30 percent commission out of the provider’s fee and passed along the rest to the content provider, offering content providers greater control over their own products. However, AOL only offered 20 percent of commission to the content provider. Also, content providers on MSN applied charge to...
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