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60% of AOL's Profits Come From Misinformed Customers 301

Posted by samzenpus
from the check-your-math-again dept.
satuon writes "Ken Auletta's big New Yorker piece on AOL (subscription only) this week revealed an interesting detail about the company's inner workings. According to Auletta, 80% of AOL's profits come from subscribers, and 75% of those subscribers are paying for something they don't actually need. According to Auletta: "The company still gets eighty percent of its profits from subscribers, many of whom are older people who have cable or DSL service but don't realize that they need not pay an additional twenty-five dollars a month to get online and check their e-mail. 'The dirty little secret,' a former AOL executive says, 'is that seventy-five percent of the people who subscribe to AOL's dial-up service don't need it.'"
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60% of AOL's Profits Come From Misinformed Customers

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  • by rwa2 (4391) * on Sunday January 23, 2011 @10:59AM (#34972924) Homepage Journal

    Who are the other two? And particularly the person who actually NEEDS AOL?

    We've tried, and she actually understands. But she's hooked on the "experience". Maybe she just likes some disembodied voice telling her that her internet is up or down.

    Well, maybe it will go away once she starts using a smartphone and starts uploading all her stuff into the cloud. That doesn't seem like a very compelling argument we have to make to her, though.

    • by Pharmboy (216950)

      Father in law was the same way, we started him with AOL many years ago, got him to get cable a few years later, spent a couple years with both because we couldn't convince him. Finally he got it and quit aol, but only after spending hundreds in unneeded service. Some (many) older people are just hardheaded as they claimed their kids to be 50 years earlier. They just won't change out of fear of loss.

    • by vlm (69642) on Sunday January 23, 2011 @11:16AM (#34973034)

      And particularly the person who actually NEEDS AOL?

      I was also bit mystified by the 25% actually needing it.

      It seems to be insurance.

      Can you absolutely 100% guarantee that your hotel or conference center will have a phone line to dial up and check your email etc when business traveling? Yeah, pretty much. Thats right up there with "having sheets" or "has HVAC" or "has electricity".

      Can you absolutely 100% guarantee that your hotel or conference center will have WORKING wifi? Well, err, ... um... Yeah maybe 90% but can you financially afford to take that chance for only $50/month to AOL?

      • by T-Bone-T (1048702) on Sunday January 23, 2011 @11:39AM (#34973202)

        Some people live in the boonies and can only get dial-up. Wireless ISPs are moving in to many places now, though. I have relatives that live in the middle of nowhere and have internet options now that are at least as fast as I do in the big city.

        • by roc97007 (608802) on Sunday January 23, 2011 @02:08PM (#34974440) Journal

          Yes but... there are less expensive options for dial-up than AOL. I think the point is that the people in question don't realize that all the "extras" they're paying for are available for free with any internet connection.

          • However, I'll submit you combine BOTH boonies AND their email history dating back to Meg Ryan's insomnia in Seattle, they may not have the energy to first export all their email and then change to another dial up service and then reimport their email to somewhere.

          • by sznupi (719324)

            Well, then it's just pretty similar to most areas of commerce / it's as mature as them!

      • by DavidTC (10147)

        My DSL account actually comes with a dialup account.

        Of course, it'd be long distance from anywhere I needed to use it.

      • Actually, someone I know is still paying a monthly bill for AOL for a different reason. They are afraid of the people on the retention line [consumerist.com], and don't want to plan out a couple of hours to fight over it. Call it unethical or illegal, but it works - I still to this date (4 years later) cannot get them to cancel because they don't want to waste the time and energy. I would expect that a lot of other successful companies play this game too.
        • by sconeu (64226) on Sunday January 23, 2011 @01:54PM (#34974338) Homepage Journal

          A few years back, my mom got DSL. I told her to drop her paid AOL subscription and just use their free service. She asked me to call AOL and do it for her.

          I was prepared to spend an hour saying "please cancel the paid service" over and over and over.

          I was shocked. It took me 5 minutes on the phone. Then, when I wanted to call back to confirm something, an automated voice told me that the account was on the free service, and customer service would cost me -- did I want to continue?

        • I'm surprised that most people in that situation don't just stop paying the bill. They'll cut off your account eventually, right? And if you're not planning on buying a house in the next few years, it's not like the hit to your credit will matter.

        • by shentino (1139071)

          Just quit paying your bill, and when they whine, tell them you tried to cancel but that the retention line wouldn't take no for an answer. Say you'll only pay the balance when they stop charging you.

          If they report you to the credit bureaus, dispute the charges.

        • Years ago I installed AOL one Christmas day on a scavenged computer so a friend's dad could look at some info about a car. When I called AOL to cancel they wanted the specific number off of the disk that I used to install before they would cancel it. I didn't know which of the 50 disks I had used so I went to my bank, paid a one time stop fee of less than what AOL was charging monthly. That worked just fine. No argument at all.
      • If you're in a business situation and you're using AOL dial-up to guarantee Internet access, you're doing it wrong. Get a (tethering) smartphone or a WiMax modem. Or have a dial-up access line on the business premises at much lower cost.
    • by goombah99 (560566) on Sunday January 23, 2011 @11:51AM (#34973276)

      I found my mother was being billed $50/month by earthlink even though she had service through another ISP. The phone number earthlink claimed they were providing service to was not only in another area code but did not even exist in that area code. When I complained to earthlink that they had stolen thousands of dollars from her over the years they just said "Earrthlink is not a usage based service". Of course not, especially when they supply service to telephone numbers that don't exist.

      It get's worse. actually. I had canceled her service. but it turns out they called her back aftrwards and asked if she was unsatisfied and would she like to continue the service. They then told her that given her usage patterns they reccomended she buy extra space! Extra space on an account that she could not even use if she wanted to.

      Never got any money back. Thieves. Boycott Earthlink.

      • by gmack (197796)

        I know guy who bought a computer to keep himself busy now that he was in a retirement home. IT cam with "free internet for three months" and by that they meant they tossed in an AOL CD. What they didn't say was that they had already provided his credit card details to AOL so even though the software was never installed he got billed for it anyways. When I called to complain they told me "we don't look into people's accounts to see if they are using it" and then provided a partial refund only.

        • by Bryansix (761547) on Sunday January 23, 2011 @01:06PM (#34973902) Homepage
          Call the Attorney General for sure. But also call the credit card company and tell them the charge has been fraudulent the whole time. At least they will credit back the last month but possibly more.
          • by fluffy99 (870997)

            Call the Attorney General for sure. But also call the credit card company and tell them the charge has been fraudulent the whole time. At least they will credit back the last month but possibly more.

            The credit card companies are just as sleazy. For many cards if you pay the bill and don't challenge the charges right away, you lose the right to contest the charge. So yeah, at best you should be able to contest the current monthly charge.

      • by hedwards (940851) on Sunday January 23, 2011 @12:55PM (#34973782)
        What you do in cases like that is report it to the Attorney General's office. While they can charge you whether or not you're using it, they can't generally charge you for something that you can't possibly use and definitely not without proving that it was signed up for by the party paying the bill.
      • by roc97007 (608802)

        Had the same problem with mother-in-law. She had Earthlink dial-up service and after she got DSL she ended up paying for both services. I had a hard time convincing her that she no longer needed Earthlink. She did finally cancel the service and transferred her email to her ISP.

        Another friend (older guy -- sixties) went from Earthlink to local DSL service, and then was somehow convinced to buy Earthlink DSL service on top of that. Earthlink sent him a router identical to the one he already had which h

      • by drew30319 (828970)
        If your mother is considered to be "elderly" (which could be as young as 60 depending on the state) there might be statutes that provide additional protection(s) against "fraud" or "deception" based on her age. You might want to check out the statutes for the state in which she lives. If the Earthlink billing was within the statute of limitations they might be interested in refunding the fees if the applicable statute(s) were pointed out to them.
      • by gonz (13914)

        If the "thousands of dollars" are less than around $5000, and if Earthlink has a company office in your state, then you might be able to take this to small claims court. It doesn't require a lawyer, and the judge would typically be biased towards the individual versus the Company.

    • by gmack (197796) <gmack@NOsPAM.innerfire.net> on Sunday January 23, 2011 @12:23PM (#34973506) Homepage Journal

      Don't forget that the people who you call to disconnect your service get payed a commission on every customer they get to stay and those people will say anything to get you to reconsider even if it's completely untrue. You might also want to keep in mind that their disconnection process was actually the subject of a lawsuit that involved the Attorney Generals of 48 states. [ecommercetimes.com]

      • by Bigjeff5 (1143585)

        It's Attorneys General.

        We use the french form for that particular title. That's why it's Attorney General instead of the more sensible General Attorney. We do the same thing for Solicitor General.

        Gotta love English!

    • by Mousit (646085) on Sunday January 23, 2011 @01:09PM (#34973934)
      The worst part of all is she doesn't even have to lose her "experience" to get off dial-up.

      AOL has a FREE level of service under their "AOL for Broadband" setup, and you can convert existing dial-up accounts to it. I did this for my grandmother. She was on AOL Dial-up for years and years (she actually used it though, because in her area broadband was unavailable until late 2008). Finally DSL became available and she was happy to jump onto it (finally she could watch those videos the younger grandkids send). So I helped her convert her AOL Dial-up to a free AOL for Broadband account. She kept her e-mail address (and all the remotely stored e-mails), kept her links and shortcuts.

      In fact, she kept everything, because you can still use the AOL Client to connect to a AfB account. It just doesn't dial anymore, it merely connects to the account over your existing broadband.

      In effect, her "experience" literally did not change. She still loads up the AOL Client, and accesses everything through it. She lost nothing (the free AfB accounts do lose some services compared to paid, but nothing she used or was even aware of). The only difference is now she has 15x the speed of dial-up, and she pays $15/mo for it instead of $25.

      Plus I got her a wireless router so she can use her laptop away from the phone line, which to her was probably the most glorious thing of the whole change. :)
    • by suso (153703) *

      Me too.

      Actually, not really. It just needed to be said.

    • by interkin3tic (1469267) on Sunday January 23, 2011 @05:40PM (#34975996)

      Who are the other two? And particularly the person who actually NEEDS AOL?

      There's plenty of reason people would intentionally subscribe to AOL

      -Convinced that they are supporting America by paying to AOL
      -Own stock in Time Warner and want to make sure stories like these aren't "100% of people subscribing to AOL are doing so on accident"
      -Only buy newspapers 10 years too late and don't realize AOL isn't the current hottest thing
      -Collected 2 tons of the free subscription discs and are still coasting off of free trials
      -Like chatting online with other people who are equally dumb
      -Perfected a keylogger that spreads through AOL 12 years ago, too lazy to make a new one
      -One of the only online services that still supports windows 98, and why would I upgrade from windows 98?
      -Doing it "ironically"
      -Nostalgia
      -Free subscription to Time or some other magazine/news service that for some reason is still associated with AOL
      -Hipsters convinced it will eventually cycle back through to being the next big thing again, want to be able to say they were there before it was cool again
      -Schizophrenia

  • Inertia (Score:5, Insightful)

    by Craig Maloney (1104) * on Sunday January 23, 2011 @11:09AM (#34972988) Homepage

    So, essentially the bottom line of AOL is bolstered by "inertia"? Is there a compelling reason why someone hasn't told the investors and / or the people getting bilked?

    • Re:Inertia (Score:5, Insightful)

      by Foobar of Borg (690622) on Sunday January 23, 2011 @11:48AM (#34973254)

      So, essentially the bottom line of AOL is bolstered by "inertia"?

      Works for the RIAA. Actually, truth be told, this is how a lot of out-dated behemoths stay in business.

    • Re:Inertia (Score:5, Insightful)

      by tunapez (1161697) on Sunday January 23, 2011 @12:13PM (#34973432)

      I've told them until I am blue in the face!

      The AOLers cannot grasp the concept that they can retain their email addresses without paying for the unnecessary services. We've even downloaded their emails and contacts, opened IE and FF without AOL but they still don't believe. MSNers are no different. They are all the 60yo+ crowd who got online with the dial-up services and believe they still need these portals to get online with their Comcast/Cox/Qwest hi-speed. It doesn't help that the AOL operators outright lie to them about the necessity of the service.

      • by MoonBuggy (611105)

        In which case I have no qualms about letting them waste their money. It's one thing to misunderstand or plain forget about a monthly outgoing (sure, in an ideal world one would keep a closer eye on things, but I can understand it), but if people are going to wilfully ignore the advice of those trying to help them then they can shovel the cash into a furnace for all I care.

      • by Bigjeff5 (1143585)

        If you have broadband you can still connect to AOL without having to pay for it. The $20 a month or whatever is only for the dial-up service.

        You went through far more trouble than you needed to, and could have convinced them without it.

    • No doubt inertia plays a part, but many companies bottom lines are bolstered by misinformation and ignorance, that's obvious any time you turn on the television and watch an ad break. Sixty percent for AOL is probably low compared to others out there. Is it really possible that they can keep inventing new and improved toothbrushes, razors and air fresheners every year? Of course it isn't, but that doesn't stop some of the largest conglomerates making billions by selling lies and scaring people into believ

    • by hedwards (940851)
      The term you're looking for is fraud. I remember trying out their music service and being billed for things that I didn't want or need. And each time I'd call them they'd magically find other options. I ended up having to curse out the customer retention specialist before they'd accept that I wanted to be disconnected. Stupid prick made all sorts of distortions to try to scare me into staying.
    • I think this is an example of the previous article "America Losing Its Edge In Innovation". AOL could have been the internet leader, it had a huge head start. They could have at least tried to be the Amazon or Google of the Internet. But I guess they were happy in fooling their customers into believing they were providing "content".
    • Re:Debunked (Score:5, Interesting)

      by timeOday (582209) on Sunday January 23, 2011 @11:52AM (#34973286)
      That shows 43% of their revenues coming from subscriptions. The article says 80% of profits come from those revenues. Does the 10-Q you linked contradict that? I would guess the accounting rules for deciding which profits come from which revenues are complicated, since it seems like a nebulous question.
  • I find that hard to believe.

    I might believe you if you said 100%.

  • by Anonymous Coward

    My aunt and uncle were AOL subscribers for years because they couldn't get broadband from the cable company or DSL from the phone company. Part of the problem might have been they had an unusual postal address, a road extension, not just a site on the road, which may have confused their databases, but eventually the power company came in, and I managed to get access to a supervisor who knew the area and would authorize an installer to come out.

    Yay.

    But they had to quit AOL first. It took several minutes o

  • by Ritz_Just_Ritz (883997) on Sunday January 23, 2011 @11:26AM (#34973112)

    It took me YEARS to wean most of my AOL using friends/relatives off of AOL. Once something winds up getting "automatically charged" on their credit card every month, a lot of folks are just too lazy to change. None of them were using any of AOL's "value added services" and it was just an email application for them. Most of them already had high speed internet from their cable company or a telco DSL line already. They're all using gmail now.

    • by Dogtanian (588974)

      It took me YEARS to wean most of my AOL using friends/relatives off of AOL. Once something winds up getting "automatically charged" on their credit card every month, a lot of folks are just too lazy to change.

      If, as you're implying, your friends were simply "too lazy" to bother spending five minutes on something that would save them loads in the long term, why were you spending "YEARS" getting them to change?

      Don't get me wrong, AOL is, and always has been, a dickish company, and I don't like to see them get people's money. But if people know the score and are so damn lazy they won't change despite repeated attempts by you... they probably deserve to be ripped off- they sure as hell don't deserve your help, so

      • by Jeremi (14640)

        they probably deserve to be ripped off- they sure as hell don't deserve your help, so why waste your time?

        What part of the word "friends" didn't you understand?

        • by Dogtanian (588974)

          What part of the word "friends" didn't you understand?

          They're his/her friends, not mine. I'm entitled to think what I like about them.

          But frankly, you missed the point. I wasn't criticising him trying to help out his friends (and relatives) in the first place. That's a decent thing of him to do, and the type of thing one would expect someone to do for their friends.

          What's clear (at least the way he put it) is that it took him "YEARS" of getting his friends who were "just too *lazy* [my emphasis] to change". He, I assume, gave them advice and offered to hel

    • by fermion (181285)
      Let's take this one step further. Most people do not need a land line phone. There are some advantages to having it, mostly a feeling of security, both real and imagined. Most of us have grown up with a land line, so not having one seems a false economy.

      I know people who still pay huge amounts for calling on land lines, or use phone cards, when Skype give superior call quality to many countries at a fraction of the cost. Why, that is what they learned to do. People have been trained to go home and wa

  • by redalien (711170)
    A subscription that nobody needs? Oh, the irony.
  • No way! (Score:2, Informative)

    by Anonymous Coward

    The only secret about this is that 75% is shockingly low. Is AOL known for anything other than elder fraud?

  • by pz (113803) on Sunday January 23, 2011 @11:41AM (#34973214) Journal

    Sounds like a class action lawsuit to me.

    No, I'm being serious. This is an abusive business practice. In financial circles, similar actions to intentionally mislead clients, especially elderly ones, especially by omission of whether a particular service is needed or not, is a very big deal and results in loss of license to the sales agent and potentially punitive action by the SEC to the employing firm. The scales of money are different, but the sleazy flavor is the same.

    • by LibRT (1966204) on Sunday January 23, 2011 @12:00PM (#34973338)
      You must be kidding. If I sell you a screwdriver, am I under any sort of obligation to determine whether in fact you require a screwdriver, and if so, that the screwdriver you are considering purchasing is the appropriate one for your purposes??? And why "...especially elderly ones..."? Give your head a shake - adults can make their own decisions on how to spend their money, even when those decisions are not to your liking.
      • A screwdriver is a general-purpose tool, it's easy to imagine that most people would have use for one - if not every day, then at least on occasion. Dial-up internet is a special service, and is sold for one purpose: to get online. The vast majority of people don't need it, and telling them that they do is definitely mis-selling. It's also a service, not goods, and there is a different obligation to determine that a service is being sold correctly, compared to goods.
      • by justinlee37 (993373) on Sunday January 23, 2011 @05:10PM (#34975736)

        This is more like if I come into your hardware store and say "I need to drive this nail into this board and I have a hammer, do I need anything else?" and you tell me that I need to buy a screwdriver and 10 lbs. of bark chips as well.

        Apparently some people have been calling AOL and asking if they still need a subscription after getting a new internet connection, and the operators are lying to them and saying they do. That sounds pretty sleazy to me.

      • I feel your analogy is inappropriate.

        If by 'screwdriver', you mean e-mail account, and then you called "AOL" a 'screwdriver license", we might start making a fair analogy...

    • No, I'm being serious. This is an abusive business practice. In financial circles, similar actions to intentionally mislead clients, especially elderly ones, especially by omission of whether a particular service is needed or not, is a very big deal and results in loss of license to the sales agent and potentially punitive action by the SEC to the employing firm. The scales of money are different, but the sleazy flavor is the same.

      The major difference is that your financial advisor typically has a fiducia

  • Here's their sec filing if you want to look for it yourself:
    http://www.sec.gov/Archives/edgar/data/1468516/000119312510245249/d10q.htm [sec.gov]

    This was discussed on reddit very recently:
    http://www.reddit.com/r/technology/comments/f71tv/that_post_about_how_80_of_aols_revenue_comes_from/ [reddit.com]

    They were very critical there of an earlier story that was upvoted quickly but which was apparently well wide of the mark.
    I suspect this sensationalist headline will be too - feel free to check.

  • by v1 (525388) on Sunday January 23, 2011 @12:28PM (#34973560) Homepage Journal

    seventy-five percent of the people who subscribe to AOL's dial-up service don't need it.

    Many dozens of times I've seen customers come in that are using AOL with their DSL. I don't see it so much with cable because the majority of people using AOL are using it because cable isn't available to them, they're too far from the city, but DSL is available and they've had it for years. Many of them signed up for their DSL (service by Qwest, formerly AT&T) through AOL and don't even realize it's not AOL providing it.

    So I ask them why they are still using AOL, and it quickly becomes apparent that they believe that AOL is the internet. I'm able to reason with some of them, but even a percentage of those still want to keep AOL because they're comfortable with it. Me personally, having to change my email address would be the big problem. But last I checked, AOL reduces your charges down to something like $9.99/month if you just want to keep email and not have the rest of their service such as dial-up. But even when I explain this to them, many are just not interested in it. Many years ago when I quit my dialup, I switched to my isp's "email only" plan for that same amount and kept it for about 6 months, and it made the transition to cable a lot smoother for me.

    I try to explain it to them, how using a local email app on your computer makes things like managing attachments so much easier, but a lot of these people just aren't interested in anything making their computer use unfamiliar again even if only for a brief time. They're in their secure zone and don't want to leave. Only just this year I finally got my next-door neighbor to drop AOL after showing her just how much easier it was to email photos from her new digital camera using a local email app.

    And I'll just toss it right out there - they're all old people Every last one of them. So eventually AOL's user-base is going to literally die off.

  • The actions (or inactions really) of AOL remind me of a paraphrase of the old addage "what you don't know, won't hurt you". That paraphrase would be in this case "what they (AOL's customers) don't know, won't hurt us (AOL)". Sigh...
  • by careysub (976506) on Sunday January 23, 2011 @01:05PM (#34973892)

    AOL has claimed in the past that its subscriber base hit 30 million, this was probably somewhat exaggerated (rounding up a couple of million) but taking them at their word their subscriber base is now something like 3.3 million. Not quite 90% yet, but they have been losing at least half a million per quarter so we are only a couple of months out from that mark.

    Any mass auto-billing subscription service that is going to have some fraction of subscribers who are inappropriately signed up through ignorance or error. On your way down to zero again it is inevitable that you will reach the point where these are essentially your only remaining customers. Approaching the 90% decline point, AOL clearly reached that stage some time back.

    I await to see how AOL will arrange to screw their last few customers when the service is finally shut down.

  • I used to worked at an ISP who had about 25 000 dialup subscribers. (And about 10 000 DSL) They were playing around with the idea of charging a couple more bucks for the service. I got asked to generate a connection usage report. Turns out 60% of the dialup customers had not connected to their service in the past 3 months. (That was 2 years ago, so 75% today would not surprise me at all)

    When people are used to automatic billing either on their bank account or their credit card, they tend to forget that they

  • by monoqlith (610041) on Sunday January 23, 2011 @02:09PM (#34974446)

    AOL still makes profit.

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