While a marketing effort to provide an all-you-can-eat online service had online enthusiasts virtually ravenous over the prospect, America Online [AOL] is now in the unusual situation of having too many people at the buffet line, and they're hungry - and not all being fed.
After announcing the new $19.95/month payment plan six weeks ago, the nation's largest online service added at least 1 million members to its nearly 7 million-member base. The new service and increased membership seemed like a good promotional move, but in the court of public opinion, AOL is the unpopular defendant.
Newspapers and TV news shows across the country are running stories about disgruntled customers unable to log on to AOL during peak hours. Some angry customers have even filed class action lawsuits. The suits seek either punitive or compensatory damages.
While local Internet Service Providers and competing commercial services are exploiting the situation with special promotions to get AOL subscribers on board (Prodigy has seen a 400 percent increase in subscribers) - critics are not quick to blame AOL.
"We are in the Model-T days of the Internet," said Michael Terpin, president of the Terpin Group, a high tech PR firm in Marina del Rey, Calif. "What they are going through is growing pains. I have a hunch this situation will blow over and AOL will continue to be successful."
Terpin said that he once heard someone say, "In this industry, if you are not stumbling, you are not running fast enough."
AOL staffers agree. While it is acknowledging the delays, the company makes no apologies for its shrewd marketing move to compete with others in the industry who have been slowly stealing its market share by offering package deals. Instead, to deal with the problem, AOL's PR department is working around the clock to help and inform its customers. To answer access questions, AOL plans on adding 600 new customer-support employees over the next six months. It also jettisoned its "Jetsons" television commercials and sharply reduced mailings of free computer diskettes loaded with AOL software until it can better handle the new customers.
"It was difficult for us to anticipate the amount of usage," said Trisha Primrose, PR manager at AOL. "But now we have to work through this time and keep our customers informed about the newest developments."
In an unusual plea, Chief executive of AOL, Steve Case, issued an apologetic letter on AOL last week asking customers to scale back their use of AOL until the company adds the new equipment necessary to maintain the system.
"I know that you may have had great difficulty connecting to AOL in recent weeks, so I wanted to let you know what we're doing to address the problem," said Case in the letter.
"There's also something you can do to help," Case wrote, "and that is to moderate your own use of AOL a bit during our peak evening periods. During this transitional period, it would be helpful if you were sensitive to the needs and frustrations of your fellow members.
Since its new marketing campaign began in September, customers of the fast-growing service have more than doubled their average daily use, e-mail messages have doubled to 18 million pieces a day, and total on-line time for all users has nearly tripled, to 125 million hours.
But all of these people have created a severe congestion on the information highway.
Dealing With The Problem
AOL officials said that because they are providing a new service in unchartered territory, it was difficult to predict the popularity of its unlimited access pricing program.
AOL said it will spend up to $350 million on new equipment and personnel to ease the crunch caused by a surge in use since Dec. 1, when the company began charging $19.95 a month for unlimited on-line time. AOL has issued press releases stating that it is scrambling to expand its system capacity adding thousands of new modems. The company will break ground next month on a 180,000-square-foot data center in Reston, Va.
Analysts are surprisingly empathetic about AOL's handling of the situation.
Terpin said that AOL is in the same boat as all Internet service providers --they are still in high growth stages and do not have infrastructure yet for strong customer support. Compared to others in the industry, AOL is highly responsive.
"People do not have the sense that AOL does not care. AOL has keen brand awareness," said Paul Saunders, an analyst at Van Kasper & Co., in San Francisco, and an occasional AOL user. "It is the largest service provider for a reason."
Saunders said one indication that the crisis has not affected the company too badly is that its stock prices have actually risen since the new marketing campaign and recent onslaught of customer complaints. However, as of Jan. 22, AOL's stock dropped 1.5 points to 38 3/8 a share.
"I think AOL would have been worse off if they had not offered this new pricing schedule," said Terpin. (AOL, 800/827-6364, Terpin Group, 310/821-6100, Van Kasper & Co.415/568-5700)