AOL's High Hopes for a Low-Price PC


By Catherine Yang America Online is fighting the tide of dial-up-subscriber losses it has faced for more than a year. On Aug. 12, the beleagured online service announced the launch of a low-cost PC loaded with AOL (TWX) software and aimed at the 27% of U.S. households -- 35 million -- that don't yet own a computer.

Far from throwing in the towel on the dial-up market, AOL believes its $299.99 AOL Optimized PC will help plow fertile new ground in a market that others may have overlooked. "We are trying to reach all segments of population that do not have computers at home today," says David Wellisch, vice-president of AOL Latino.

LOSS LEADER. AOL's low-cost PC gambit "is clearly a strategy to grow the market," says David Card, a senior analyst at Jupiter Research. AOL, which has 23.4 million U.S. members today, lost more than 2 million dial-up subscribers last year and appears likely to lose about the same number this year. Its challenge: to attract first-time users to its dial-up service, while preventing existing members from defecting to broadband providers or low-cost dial-up competitors.

The Optimized PC also fits in with AOL's strategy of offering services targeted to specific demographic segments. Last fall, it launched AOL Latino, a Spanish-language service, which now boasts 2 million subscribers. Around the same time, the online service debuted the KOL and Red channels, with content tailored for kids and teens, respectively. Traffic to kids' sites has doubled, and traffic to teen-oriented content has risen by 950%, according to AOL. This fall, AOL plans to combine its three existing African-American content brands into a new channel called Black Voices. Meanwhile, AOL has also been perfecting a broadband service to appeal to sophisticated online users.

AOL, which had worked on the Optimized PC concept for about 18 months prior to launch, concluded that the perceived high cost of computers was a barrier to adoption of the online medium by Hispanics and other ethnic groups. According to Jupiter Research, only 54% of African-America households and 57% of Hispanic ones are online, vs. 71% of Caucasian and 75% of Asian-American households. To help close that gap, AOL is subsidizing the AOL Optimized PC offer for an undisclosed amount. AOL may eventually launch a broadband offering for the newbie market, say sources close to the service.

JACK-OF-ALL-TRADES? For now, with a check for $299.99 and a promise to sign up for a year-long subscription at $23.90 a month, consumers will get a PC made by Ft. Washington (N.Y.) -based Systemax, a Philips monitor, and Lexmark (LXK) inkjet printer -- as well as AOL 9.0, Windows XP software, and AOL Office software powered by Sun Microsystems (SUNW). If they purchased top-shelf components, the set could easily cost more than $1,000. AOL will be selling the Optimized PC at Office Depot (ODP) and other retailers.

AOL is demonstrating that it still wants to be the jack-of-all-trades in the online medium, offering consumers of all stripes the service that it hopes will fit them best. The test is whether all these initiatives will be enough to steady AOL's erosion of dial-up membership while boosting its broadband following. Yang covers AOL for BusinessWeek from the Washington bureau


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