Changewave Research: AOL Report

ChangeWave Research: AOL Report

AOL Report: 2003 Subscriber Survey Results

The Crowd is Restless and the Clock’s Ticking

Abstract

This report presents the findings of a ChangeWave Alliance survey of current and former America Online subscribers, conducted January 29 – February 5, 2003. A total of375 Alliance members participated in the survey, of which 66% are current home subscribers to one or more AOL services, and 34% have discontinued all AOL services within the previous 12 months.

This survey is a follow-up to an earlier Alliance AOL Subscriber survey conducted in April 2002, the findings of which pointed to a “serious and ongoing hemorrhaging of AOL’s Internet subscriber base.” Last April, two of every five (41%) Alliance members who use AOL as their Internet Service Provider (ISP) rated it unsatisfactory. Also last April, 58% of our AOL ISP subscribers said they’d be making changes to their Internet service over the next 6-12 months – and a majority of this group said they’d be downgrading their AOL service or discontinuing it altogether.

The findings of the current survey show that AOL has made little to no measurable improvement in its standing among Alliance subscribers over the past nine months. Rather, subscriber retention and satisfaction ratings have, at best, remained stagnant and, in many instances, continued to decline. For example:

• 41% of Alliance members currently using AOL as their ISP rate it unsatisfactory – the highest negative rating by far of any ISP surveyed. In comparison, the unsatisfactory rating for Local/Regional Cable users was 9% and for Local/ Regional DSL users it was 4%;
• 34% of Alliance AOL respondents have discontinued all AOL services within the last 12 months; another 12% have discontinued one or more AOL services;
• Only 37% of AOL dial-up users are sure they’ll be staying with AOL Dial-Up for at least the next 6 months. Moreover, when we asked dial-up users if they’d upgrade to the AOL Broadband service or switch to a different Broadband service, only 4% said they’d upgrade to AOL Broadband while 7 times as many (29%) said they’d upgrade to a different broadband service.

Of course, the ChangeWave Alliance is largely composed of “early technology adopters,” and the respondents to this survey are therefore not a truly representative sample of AOL’s core subscriber base. This notwithstanding, the continuing high dropout and dissatisfaction rate among current AOL subscribers poses enormous problems for the future prospects of the Internet giant.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 3

AOL Satisfaction Rate...... 3

• Chart 1: How Satisfied are You With Your AOL ISP Service?...... 3
• Chart 2: Satisfaction Rates for AOL vs. Other ISPs...... 4

A Closer Look at Current AOL Users...... 4

Reasons Why Current Users Maintain Their AOL Account...... 5

• Chart 3: Reasons for Maintaining Your AOL Account...... 5

AOL Subscriber Retention...... 5

• Chart 4: Will You Be Upgrading Your Service?...... 6

Analysis...... 7

Additional Findings...... 9

ChangeWave Research Methodology...... 19

About ChangeWave Research...... 20

I. Summary of Key Findings

This report presents the findings of a ChangeWave Alliance survey of current and former America Online subscribers, conducted January 29 – February 5, 2003. A total of 375 Alliance members participated in the survey, of which 66% are current home subscribers to one or more AOL services, and 34% have discontinued all of their AOL services within the previous 12 months.

The current survey is a follow-up to our previous Alliance AOL Subscriber survey, conducted in April 2002, which found, among other things, a “serious and ongoing hemorrhaging of AOL’s Internet subscriber base.”

AOL Satisfaction Rating

As Chart One above shows, two in five (41%) Alliance members who use AOL as their Internet Service Provider (ISP) rate it unsatisfactory – the highest negative rating by far of any ISP surveyed.

By comparison, Chart Two shows the unsatisfactory rating for Local/Regional Cable users was only 9% and for Local/Regional DSL users it was just 4%.

Moreover, when you compare the percentage of “Very Satisfied” AOL ISP subscribers with its competitors, AOL also remains far behind. Only 16% of AOL ISP users say they are “Very Satisfied” with the service. In comparison, the average “Very Satisfied” rating for the other ISPs was 51%.

*Note: The “Unsatisfied” columns in this chart are composites representing respondents who are either “Somewhat Unsatisfied” or “Very Unsatisfied.”

A Closer Look at Current and Former AOL Users

As mentioned, a total of 375 Alliance members participated in this survey, of which 66% are current home subscribers to one or more AOL services, and 34% have discontinued all of their AOL services within the previous 12 months.

In addition, 12% of current subscribers have discontinued one or more AOL services within the previous 12 months.

A further breakdown of current AOL users shows:

• 52% are AOL ISP subscribers (i.e., 39% AOL Dial-Up and 13% AOL Broadband)
• 48% do not use AOL as their ISP but use one or more AOL services (i.e., Email, Instant Messaging)

It is important to note that the ChangeWave Alliance is largely composed of “early technology adopters,” and the respondents to this survey are therefore not a truly representative sample of AOL’s core subscriber base. This notwithstanding, the continuing dropout and dissatisfaction rate among current AOL subscribers poses enormous problems for the future prospects of the Internet giant.

Reasons Why Current Users Maintain Their AOL Account

When subscribers were asked to pick which AOL services were the most important reasons why they maintain their AOL account, 56% chose “AOL Email,” 32% chose “AOL as my ISP,” 29% chose “AOL Instant Messaging,” and 15% chose “AOL Programming/Family Content.”

While “AOL Programming/Family Content” ranks as the least important reason for why AOL subscribers maintain their account, the fact that it was chosen by 15% of subscribers still represents an improvement over the miniscule 8% who chose it in our April survey.

Back in April we noted: “The lack of subscriber interest in AOL Programming is one of the key findings of this survey – indeed, it could be AOL’s Achilles Heel – and it suggests the Time Warner merger hasn’t yet had a real impact on AOL’s subscriber retention rates.”

Thus, while the 15% of subscribers who chose “AOL Programming/Family Content” in the current survey is little to get excited about, it does represent one of the few areas where the current survey shows a modest improvement over our findings of last April.

AOL Subscriber Retention

AOL’s enormous subscriber retention problem can perhaps best be seen in the response of AOL dial-up users when asked if they’ll be upgrading to AOL Broadband or switching to a different Broadband service within the next 6 months.

Only 37% of AOL dial-up users are sure they’ll be staying with AOL Dial-Up service for at least the next 6 months. Moreover, when we asked AOL dial-up users if they’d be upgrading to AOL Broadband service or switching to a different Broadband service, only 4% said they’d upgrade to AOL Broadband while 7 times that percentage (29%) said they’d be upgrading to a different broadband service.

“The findings of this survey show AOL has made

little to no measurable improvement in its standing

among Alliance subscribers. Rather, AOL subscriber

retention and satisfaction have, at best, remained stagnant

and, in many instances, are continuing to decline.”

Analysis

In our April 2002 survey of Alliance AOL users we found America Online facing enormous subscriber retention and satisfaction problems. This was perhaps best seen in the response of AOL users when they were asked if they'd continue or discontinue using AOL services once they had broadband in the home. Nearly half of the respondents (46%) said they'd discontinue using AOL once they had broadband.

Cut to nine months later (end of January, 2003) and we find AOL announcing the number of U.S. subscribers falling for the first time ever on a quarterly basis – dropping by 170,000 in the last three months of 2002.

Most analysts believe that the opportunity for growth lies in high-speed Broadband Internet connections. And according to the Washington Post, key AOL executives now admit publicly that "…after failing to get into the broadband game early, AOL is still playing catch-up."

The central question:Is AOL beginning to catch-up, or is it falling farther and farther behind?

The findings of this survey provide virtually no evidence that America Online has improved its standing among its subscribers over the past nine months. Rather, subscriber retention and satisfaction ratings have, at best, remained stagnant, and in many instances have continued to decline.

“We're approaching the late innings of a rapidly

moving mass market game - call it 21st Century

Internet Services - and America Online hasn’t

yet shown the wherewithal to compete

on the new playing field.”

How difficult is AOL's situation? We compared current subscriber satisfaction ratings for each of its services with the satisfaction levels recorded last April, and in almost every instance they've experienced a decline (see pp. 12-13). And this is occurring even as former AOL subscribers who’ve switched services are giving 90% satisfaction ratings to AOL's major competitors (see pp. 9-10).

As Alliance member PAM0828 writes, "Bell South now offers DSL in my area and the service includes a portal that is sufficient. AOL keeps asking me to stay with them and saying that they will reduce my fee from $23 to $5 per month. But why would I want to pay $5 month for something I already have?? AOL served a purpose but is no longer needed." LIM7689 adds, "Why pay $23.00 a month when I can get DSL for $35.00/mo, local and long distance phone service and consolidate all my bills with Verizon?"

At a gut level, Alliance AOL subscribers are having trouble accepting AOL's core value proposition: "I have Outlook for email, so AOL is completely unnecessary," reports Alliance member AEK2992, "If I want bells, whistles and nonsense I can go to Yahoo. For searching, Google is one of the best, and I have better things to do than mull around in chat rooms. Changing my personal email was no big deal and it got me away from the spam."

Last April we concluded that "Although ChangeWave Alliance members are more technologically sophisticated than the typical AOL user, for this very reason they represent an excellent window into AOL's future - a company that must compete in a world of more and more experienced online customers."

We're approaching the late innings of a rapidly moving mass-market game – call it 21st Century Internet Services – and America Online hasn’t yet shown the wherewithal to compete on the new playing field. There may yet be time to turn things around, but the crowd's restless and the clock's ticking.

II. Additional Findings

Note: The following findings are based upon a ChangeWave Alliance survey of current and former America Online subscribers, conducted January 29 – February 5, 2003. A total of375 Alliance members participated in the survey, of which 66% are current home subscribers to one or more AOL services, and 34% have discontinued all AOL services within the previous 12 months.

1. What type of Internet service do you have in your home?

CurrentApril ‘02

SurveySurvey

Broadband (DSL/Cable)61%57%

Dial-Up39%43%

No Internet Access At Home 1% 0%

Don't Know 0% 0%

2. Who is your home Internet Service Provider (ISP)?

CurrentApril ‘02

SurveySurvey

AOL34%32%

MSN 2% 3%

Earthlink 5% 6%

Local/Regional Cable Company35%28%

Local/Regional DSL Company15%11%

Other/Don’t Know 9%20%

3. How satisfied are you with your current ISP?

Note: This question is measuring the satisfaction rating of current AOL subscribers who use AOL as their ISP vs. current/former AOL subscribers who use other ISPs.

AOL ISP Users CurrentApril ‘02

SurveySurvey

Very Satisfied16%18%

Somewhat Satisfied44%41%

Somewhat Unsatisfied33%30%

Very Unsatisfied 8%11%

MSN/Earthlink Users CurrentApril ‘02

SurveySurvey

Very Satisfied48%42%

Somewhat Satisfied44%47%

Somewhat Unsatisfied 4%11%

Very Unsatisfied 4% --

Local/Regional Cable UsersCurrentApril ‘02

SurveySurvey

Very Satisfied50%55%

Somewhat Satisfied41%38%

Somewhat Unsatisfied 7% 4%

Very Unsatisfied 2% 2%

Local/Regional DSL UsersCurrentApril ‘02

SurveySurvey

Very Satisfied55%59%

Somewhat Satisfied40%33%

Somewhat Unsatisfied 2% 7%

Very Unsatisfied 2% 2%

4. Are you planning to make changes or additions to your current Internet service over the next 6-12 months?

AOL Users (Note that this is AOL ISP users only)

Upgrade/Switch to DSL20%

Upgrade/Switch to High Speed Cable13%

Upgrade/Switch to Satellite 3%

No Changes Planned45%

Other/Don't Know19%

MSN/Earthlink Users

Upgrade/Switch to DSL12%

Upgrade/Switch to High Speed Cable12%

Upgrade/Switch to Satellite 0%

No Changes Planned68%

Other/Don't Know 8%

Local/Regional Cable Users

Upgrade/Switch to DSL 5%

Upgrade/Switch to High Speed Cable 3%

Upgrade/Switch to Satellite 0%

No Changes Planned86%

Other/Don't Know 6%

Local/Regional DSL Users

Upgrade/Switch to DSL 2%

Upgrade/Switch to High Speed Cable 7%

Upgrade/Switch to Satellite 0%

No Changes Planned86%

Other/Don't Know 5%

5. What are your current levels of service with AOL? (Check All That Apply)

Note: This question was asked of all respondents to the survey – both current and former AOL users Current

Survey

Use AOL as my ISP 34%

Use Other Dial-Up Service But Maintain an AOL Account 9%

Use Other Broadband Service But Maintain an AOL Account24%

Do Not Subscribe to Any AOL Service34%

6. Have you discontinued one or more AOL services within the previous 12 months?

CurrentApril ‘02

SurveySurvey

Yes46%43%

No 54%51%

No Answer 0% 7%

Note: The 46% of respondents who answered “Yes” in the current survey can be further broken down into the following two sub-groups:

Yes, Discontinued All AOL Services34%

Yes, Discontinued One or More AOL Services12%

6A. Which AOL service(s) did you discontinue within the previous 12 months and why?

See Open Ended Responses Section (Pages 14-18)

The remaining questions are for members who currently use one or more AOL services.

7. Which of the following AOL services are the most important reasons you maintain your AOL account? (Check All That Apply)

CurrentApril ‘02

SurveySurvey

AOL as my ISP32%30%

AOL Email56%46%

AOL Instant Messenger29%28%

AOL Programming/Family Content15% 8%

8. (FOR AOL DIAL-UP USERS ONLY) Do you plan on upgrading to AOL Broadband Service, upgrading to a different Broadband Service, or switching to a different Dial-up Service within the next six months?

Upgrading to AOL Broadband Service 4%

Staying with AOL Dial-Up Service37%

Upgrading to a Different Broadband Service29%

Switching to a Different Dial-Up Service12%

Don't Know18%

9. How satisfied are you with your current AOL Service(s)? (Rate All That Apply)

(A) AOL as my ISP – All AOL ISP Users

CurrentApril ‘02

SurveySurvey

Very Satisfied16%18%

Somewhat Satisfied44%41%

Somewhat Unsatisfied33%30%

Very Unsatisfied 8%11%

Sub-Group 1: (AOL Dial-up ISP Users Only)

Current

Survey

Very Satisfied14%

Somewhat Satisfied43%

Somewhat Unsatisfied32%

Very Unsatisfied10%

No Answer 1%

Sub-Group 2: (AOL Broadband Users Only)

Current

Survey

Very Satisfied25%

Somewhat Satisfied44%

Somewhat Unsatisfied25%

Very Unsatisfied 3%

No Answer 3%

(B) AOL Instant Messenger

CurrentApril ‘02

SurveySurvey

Very Satisfied34%38%

Somewhat Satisfied52%39%

Somewhat Unsatisfied 5% 4%

Very Unsatisfied 1% 1%

No Answer 7%18%

(C) AOL Email

CurrentApril ‘02

SurveySurvey

Very Satisfied22%32%

Somewhat Satisfied45%42%

Somewhat Unsatisfied16%14%

Very Unsatisfied12% 9%

No Answer 5% 3%

(D) AOL Programming/Family Content

CurrentApril ‘02

SurveySurvey

Very Satisfied18%34%

Somewhat Satisfied52%37%

Somewhat Unsatisfied13% 9%

Very Unsatisfied 7% 0%

No Answer10%20%

10. If you switch from AOL as your ISP, will you continue to maintain an AOL account?

Yes20%

No48%

Don't Know29%

No Answer 2%

(A) Open Ended Responses Section

6A. Which AOL service(s) did you discontinue within the previous 12 months and why?

• RWI8167 writes, “Moved to a new residence, there appeared to be communications problems between AOL and Bellsouth regarding the installation of the service at my new residence even though the service was available in this area. After 30 days and many phone calls and promises, I subscribed to my cable carrier to use a cable modem.”

• GRE8264 writes, “Didn't feel it added anything special that what I can currently get on the Net. Frequently disconnected, which is a real negative. Have much better things to do than to keep dialing up for $23/month.”

• NPV2323 writes, “Expensive for only occasional use while traveling since I use DSL and local telco for ISP at home.”

• PHO6832 writes, “No added value over local ISP.”

• SWA1700 writes, “We only used the Email service. The Cost did not justify the service. Email is free through Yahoo etc.”

• LEO3409 writes, “Did not find them to be worth what they charge and didn't like the ad's.”

• JME6276 writes, “Their software upgrade stopped my dial-up service from working. No amount of uninstalling, clean-up and reinstalling as advised by their tech support ever worked.”

• PAM0828 writes, “Bell South now offers DSL in my area and the service includes a portal that is sufficient. AOL keeps asking me to stay with them and saying that they will reduce my fee from $23 to $5 per month. But why would I want to pay $5 month for something I already have?? AOL served a purpose but is no longer needed.”

• TOM0053 writes, “AOL content did not add any substance to what I could already access directly and the regular service was much too frustrating to use due to the incessant adds.”

• RCE6844 writes, “Got too much spam or unwanted emails.”

• WIB0084 writes, “Too slow. Too much spam. Too many disconnects, especially on downloads. Too confusing moving between AOL and the real internet. Content seems aimed at the computer illiterate.