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October 5, 1999

AOL Plays Catch-Up With the Web in Version 5.0

By CBR Staff Writer

By Nick Patience

Over the past year America Online Inc has asked its 18 million or so members what they would like to see in the new 5.0 version of its proprietary online service. And judging from the features announced yesterday, they must have retorted with questions like, why haven’t you got centralized calendaring like everybody else? and Why can’t I personalize the news and other information like My Yahoo? AOL officials thought it cynical of us to couch it in such terms, but these are two of the more obvious features that AOL has finally added with the 5.0 version launched yesterday in New York.

Perhaps the most interesting new feature is You’ve Got Pictures, which through a partnership with Eastman Kodak Co Inc, AOL is able to offer its members the ability to have their regular, non- digital films processed via Kodak through a network of 38,000 retail outlets and by ticking the You’ve Got Pictures box on the envelope, be able to access them via AOL within a couple of days. Again, not cutting edge technology, but just technology that is already available on the web made slightly easier and more convenient to use, or as Barry Scholar, president of AOL interactive services put it somewhat bizarrely, more better, more easier. However, that does not apply to AOL’s international customers, who will not see the feature for the time being.

Most of those attending the launch were interested in what AOL would have to say about its plans for broadband access and access via multiple devices. However, the company had little new to say, but did give previews of its text-to-voice email service and wireless alerts to send messages to pagers and SMS phones and integrate with the calendar. Both services will be available by the year-end.

Version 5.0 has the ability to sniff the line and detect the speed of the access and if it is broadband (above 56kbps) then the AOL Plus offering will kick in, offering streaming audio and video. In the AOL Anywhere plans, the Palm-based email is already available and the CE versions is in beta and available soon according to Schuler. AOL TV, to be launched some time next year will be a full-feature version of the services, including instant messaging, buddy lists, mail and You’ve Got Pictures, but it’s not clear at this point if it will include web access.

However, AOL is not a technology firm; it’s primarily a marketing and e-commerce vehicle. Schuler says the new Shop@AOL services, with an integrated wallet will be extended to other properties, such as Shop@Netscape, Shop@CompuServe, Shop@Digital Cities and eventually Shop@ICQ. AOL intends to retain its cap of 200 merchants in total so as not to dilute any of them too much. And the You’ve Got Pictures feature should help AOL drive up its average usage and stickiness, which currently stands at about one hour a day per member – CEO Steve Case pointed out that five years ago when AOL had about five million members, they were spending about one hour a week on the service. AOL traditionally attracts the online virgins and in fact many first time AOL users haven’t even used a PC before. It also used to lose a lot of them very quickly as well, but its churn appears to be slowing as competitors falter or makeover their businesses as pure ISPs.

Of the less prominent features in 5.0, My Places is a part of the welcome screen that can be personalized, and the AOL search features now has the ability to search both the web and AOL simultaneously and present results in a single place. The My Calendar feature uses technology AOL got when it acquired back in April. As well as retaining personal calendars on the server so they can be accessed from anywhere, the calendar also integrates movie release dates from another AOL property acquired this year, MovieFone Inc. Other new features include the extension of screen names to 16 characters from 10 and the ability to read recently deleted email for up to 24 hours.

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Growth outside the US for AOL has been quite slow over the past four quarters, adding just 900,000 members compared to the 4.2 million added in the US. This is in part due to the free ISP movement sweeping Europe, which has forced AOL to fundamentally adjust its business model in the UK, for example. Version 5.0 will roll out through the fall in Australia, Canada, France, Germany, Japan and the UK. For the first time in the US AOL will be using retail outlets to distribute its CDs. It has partnered with Barnes & Noble Inc, Circuit City, CompUSA, Office Depot and J&R Computer World.

AOL’s standard service in the US costs $21.95 a month and Pittman did not rule out a price increase in the near future, especially as Microsoft has just raised its MSN services to the same level. We probably do have pricing power, says Pittman, but we haven’t taken advantage of it.

In addition, the company will soon be adding enhancements to its home page editor including a gallery of thousands of free images, ability to add chat rooms and counters to website and will also add free real-time quotes to its finance channel. Case noted that the first version of AOL, which was mainly text-based but with a few differentiating icons was launched ten years ago this week. Schuler was asked how the new version might affect AOL’s earnings, but he did not fall for that one, saying, if I told you then I’d have to kill myself. The launch and the resulting publicity helped drive the shares north to close up $4.50, or 4.1% at $113.625. á

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