Microsoft Cuts Internet Dial-Up Price to Lure AOL Users
WASHINGTONBy Sara Kehaulani Goo, Washington Post) March 29, 2006 — Microsoft Corp.'s MSN made an aggressive bid yesterday to take dial-up Internet subscribers from America Online Inc., announcing that it would cut the price of a service that has been dwindling in popularity.
Microsoft's price cut, to $17.95 a month from $21.95 for a dial-up service that includes e-mail, parental monitoring and photo services, is a sharp departure from AOL's strategy of pushing dial-up customers to switch to broadband. Last month, Dulles-based AOL announced that it would increase the monthly fee it charges its dial-up subscribers by $2, to $25.90. The AOL price increase began taking effect earlier this month.
The long-term market for subscribers who log on to the Internet the old-fashioned way is not bright, as consumers switch to faster broadband service. The price war reflects the fierce competition for consumers among online portals that want to serve as users' home pages.
"We definitely think there's some opportunity for AOL dial-up subscribers to explore alternatives when they see a price increase," said Kevin Mizuhara, director of marketing for MSN Access dial-up service. "While it's a declining market, we do believe there's going to be a continued market for dial-up access."
As of 2005, 68 percent of North American households had Internet service, and that number is projected to be 78 percent by 2010, Forrester Research said. The company forecasts that by 2010, 62 percent of U.S. households will have broadband service, indicating that access to broadband and price will encourage many users to drop the slower dial-up service. There are more than 30 million dial-up households, Forrester said.
When AOL announced plans to raise its fees for dial-up service, the move was viewed as an effort to push subscribers into signing up for AOL's broadband services, which are bundled with Internet service providers via cable or DSL and offered for the new $25.90 price. AOL's base of dial-up subscribers has been shrinking rapidly; 7 million customers have dropped out in the past few years. By squeezing the difference between dial-up and broadband prices, AOL figured it could get its customers to upgrade.
An AOL spokeswoman declined to comment on the results of those efforts and about the competition from MSN.
For now, analyst Charles Golvin said, there are still a healthy number of dial-up users to make it worth MSN's effort. But the difficulty, he said, will be to convince AOL subscribers that it is worth the extra effort to change their e-mail address and contact lists to save a few bucks a month.
"People don't like to have to send an e-mail telling everyone about their new e-mail address," said Golvin, principal analyst at Forrester. "It's a really sticky point."
MSN said it will begin an online marketing campaign to lure AOL users and emphasize that those who switch can still keep some of their most treasured features of AOL: instant messaging and buddy lists.