Free model 'not the solution' ... AOL MD speaks out

AOL came under heavy fire last week when it announced a subscription price cut from £16.95 per month to £9.95. Today MSN announced it is joining the free movement as the best solution for developing its Internet business. Dave Phillips, AOL's U.K. boss explains why the analysts are wrong and the free ISPs are counting on a model that won't last...

Here's an assumption. If you're reading this, you know what you are doing online. As such, you are part of an elite online minority who will be overtaken by masses of newbies across Europe using the Internet for the first time. These are the same consumers who, if they have a VCR, have left it blinking continuously 12:00, and they'd sooner spend an afternoon with a programming manual as with their mother-in-law.

The Internet is the most powerful information source in history and a staggeringly effective communication tool. It will, over time, bring fundamental change to the way we communicate, do business, learn, shop and amuse ourselves. But how far and fast these changes will occur in the UK and Europe will depend upon the Internet becoming a truly mass medium. And in Europe, as in much of the world, that will require fundamental change -- not only in government policy but also in the kinds of technology-centric features and services that have been previously offered as so-called consumer products.

The undeniable truth is that, to most consumers, the Internet is still far too complex, too time-consuming, too frightening and too expensive. If the Internet and interactive service are to become as much a part of the British family's everyday life as the television or telephone -- and even more useful -- then change must come. How many British consumers would buy a telephone handset from a manufacturer who expected them to re-wire it to make it functional? How many British families would subscribe to a cable TV service where Fox Kids or Nickelodeon were one click away from a Dutch bondage channel through which other viewers could contact their children? And how would British consumers respond if Marks and Spencer charged £2.40 for every hour spent browsing in their shops?

As long as the online community continues to accept these absurdities, the medium will remain the preserve of a wired elite, and the dream of a vibrant European information economy that competes with the U.S. will never be realised -- with the consequential loss to European jobs and social stability.

No company has brought more consumers around the world online than AOL and CompuServe. That's because we offer not just access to the Internet, but because we package the best features of interactive services into an easy-to-use, integrated online environment designed for ordinary consumers and families.

In the UK -- and in markets around the world -- we bring online consumers convenience, ease of use, quality, trustworthiness, and a sense of community. These consumers don't have time or patience to find relevant online content or download and configure new features or plug-ins.. They are families who are concerned about their children's access to pornography and are hesitant to make their first Internet purchase by sending their credit card details.

As with any business focused on providing a quality, value-added, editorial-intensive product or service, our approach requires investment and a longer-term outlook. Our business is built upon a sustainable and evolving financial model supported by multiple revenue streams and a long-term relationship with our customers. This relationship makes our member base probably the most attractive in the industry -- a view borne out by the fact that AOL Europe has struck many of the largest advertising and e-commerce deals in the industry

"Free" Internet access services, however, are fuelled by regulatory kickbacks from high priced, per minute phone charges. Despite all the hype, the free access business model is not the solution; it is a symptom of the problem of high phone rates, which if left uncorrected, will continue to slow adoption of the Internet and e-commerce in Europe.

For this reason, AOL is working to "turn off the clock" for online consumers. We're speaking to governments and regulators across the EU, and we're working on a commercial solution as well. We aim to provide European consumers with the same access to cheap, flat-rate local calls as enjoyed in the US and won't quit until the Internet becomes the most important and useful medium across Europe -- for everyone -- not just an online elite.

David Phillips President & Managing Director AOL/CompuServe U.K.