Fast Company

A Gazillion More Free Hours From AOL? Gee, Thanks.

How can AOL afford to attract millions of subscribers every year? More easily than you might think.

They come with Blockbuster videos and Burger King Whoppers, in cereal boxes, bank statements, even boxed with Omaha Steaks. And, as nearly every American with an address can attest, they come in the mail. By the millions. AOL itself acknowledges the onslaught in a current, self-parodying ad. So we have to wonder: Just how many free-trial discs does AOL send out? And is it good marketing?

AOL won't discuss numbers. Never has. It refuses to comment on estimates that it blankets the globe with anywhere from 40 million to 300 million CDs annually. It claims only that its campaign serves up "millions of subscribers" a year, just like McDonald's. That's not a completely satisfying response. So Fast Company put its crack mystery-explaining unit on the case.

We tracked down Mario Shaffer, AOL's former group director of marketing and now a venture capitalist. Will AOL, we asked him, ever desist? His answer: No way. Direct marketing, annoying and wasteful as it is, delivers. "They're banking on that fifth or sixth time, when you have a credit card in your hand, that [the disc] is going to be a catalyst." Peter Mirsky, an Oppenheimer & Co. Inc. media analyst, concurs: "AOL's CDs take the impulse to a different level. When there's something in your hand, it's going to have a greater impact."

According to Shaffer, who left AOL in 1998, AOL has "typical direct-response rates; at the most a 5% yield." So if AOL does, in fact, distribute 40 million CDs, it can count on about 2 million new subscribers. At a subscription rate of $23.90 per month, that's $573.6 million in annual revenue.

The cost to AOL? Not as high as you'd think. Shaffer says that in his day, AOL spent as much as $1.50 to put a disc in the mail. "That was typically our most costly marketing," he says. "But mail is not the only way to do things; there's also bundling." Bundling--packaging discs with related software or hardware--is where the numbers start to make sense. Packaging and postage are far lower, and response rates are higher.

All of which would be great for AOL, if it weren't for the "churn." Churn refers to the rate at which subscribers, well, unsubscribe. Churn is a problem. Mirsky notes that AOL has shed some 2 million members in the United States over the past year, leaving membership at early 2000 levels. One reason: AOL's basic dial-up service is facing competition from broadband Internet service.

Or maybe we're all just growing weary of the nonstop marketing barrage. One Minnesota resident has tried suing AOL for sending unwanted mail--so far, to no avail. There's even a grassroots campaign dedicated to stopping the madness at NoMoreAOLCDs.com. It hopes to collect 1 million discs, and then dump them on AOL's front lawn in Dulles, Virginia.

Symbolic gestures aren't your thing? You could just return your disc to AOL. It won't foot the postage, but it does claim to operate one of the largest internal corporate recycling programs in the industry.

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