Will Businesses Put AOL Back Online?

Newly launched AOL Enterprise targets business users and their corporate dollars

When Mark Walsh was enlisted to tailor America Online's offerings to meet the needs of business customers, he worried that commercial users would turn away and scoff, "My 14-year-old uses that."


It turns out that business people want simple-to-use intranets just like consumers want no-brainer e-mail, chat rooms and World Wide Web access, said Walsh, an AOL senior vice president. Corporate workers have other things to think about, he said.


Just three months ago, Walsh officially started AOL Enterprise, the business-to-business unit of the online services company. Walsh has been quiet so far about his project, in part, he said, because AOL had to make sure it had a market to pursue. "We launched in stealth mode," Walsh said in an interview.


AOL Enterprise is ready to come out of its shell. In the next three months, said Walsh, Enterprise will triple its current staff of 25 employees, all dedicated to developing and selling online services to the corporate user. And by fiscal year 1998, Walsh expects the division to bring in at least 10 percent of AOL's gross revenues, which are expected to be $2 billion that year.

Such revenue growth could open a promising new chapter for the Dulles, Va.-based company, which recently has been plagued by a string of setbacks. Beginning with the departure of its newly recruited president, William Razzouk, last June, the company has had to endure a Federal Trade Commission inquiry into its charging practices, a brownout of its network in August and the boisterous banter of jittery investors.

"They don't have the credibility they need to make this a big success," said Emily Green, an analyst with Forrester Research, Cambridge, Mass. Green said despite AOL management's new hope and what will soon be advertising hype, she's not sure the consumer-driven AOL will save itself through its new business to business endeavor.

Still, Green admits, Enterprise will likely add something to the bottom line and diversify AOL's revenue stream, a necessary move if the company wants to survive.

For its part, AOL posted a profit of $29,816 on $1.1 billion in revenues for its fiscal year ended June 30, compared with a loss of $35,751 on $3.9 million in revenues for the same period a year earlier.

"Where I tip my hat to AOL is that they have been able to reinvent themselves so many times," said Allen Weiner, an analyst at the Gartner Group, Stamford, Conn., at his company's conference in Orlando earlier this month. "AOL is facing its greatest threats from the Netcoms of the world."

Right now, consumers are leaving AOL for Internet access providers such as Netcom On-line Communications Services Inc., San Jose, Calif., PSINet Inc., Herndon, Va., and UUnet Technologies Inc., Fairfax, Va., which charge an all-you-can-use monthly fee. AOL is expected to soon start offering a fixed-rate plan as well. Walsh said new, across-the-board pricing plans will be announced by the end of the year, although he would not give specifics.

Part of this reinvention is, of course, to bring new revenue to AOL. Consumer AOL users are on mostly at night, leaving daytime virtually a new market. "We're adding extra seats in the airplane," said Walsh.

Steve Case, CEO of AOL, is "very interested in daytime revenues," said Walsh. In fact, Case, who meets with Walsh weekly, and personally assigned him to start Enterprise, has started emphasizing the company's business-to-business opportunity at different industry forums.

At the Gartner Group conference, Case said he wants to transform the consumer and business worlds by linking them together online. "There will be blurring of these markets because people do business at home and personal work at business," Case said.

AOL research found that 40 percent of the company's current 6.2 million individual customers already use their AOL accounts at least a little bit for business.

Besides increasing staff, Enterprise plans to form alliances with three systems integrators by the end of this year to get the job done, Walsh said. So far, he said, the strategy with integrators will be to partner, not to acquire.

Specifically, AOL is about to offer an intranet package at $9.95 per month per user, all you can use. The creation cost could range from $25,000 to $300,000, said Walsh, depending on the intricacies of the project.

Ironically, the attribute that turns many consumer users away -- the fact that AOL is a private network opposed to the public Internet -- is attractive to business users.

AOL-designed intranets include a plan called "corporate choices" that allow companies to design which parts of the Internet are accessible, i.e. the competitor's Web pages but not the rotisserie sports leagues or pornography.

The millions AOL spent building its network - and continues to pour in with help from BBN Corp., Cambridge, Mass., and Sprint Corp., Kansas City, Mo., may after all be worth it, said Doug Cayne, an analyst for the Gartner Group. "There are advantages to a private network. [Business-to-business] is a good niche for them."

However, Cayne warned, "No one's figured out the business model yet."

Enterprise will also offer business content similar to the consumer information available today, Walsh said. In the next year, Enterprise will offer voice over the Internet.

Even with a known brand name and a posse of almost fanatic users, AOL will have stiff competition in the business market.. Microsoft is waging war in the Internet arena as well. AOL has cut a deal with Microsoft to include the Redmond, Wash., company's Explorer Web browser in its software. Netscape's Navigator is compatible, but users must download it. Still, Microsoft stands to be AOL's strongest competitor. "The technology trends are... in favor of the online services," said Gates at the Gartner conference.

"Steve [Case] and Bill [Gates] care about the next three million customers," said Walsh.

Some analysts question if Internet services companies can do consumer and corporate business. UUnet, for example, prides itself on only serving businesses. It's major competitor, PSINet, last year scaled down its consumer offerings to concentrate on the more lucrative business market.

AOL has no intention of choosing. "Consumers and business people have become the same people," Walsh said. Well, he said, there's one exception: "Businesses spend more money."


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