Technology TransactionsAOL Price Hike Changes Online Picture
How the web works is important to consumers, brokers, lenders and everyone else involved in real estate. We know a lot of looking is done online and that many consumers initiate relationships based on what they see on the Internet. We also know that in very few cases are homes sold online or loans closed.
Given these realities, when online economics change it becomes important to see what happened and the results which might emerge.
AOL has announced that it will raise monthly subscription rates for unlimited use by $1.95 a month, from $21.95 to $23.90.
If you"re looking for an example of monopoly pricing, this isn"t it. If you don"t like AOL, then MSN, Earthlink, Juno, and thousands of local and regional ISPs would welcome your business.
And if another $1.95 per month seems like price gouging, that"s hardly the case. AOL has not raised prices in three years. The increase per year is just 2.87 percent annually.
You could argue that by at least one measure AOL actually costs less than it used to when calculated on a per-minute basis. Time online per day per member, says AOL, has increased 50 percent to an average of 70 minutes per day. In effect, the cost per minute has declined over the past three years even with the rate increase.
In the past decade AOL has risen from a tiny ISP with fewer than 100,000 members to an online colossus. It now has 29 million subscribers and most are on the unlimited use plan. If 20 million members will pay the higher rate, then AOL can pull in an additional $39 million per month, or $468 million per year. Not bad for a company which already generates real profits.
One result of the price hike is that AOL will be able to ride out declining ad revenues which have impacted web sites generally. This is not an option available to ad-dependent sites, thus the gap between AOL and sites without a membership base is likely to widen.
But within the AOL price hike is also good news for many competitors. With AOL at $21.95 few ISPs, if any, could charge more for unlimited use because AOL would then be a cheaper option. With a price increase, competitors can now safely raise their rates and thus obtain more income, or they can retain rates where they are to create a price differential in their favor.
It might be expected that with higher prices some users would turn away from AOL. In practice, such a consumer revolt seems unlikely for two reasons: First, the increase is minimal. Second, many people will find that it"s simply more convenient to stick with AOL rather than switch to another ISP with a new e-mail address.
In terms of real estate, if you"re a broker or lender you likely want as much web traffic as possible. A steep AOL price increase could make the Internet a far less interesting place for millions of people. Moreover, if people widely objected to the price rise and traffic on the AOL service declined, that could impact Realtor.com and the activity it receives from AOL.
AOL has opted for a modest increase, caused little public objection, found a way to off-set generally declining ad volume online, and now its coffers are likely to be stuffed with an additional $450 million in the coming year. That"s a shrewd way to do business.
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