American History 1988
Chapter 327 - 317 Subscription Model

Chapter 327: Chapter 317 Subscription Model

"What method?" Steve asked reflexively.

Could it render Microsoft completely uncompetitive in the ISP services field?

That would certainly be a dream come true, considering the reputation of the world’s number one software company was very intimidating.

Dean didn’t beat around the bush, he directly shared his thoughts.

"Has AOL ever considered switching to a different billing method?"

Steve paused, then asked in confusion, "Time-based charging is a unanimous decision of the CIX Alliance."

The current pricing model of AOL is the optimal solution, established after several validations.

The CIX Alliance has dozens of operators, large and small; they have tried a variety of billing methods.

For instance, IBM initially insisted on data traffic charges, but within just over a year, it had to abandon this pricing model.

After negotiating with the CIX Alliance several times, they could only meekly accept the rules agreed upon by everyone.

Yes, IBM joined the CIX Alliance at the end of ’92.

Although they stubbornly retained the right to leave at any time, everyone knew that IBM wouldn’t go anywhere.

It was just the last bit of pride of the ’Big Blue,’ who once epitomized computing, wasn’t it?

Beyond this data traffic billing, members of the CIX Alliance had also tried time-segmented pricing.

Like telephone companies, the unit price of using the network varied between day and night.

However, these billing methods were not very effective, and AOL’s approach of setting a flat rate and then charging by the minute was the most stable.

The majority of the CIX Alliance’s members adopted the same pricing model.

It has been proven to be the most appropriate and stable billing method currently.

Honestly, Steve had never considered tampering with this aspect since AOL’s development was very healthy.

"So Dean, what exactly do you mean by a different charging method?

If I remember correctly, the time-based charging method of the CIX Alliance was something you pushed for strongly."

"Steve, I hadn’t thought about changing the time-based charging, but there are many variations.

For example..." Dean paused, then turned his gaze to the desk phone, "Like it, charging a monthly fee."

Following his gaze, Steve’s eyes widened. "Wait! Dean, are you talking about local telephone service?!"

"Yeah~" Dean spread his hands, "Doesn’t every household have a landline phone?

If so, why can’t dial-up internet reach every home?

The lines are almost identical, and the best part is that AOL doesn’t have to pay the massive infrastructure costs."

AOL is just an internet service provider that signs lease agreements with telephone companies.

Then, it uses telephone lines to provide dial-up internet services; its only investment is hardware like routers and gateways.

Considering operating costs, it already has the basis for offering a monthly service.

"Dean..." Up to this point, Steve still hadn’t gotten used to his bold suggestion.

"If I haven’t misunderstood, the monthly service you’re talking about still doesn’t limit data usage?"

"Of course, that’s one of the founding principles of the CIX Alliance." Dean said confidently.

"Oh, God~" Steve rubbed his forehead, "AOL’s current average charge is around 3 US dollars per hour.

If we start offering a monthly service, how much should we price it? 300 US dollars? 500 US dollars?

This involves complex cost calculations; too high, and no customers will subscribe. Too low, and it impacts AOL’s profits."

"No," Dean interrupted his analysis, "you still don’t understand what I mean, Steve.

When I talk about a monthly package, I mean a strategy similar to that of the local telephone, both in terms of usage time and pricing."

Steve stopped what he was doing and blinked.

"The monthly fee for a local phone is around twenty to thirty US dollars, so..."

"Hmm~" Dean nodded, "Only with that, can AOL reach into every average household."

"That’s impossible!" Steve said instinctively in denial, "The cost is too high; AOL will suffer losses!"

Are you kidding? A few dozen dollars a month – that would mean AOL’s sales would have to drop several fold.

Steve could hardly imagine what would happen next; Wall Street would show no mercy in abandoning AOL.

He had only been a billionaire for a short while, and he wasn’t ready to watch his net worth plummet even faster.

"Hey, Steve, we need to look at this issue from a different angle," Dean gestured for him to calm down.

"Firstly, let me confirm something. On average, how much time do AOL users spend online each day?"

Steve Case thought for a moment and replied, "If we average it out, it’s about half an hour."

"Half an hour a day, that’s 15 hours a month.

In other words, each user generates about 45 US dollars in value for AOL every month."

Dean spread his hands, "See, it’s not much more expensive than a local phone package."

"But if the monthly service is unlimited in time and data, users will definitely spend much more time online.

This would be a test for AOL’s data centers, and it means our costs would skyrocket."

Steve Case considered a very reasonable factor; he needed to weigh this issue against AOL’s costs.

"But I also remember you saying that each AOL user generates a total value of about 350 US dollars a year.

Average it out, and each month’s turnover is actually below 45 US dollars, even less than 30 US dollars.

Also, Steve, you’re forgetting the most important point," Dean said, looking at him seriously.

"If we adopt an affordable monthly package, AOL’s user base will be far beyond what it is now.

America’s internet users are approaching 20 million, but most of them are not online every day.

One big reason for this is that the current pay-per-minute billing system limits people’s willingness to go online."

Imagine, with every minute you’re connected to the network, US dollars flow out of your wallet.

What should be leisurely browsing for entertainment has inadvertently brought stress to users.

Under this compulsion of anxiety, not only is the growth of users limited, but many people even avoid connecting to the internet for several days at a time.

This leads to a significant decrease in online activity among internet users, and the number of 20 million users remains only on paper.

It indirectly affects the development of the internet as well, limiting the frequency of browser use and the duration of webpage visits.

The development of the entire internet is interconnected, and Dean hopes to open up each of its links sooner rather than later.

"If a flat-rate subscription could be implemented, what would be the consequences for Microsoft’s online services?

They’d be caught off guard by this new pricing strategy and their previous negotiations might all fall through.

But in either case, it would cause a great deal of trouble for Microsoft, and AOL could sweep the ISP market with its price advantage."

Steve Case fully understands the rationale, but he is still hesitating.

"However, we cannot guarantee the cost issue; even the estimates are uncertain.

You know, Dean, we’re just leasing lines from the telephone company."

"In that case," Dean raised his hand and snapped his fingers lightly, "if we adopt a flat-rate subscription, what additional costs will AOL face?

Modem bank and line occupancy duration? I’ll persuade MCI and Bell to assist you in making cost estimates.

But you need to do me a favor too, Steve," Dean finally revealed his condition.

Steve was right; no matter how many advantages the flat-rate system had, a cost calculation was ultimately necessary.

Only if this model proved to be financially beneficial for AOL would they consider it.

But cost calculations required close cooperation with telephone companies, as they held the directory of telephone users in a region.

The occupancy rate of lines and the load time of equipment are vital for anticipating ISP promotions.

However, this information is sensitive and also cumbersome to gather across different cities.

Without sufficient benefit, the telephone companies are unlikely to cooperate in such research.

Who would want to do a difficult and thankless task?

That’s where Dean’s networking came into play; he had close ties with several companies, including MCI and Bell.

If he took the lead on AOL’s behalf, this would no longer be an issue.

After carefully considering the possibility of a flat-rate subscription, Steve then looked at Dean.

"So, what do I need to do?"

"Help Netscape distribute the next generation of Explorer browser to the ordinary home users."

As an ISP, AOL could directly assist customers with pre-installing software from the source.

For example, with their own client, they could easily integrate the Explorer download link.

With one click on the Explorer logo, users would automatically download and install the browser.

Hearing Dean’s request, Steve was taken aback, then a meaningful look crossed his eyes.

"Dean, you’re a major shareholder of AOL.

Explorer will, to some extent, siphon off AOL’s online content services."

Steve was not ignorant about browsers; in fact, he feared this new software that spread virally.

AOL provided not just basic internet services but also value-added content such as news subscriptions, email, etc.

But the rise of browsers diverted users away from the AOL client.

An increasing number of websites could ostensibly replace AOL’s news subscriptions.

While Steve Case was worrying about this, Dean proposed to create yet another leak on AOL’s ship.

Wouldn’t more convenient browsers mean fewer readers for AOL’s news?

Dean looked just as serious, "Steve, browsers are the way of the future.

This is an inevitable result of the spread of the internet, which you should understand.

Besides, AOL’s revenue mainly comes from the internet subscription fees.

Explorer greatly enriches the users’ online life, which also indirectly increases their reliance on the internet.

So, what is the end result? More and more people subscribing to AOL’s internet services.

This is the core of AOL’s business, and the browser doesn’t conflict with it."

Steve looked deeply conflicted, with Microsoft ready to pounce on one side and the transformative browser on the other.

But whether it was the flat-rate system or the browser, he was uncertain about the consequences of choosing them.

Unfortunately, AOL was at a point where a decision had to be made because Microsoft would not stand still and wait for him to decide.

"Steve," Dean leaned forward slightly, "I’ll tell you another fact.

Whether or not AOL recommends it, users can download the browser on their own."

Steve’s eyelids twitched, which precisely highlighted his dilemma.

As long as users are connected to the internet, they could easily visit a download site and get the browser.

AOL can’t limit users’ online behavior; no one can do that.

"Dean, I need to call a board meeting."

Steve hesitated; he had to be cautious.