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AOL's Got VOIP Again

Company set to launch a residential VOIP service that won't require subscribing to AOL, plans to redouble marketing efforts

September 14, 2005

4 Min Read
AOL's Got VOIP Again

Time Warner Inc.'s (NYSE: TWX) AOL is set to announce a free-standing version of its VOIP product, “AOL Internet Phone Service,” which will be available on the Internet to non-AOL members, Light Reading has learned.

The product will be announced at next week’s Voice On the Net (VON) Coalition conference in Boston, says a source close to the company.

AOL's VOIP service currently requires the AOL software client and is closely integrated with AOL’s instant messaging and email applications (see AOL VOIP: You've Got Apathy). Several sources have confirmed the company's intent to make a bigger deal of its VOIP service, following the rather lackluster response it got the first time around.

AOL says the company intends to leverage its brand and a significant amount of marketing money to push the new product to consumers across the U.S. during this holiday season, says the source (see AOL Launches UK Voice Service).

"I think it's the next logical step for them," says The Yankee Group broadband analyst Jonathan Doran. "AOL, like all broadband services, has to put up with services like Skype and Vonage, going over their lines anyway, so they might as well compete against the service-independent VOIP products."

AOL was among the first of the Internet companies to launch VOIP as an adjunct to an IM application, a model soon followed by Yahoo Inc. (Nasdaq: YHOO), Microsoft Corp. (Nasdaq: MSFT MSN), and Google (Nasdaq: GOOG).

The company's AOL Talk and AIM Talk are also VOIP applications, but they're integrated, respectively, with email and AIM, and are not connected to the PSTN. AOL's "AOL Internet Phone Service" is designed to work with a phone in somebody's home and includes a broadband adapter.

AOL's free instant messenger (IM) client, AIM, is the most popular IM client in the US with 41.7 million users, well ahead of MSN and Yahoo IM services. But AOL now appears ready to pursue new VOIP users far beyond its existing user base.

"They have the big advantage of being a known, trusted brand, which could help take AOL to a new type of customer," says Heavy Reading analyst Graham Finnie. "I guess that's the idea here."

But Finnie has doubts about AOL's timing. "AOL is coming fairly late to the party given that there are so many existing VOIP services out there already that don’t require you to be a member of anything," he says.

Since launching in April, AOL Internet Phone Service hasn't grabbed as much buzz, as say, a Skype Technologies SA or Vonage Holdings Corp.. AOL says it has actively marketed the service internally to its members, but has never divulged how many of them have actually begun to use the service (see FCC Requires VOIP E911).

An AOL spokeswoman chose not to comment on AOL Internet Voice, new or old, but acknowledged that her company is planning some “significant” announcements at the VON show.

The new and improved AOL VOIP may look more like Vonage, which works on any flavor of broadband, interconnects with the PSTN and offers enhanced 911 service (see Vonage Exceeds One Mil ). AOL’s VOIP, IM and email “dashboard” combo will likely remain available to members who prefer it.

Consequently, AOL will be in a position to compete against all kinds of VOIP players, from those using pure PC-to-PC models to those that loop in the PSTN and regular telephones (see Poll: Google Talk Heard Over Skype Hype and Google Talks the Talk).

AOL Internet Phone Service was originally priced at $19 for a local plan, $30 for an unlimited U.S./Canada plan, or $35 for an unlimited global plan. No word yet on the pricing of the new free-standing voice product.

AOL has built its VOIP infrastructure with Sonus Networks Inc. (Nasdaq: SONS) softswitches, and connects with the PSTN via an agreement with Level 3 Communications Inc. (Nasdaq: LVLT) (see Sonus Q2 Revenues Jump).

As its subscriber numbers have dropped, AOL has tried to add valuable services to its portal. J.P. Morgan Chase & Co. numbers show that AOL’s combined dialup and broadband subscriber base shrunk from 24 million to 22 million at during 2004, and the firm expects AOL to loose 12 percent of its compound membership every year for the next five years, bringing the number of subscribers down to “ten or eleven” million in 2010.

A free-standing AOL VOIP service may be a step away from the practice of selling new services to a large, but shrinking AOL subscriber base. AIM is another example: That service does not require an AOL membership -- it's free to users -- and it and generates revenue from video advertising at the desktop client.

Additionally, AOL is preparing to add video to its voice offering, but the technology isn’t quite there yet, sources say.

— Mark Sullivan, Reporter, Light Reading

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