America Online Finds It Can’t Handle the Load : Computers: The hottest company in the industry is forced to restrict access. The snafu resulted from an aggressive promotional campaign.
America Online, the hottest company in one of the hottest industries in America today, is getting burned by its own success.
The company, which enables personal computer users to read the news, shop for merchandise or “chat” with other computers over the phone lines, said Tuesday that its own computers are so overloaded that it must limit the number of customers during peak evening hours.
Customer overload has been a problem for months, slowing the system to a sluggish pace and driving some of America Online’s 600,000 customers into the arms of competitors.
The Vienna, Va.-based company had to shut down its system for five hours Saturday to add new software to address the problem. But it said in a letter to subscribers that it will take 60 to 90 days to resolve the overload.
The snafu resulted from an aggressive promotion of America Online that was apparently too successful for the company’s own good. The company routinely gives away the software that enables customers to hook up. In September, Chief Executive Steve Case toured the country promoting his firm’s linkup with the international on-line network the Internet.
“There was a faster ramp-up than we anticipated. It took us eight years to get to 300,000 (subscribers) and just seven months to double it,” Case said Tuesday.
Case notified America Online customers--or at least those who were able to sign on to the system--of the restricted access in a letter posted Tuesday night on the on-line service. Case said he hoped the firm’s “forthright manner” in dealing with the problem will help it “emerge from this with a stronger sense of loyalty and community.”
It is the second time in recent months that America Online has been forced to shut down its network to address capacity problems. The company shut down its system for eight hours in December to add computers and rewrite portions of its software.
Its problems come at a risky time, undercutting momentum and potentially alienating customers, who pay a basic monthly fee of $9.95.
“They are on a roll right now,” said Mary Modahl, senior analyst at Forrester Research, a Cambridge, Mass., consulting company. “That they need 60 to 90 days for review is not good news. It shows a lack of foresight.”
Rivals in the fiercely competitive business say they are already benefiting from America Online’s problems.
“We have seen a growing number of customers coming from America Online because of complaints about access,” said Brian Ek, spokesman for Prodigy Services Co., one of the nation’s two largest on-line service providers. CompuServe is the other.
Ek said America Online faces more capacity problems than other on-line services because its subscribers tend to be heavy users of chat sessions that take up computer time and tie up phone lines. Prodigy and CompuServe customers tend to be signed on for shorter periods for research or to get stock quotes.
Fears of potential long-term problems at the company have hit America Online’s stock, which closed Tuesday at $62, down $1.75 on the Nasdaq. The company went public two years ago at $11.50 a share and soared to a recent peak of $70 as its services became a hit among younger computer buffs.
In particular, America Online benefited from customers who found its services broader and more sophisticated than larger rivals such as Prodigy. But the giants are fighting back and newcomers have entered the field, taking aim at a market that Modahl predicts will multiply sixfold to $3 billion in revenues by 1998.
Prodigy, which had been a laggard, has regained some strength as a result of an easier-to-use format introduced in November. The company says it has added 100,000 subscribers since then. CompuServe, a unit of H&R; Block, said it added 450,000 new customers last year.
