AOL Cutting Prices on Devices
Hoping to goose sales in a sagging economy, America Online is slashing prices on its devices that enable customers to connect to the online service without using a desktop computer.
The price cuts--in some cases as much as 70%--come as AOL struggles to leverage its popular online service into new Internet markets, ranging from wireless pagers to television set-top boxes. AOL won’t say how many such devices it has sold, but analysts say the numbers probably are low.
On Tuesday, AOL cut the price of its two-way pager, AOL Mobile Communicator, to $99.95 from $329.95, while hiking the monthly connection fee to $29.95 from $19.95.
A similar cut recently reduced the price of AOL TV set-top boxes to $99.95 from $249.95. The company is planning to unveil a new and improved version of the much-maligned AOL TV this fall.
Earlier this year, prices for the Instant AOL Touch Pad--an Internet appliance unveiled in November with computer maker Gateway--dropped to $499 from $599. Sales have remained slow, and Gateway’s Web site no longer markets the device.
AOL officials said they remain bullish about their “AOL Anywhere” strategy, launched last year. They said retail price reductions frequently follow the launch of technology products and should significantly boost sales. “We’re bringing prices down to the mass-market range,” said Lisa Hook, president of AOL Mobile. At the same time, Hook said AOL is adding new features and services to the devices.
Analysts said it’s too early to say whether the AOL Anywhere strategy will succeed, but they don’t expect the devices to contribute much to the company’s bottom line in the near future.
The company appears to be trying to price its products at less than $100, a key threshold for many consumers, analysts said.
The price cuts are good news for AOL subscribers, though there may be grousing from those who have already paid two to three times as much for the same product. Current users of the Mobile Communicator also will see their monthly connection fees rise to the new prices after one year.
A Merrill Lynch report estimates that AOL will sign up fewer than 500,000 users for all its devices combined by the end of the year. Other analysts say sales of the Mobile Communicator total fewer than 60,000.
AOL, a unit of New York-based AOL Time Warner, has 30 million members worldwide.
Despite the slow start, AOL officials say they are moving ahead with plans to introduce new devices, including a co-branded AOL cell phone with AT&T; and new Internet appliances, including a tablet-sized computer.
Such plans may soon run up against the aggressive cost-cutting underway at AOL. The online unit is expected to announce soon that it will lay off several hundred workers as part of a plan to help its corporate parent meet financial targets this year.
Analysts say AOL probably will look to trim unprofitable projects or initiatives that don’t generate revenue. Measuring the success of AOL Anywhere, however, is tricky. Though analysts doubt AOL has recouped its investment on the new products, they say the long-term prospects are good for boosting profit per subscriber.
“They need to be on every kind of access device,” said John Corcoran, analyst at CIBC World Markets. “Because you never know which one might hit it out of the ballpark.”
AOL shares edged up 5 cents to $39.70 on the New York Stock Exchange. The stock has fallen sharply in recent weeks.
