It's AOL's Email Collapse Investors Should Be Worried About, Not Just Subscriber Declines

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AOL’s subscriber losses at its access business are obviously a risk to the company’s ability to turn around its content business, since much of the media business’ page views are driven by referrals from access subscribers. 

But the focus on AOL’s subscriber declines obscures a more important point: AOL has a chance to retain these subs as free email users when they quit the paid service, and free email users contribute a significant percentage of unique visitors to AOL’s content.  So, ultimately, AOL’s ability to retain its free email users is more important than its ability to stem its subscriber declines. 

Unfortunately AOL’s email usage has recently started to fall off a cliff.  As a result, AOL will need to radically improve its email product if it is going to maintain and grow audience levels at its media properties. 

EMAIL DRIVES A SIGNIFICANT PORTION OF AOL MEDIA UNIQUE USERS

According to RBC Capital Markets and Comscore, AOL Email drives about 17% of total traffic to some of the company’s most popular and valuable properties–including about 40% to the AOL homepage.

Aol Referral Traffic RBC

 

In a memo to employees in 2007, then CEO Randy Falco said about 80% of paid email users had migrated to free.  Conversations with people close to the situation estimate about 50% of those are still active AOL email users.  Another way of saying this is that about half of the subscribers AOL has lost have also stopped using email. 

LESS THAN HALF OF EMAIL USERS ARE ACCESS SUBSCRIBERS

According to Comscore about 37 million unique visitors use AOL email each month.  That would mean that the 6.9 million access subscribers AOL listed at the end of 2008 would represent about 20% of AOL email users.  (Each “subscriber” represents multiple “users” in the same household, so the actual percentage of mail users that are also paying subscribers is probably closer to 30%-40%).

AOL NEEDS TO REVERSE EMAIL SHARE LOSSES IN ORDER TO STEM PAGE VIEW DECREASES

The good news is that improving its free email service is something AOL can control (versus access subscribers, which are inevitably going away).  The bad news is its email product is losing users to competing email providers like Yahoo, Gmail and Hotmail. 

Yahoo currently is the leader in email with over 100 million unique users according to Comscore, with AOL third, just above Gmail as of July 2009 (we believe Gmail has since surpassed AOL by a small margin).

Free Email Account Info

Being third isn’t necessarily a problem for AOL if its user base is growing.  However, this is not the case.  AOL’s email users have been decreasing steadily in 2009 as competitors like Gmail have gained share.

AOL Gmail Share Comparison

The Bottom Line: AOL email is as important to the company’s media business as its subscriber base is.  Until recently, AOL was able to retain free email users, but recently its user base has begun falling precipitously.  Improving its email product and retaining users, therefore, needs to be an immediate priority for the company.

AOL can use some of the free cash flow generated by the access business to invest in and improve its email offerings usage levels may be maintained and perhaps improved over time.  This, in turn, would help AOL Media properties maintain the audience levels it will need in order to execute on its turnaround plans and media/content focused startegy.

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