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AOL Europe widens Net
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May 10, 1999: 2:49 p.m. ET
Internet provider will offer unlimited-use price plan in U.K.; teams with eBay, Verio
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LONDON (CNNfn) - Staking its claim to a sizable chunk of Europe's budding Internet bonanza, America Online Europe Monday unveiled a growth strategy for the Old World that borrows a favorite theme from its New World business blueprint: the flat-rate pricing plan.
Starting June 1, AOL Europe, a four-year-old partnership between America Online (AOL) and German media group Bertelsmann AG, will offer its estimated 600,000 members in the U.K. unlimited online access for 9.99 pounds ($16.28) per month.
The flat monthly payment will grant British Web surfers entrée to AOL's content and services, along with a key to the chat rooms that double as kaffeklatches in cyberspace to legions of AOL's 17 million worldwide members.
AOL ad in a London Underground station
AOL also announced two major marketing alliances Monday. Both seek to graft successful U.S. strategies onto Europe's burgeoning online market, albeit with slight tweaks.
In the European "rollout" of a previously launched global partnership, eBay (EBAY), the world's leading online auctioneer, will pay AOL $75 million over four years to advertise on AOL Europe's existing sites in the U.K., France and Germany. The pact calls for eBay and AOL to launch co-branded sites in the coming months.
AOL also said it is teaming up with Verio Inc., a provider of business Internet services in the United States, to beef up its electronic commerce presence in Europe.
Andreas Schmidt, president of AOL Europe, said the three-pronged business campaign "pursues the successful strategy pioneered by America Online in becoming the world's largest Internet provider."
Schmidt added: "AOL Europe's advertising and e-commerce advance sales of more than 25 million pounds over the next two years, and our new strategic partnerships with eBay and Verio demonstrate our ability to attract world-class partners and revenue streams that support our investments in a superior membership experience."
A flurry of free ISPs
While that may be so, AOL's latest initiatives are also an implicit recognition of the growing challenge to its business model from a flurry of free Internet providers that began cropping up in the U.K. and are now spreading to the Continent.
In Britain, the new class of Web upstarts is exemplified by Freeserve, a no-charge Internet access service pioneered by electronics retailer Dixons. Since its launch in October, Freeserve has signed up 1.3 million members, many of them first-time recruits to the Internet.
Freeserve's meteoric success has inspired a wave of copycat free ISPs, whose colorful roster includes a soccer club, a supermarket and a record store.
The "free" services offer subscribers unlimited access to the Internet and e-mail. But the user must pay the phone call fee -- a fact often obscured in the breathless promotions for the new services.
The trend is now spreading to the Continent. Late last month, U.K. retailer Kingfisher and Group Arnault, the family holding company of Bernard Arnault, chairman of French luxury goods company LVMH Moet Hennessy (PMC), set up a joint venture called Libertysurf, which will offer no-fee Web access in France.
AOL Europe, for its part, has preferred to play down the impact of the free ISPs on its European aspirations. Schmidt recently told CNNfn.com that he considered many of the free services' business models to be unsustainable.
He asserted that AOL members are willing to pay a little extra for the added value of personalized customer attention and technical expertise that AOL brings to the Internet playing field.
Whether the "value-added" component will continue to hold customer loyalty in the future remains unclear, however. Many of Britain's Internet service providers already have drawn up plans to offer content and services, as AOL does now.
In the U.K., The ISPs hope to subsidize the free service, at least in the short term, predominantly with revenues generated from advertising.
At present, subscribers to AOL are charged a monthly membership fee of 4.95 pounds ($8.07) each month. That gives users three hours of online access each month. Additional access to AOL is charged by the minute, at a rate of 2.35 pounds ($3.83) per hour.
AOL Europe, which manages AOL's and Compuserve's European services, currently serves 2.8 million households, or 8 million individuals, in seven countries. Though it is the largest pan-European Internet service, it has been outflanked in Britain by Freeserve.
eBay, which bills itself as a "person-to-person online trader," has completed 50 million auctions since September 1995.
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AOL Europe
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