America Online

Prior to 1995, America Online, Inc. (Known as “AOL”) has become the leader in the commercial on-line industry, served about 4 million existing subscribers which were much more than the other two rivals, CompuServe and Prodigy. The reasons why AOL was so successful were determined by following factors. First, AOL provided an easy method for their customers to access their account with technique support. For every new customer, AOL offered first ten hours service for free. Of course, this competitive strategy was unique and costly through the industry, which made AOL more attractive and competitive than other rivals. Even though the strategy was expensive, costing more than $40 per new subscriber in 1994, the return was also extremely good. AOL had largest subscriber bases to 4 million.

Second, AOL charged cheaper than others before MSN entered into the industry. AOL’s revenue principally generated by the membership fees, a monthly fee of $9.95 for up to 5 hours per month and each additional hour was $3.5 and no additional downloading fees were charged. However, CompuServe and Prodigy offered same standard pricing but charging additional fees for premium and downloading. AOL and other companies provided similar products and service therefore the switching cost was low and price sensitivity was high in the commercial on-line industry, which means customers choose on-line service primarily basing on the price.

Third, AOL provided variety of products in order to retain new customers and increase customer loyalty. Every year since AOL went to public in 1992, the company tried to build and create unique content in the industry, investing in growth of existing service, exploiting new business, providing differentiated products in the entire industry. By using these business strategies allowed AOL became the biggest company in the industry.

The key changes in 1995 took place in the commercial on-line industry were content providers had option of setting up their own...