AOL Drops Fees, Offers 5 GB Free Storage

America Online dropped a fee bomb last week: You can use their antiquated, funky, irritating software with an AOL account at no cost, as long as you don’t want to use dial-up Internet access. Dial-up accounts cost just $10 per month for unlimited usage and unlimited customer support. (Some press reports stated that dial-up service would remain nearly $26 per month for unlimited use and that the free accounts wouldn’t be available until September. Rather, $26 per month accounts will drop in price to $10 per month for existing subscribers over what appears to be a one-month transition. Current broadband-only users pay about $15 per month, and that fee will disappear.)

AOL has 18 million subscribers, but lost one million in the second quarter. All dial-up service providers, including EarthLink, AOL, and even a corporate reseller called iPass, are seeing significant quarter-over-quarter declines as U.S. users switch to broadband Internet service.

Having dealt with AOL in the past, I wanted to see this with my own eyes. I went to AOL’s Web site, clicked Sign Up Now in the upper right corner, and was offered free (bring your own bandwidth) or $10 per month for unlimited dial-up connectivity. My in-laws have been paying the $10 per month rate for unlimited use for some time, and I previously thought it was a billing error. Now I think AOL has quietly been ratcheting the cost down to customers who complain (as my in-laws did) during the transition period. They’re now broadband users and will keep AOL, since they don’t want to get new email addresses at the moment.

AOL says that they will make money through – volume! Underpants gnomes! Spaghetti feeds! Advertising! Guess which one of those four is true. The company also expects to save oodles of money by dropping thousands of employees who deal with issues of billing, payment, and associated matters, and the elimination of four million billion tons of AOL CD-ROM inserts and mailings. The company also believes that selling ads to what they expect will be a new, larger audience will produce better returns. (About 1,300 customer service job cuts were announced in May, and 5,000 on 03-Aug-06. AOL currently employs about 19,000 employees worldwide.)

What can AOL offer you? If you like their form of newsgroups and chat, walled-garden news sites, and horrible, horrible email, then it’s for you. I have a hard time seeing how AOL offers anything unique within its package. Its Web-based interface for email is not bad at all, by contrast, and a number of Web-only services are just fine. And AOL Instant Messenger forms the basis for Apple’s iChat services.

Oh, and AOL wants to give you 5 GB of free online storage, too. AOL acquired online storage firm Xdrive almost precisely a year ago. The company currently charges $10 per month for single-user access to 5 GB. (Larger amounts of storage and workgroups cost extra, and they work hard to hide the pricing link.)

Xdrive will start offering 5 GB of online storage for personal use to all comers in early September. These accounts offer ways to create public folders to let others retrieve files. Offering this amount of storage for free raises the bar on Internet-based storage in the same way that Google’s Gmail – now in its second year as a public beta! – did for free and cheap email storage, transfers, and attachments.

What all this means for AOL is hard to say. AOL’s software still stinks. AOL’s email filtering is highly erratic. Any of us who run mailing lists are familiar with suddenly having all of our double opt-in, fully approved AOL users bounce our email for some obscure reason that’s impossible to address directly with AOL.

And, well, AOL has betrayed users’ general trust over and over again, primarily in terms of its unpleasant, legally proven behavior in making it almost impossible to stop being charged for their service. This will all change when AOL becomes uninterested in collecting user revenue, and the marketing machine is replaced by an advertising machine.

On the other hand, the apparently purposeful but unauthorized-from-the-top release 10 days ago of some 20 million search queries entered by over 650,000 AOL Search users during a recent three-month period shows that AOL may still not have the right internal controls and sensibility that benefits our interest. The data were intended for academic research, but the keyword searches were organized by user, and were not “anonymized” by having identifiable queries and private data removed. AOL pulled the data today and apologized, but it’s far too late to put that downloaded-genie back in the bottle.

Do we need and trust AOL in a world of a billion other Web sites, many of them offering better features and run with better oversight? They’ll have to show us why.