AOL Responds to Stock Exchange Writers’ Queries

Writers James Peltz and Michael Hiltzik invite readers to figure out “how it [AOL] computes its marketing costs” [“Questioning AOL’s Numbers and Clinton’s Effect on the Market,” Stock Exchange, Sept. 29].

You don’t need an advanced degree in mathematics to meet that challenge because we don’t “compute” our marketing costs. Rather, we charge the expense to the income statement as it’s incurred, and then--like all our financials--the numbers are reviewed by our auditors.

While it is true that we experienced an access crisis when we moved to flat-rate pricing and we saw not only the number of new members increase, but also the amount of time they spent online triple almost overnight, there were no reports during this time of lost e-mail.

As to the writers’ claim of member dissatisfaction, I would point you to the Odyssey Homefront study that was released on Monday. This independent market survey found that AOL’s customer satisfaction is at an all-time high. We survey our members constantly and in a variety of ways, doing everything we can to keep our finger on the pulse of what they like and don’t like.

With this feedback, we can quickly make changes and correct issues as they arise. In fact, we have almost 6,000 representatives operating a customer service organization that is available to our members free of charge 24 hours per day, seven days per week. No one else in the industry comes close to providing this level of service.

Mr. Peltz and Mr. Hiltzik seemed to have struggled, also, with how we count subscribers. We count individuals as subscribers once they register with AOL; in other words, as soon as they load the disc and go through our registration process--including giving us a credit card or checking account number--to create an account. We don’t count people who buy PCs that have AOL software bundled on them, not just because it would be patently wrong to do so, but because we have absolutely no way of knowing who those new PC owners are until they go through the registration process that makes them AOL members.

I am not entirely sure where the writers draw their analysis from about subscriber “churn.” While, like most subscription-based businesses, we don’t release churn numbers, we do make available all sorts of numbers that indicate whether customers are staying with the service. Look, for example, at the fact that we’ve been adding more new members each quarter and spending less to attract them. This fact alone suggests we are either retaining members in record numbers and thus keeping churn down, or that we’re paying less and less to acquire progressively more customers. You’ll agree that the former of these scenarios is infinitely more logical. I can tell you that our subscriber turnover rate is the lowest in our history.

What we at AOL deliver to advertisers is eyeballs, and the more time our members are online, the more opportunities they have to see advertising and participate in marketing offers. Our challenge is to deliver the quality and variety of content that encourages our members to steadily increase their usage from the current average of 46 minutes a day. (Incidentally, I should fill you in on what our members do once they are logged onto AOL: They spend 83% of their time within the AOL service in our content, services and communications features and just 17% of their time on the Web.)

In addition, with five straight quarters of rising profitability and advertising/electronic commerce revenue twice those of the next-largest Internet company, I’d say we’ve proven our ability to deliver “consistently growing numbers.”

KATHY BUSHKIN

Chief Communications Officer

America Online Inc.

Vienna, Va.