To grasp why America Online hasn't yet convinced consumers to log on from mobile phones and other Web-connected devices, talk to Sonna Kim.
The 31-year-old management consultant's mobile phone can access America Online services, yet she doesn't use the feature.
"It seemed like a waste of money to use it on my cell phone," said Kim, who pays Sprint PCS US$5 a month for wireless Web service. She would have to pay US$23.90 more each month to get America Online on her cell phone.
AOL Time Warner Inc's three-year old "AOL Anywhere" services offer the largest Internet provider via televisions, hand-held computers and mobile phones. High prices and longer times to download information from the Internet than from personal computers have kept consumers from signing up, analysts and researchers said.
AOL Time Warner needs to spur use of these services to boost growth at America Online, as half the US population is online, analysts said. The number of new customers accessing the Internet through personal computers may slow in the next several years, they say. PC sales fell 1.9 percent in the second quarter from a year earlier, the first decline since 1986, according to market researcher Dataquest Inc, a unit of Gartner Inc.
Indicative of the high prices is America Online's e-mail pager from Research in Motion Ltd, analysts said. The device costs US$330, and consumers must also pay a monthly fee of US$19.95 in addition to America Online's US$23.90 charge for PC service. America Online plans to introduce a lower-cost version of the pager later this year, said Barry Schuler, chief executive of America Online.
He said the price hasn't been set yet.
"It's absolutely necessary for the company to develop this franchise because at some point in the future it may be a big revenue generator," said Charles Crane, a strategist at Victory SBSF Capital, which owns AOL Time Warner shares.
America Online will remain a predominately PC-based service for the next three-to-five years until the services and devices become cheap and fast enough to appeal to consumers, said William Blair analyst Abhishek Gami, who rates AOL Time Warner shares "strong buy." America Online's growth is slowing. Revenue at the unit, which accounts for 23 percent of AOL Time Warner's sales, rose 13 percent in the second quarter, down from 17 percent in the first quarter.
"The Internet is reaching full maturity on PCs," said Peter Ashkin, president of product strategy at America Online. "Right now, we're struggling in finding the right way to provide" services over other types of devices, he said.
America Online, which has more than 30 million subscribers who primarily get online through PCs, needs to develop these new services so that products will be available as more consumers seek out the devices, America Online's Schuler said.
"There's no doubt in my mind that as we look ahead five to 10 years from now, there will be many different ways people get onto the Internet from besides in front of a computer," he said.
Jupiter Media Metrix Inc, an Internet research company, estimates that 96 million US consumers in 2005 will connect to the Web through cellphones and other wireless devices, compared with 4.1 million last year.
That means there could be more people accessing the Web while away from PCs in four years than at PCs. About 80.2 million homes will have Internet access in 2005, according to Jupiter.
The number of Internet-connected cellphones represents a small portion of the total number of cell phones, said Dylan Brooks, an analyst at New York-based Jupiter.
"People using them are even lower," he said. There will be 5.3 million people accessing the Internet through wireless devices at least once a month in 2001, Brooks estimated. About 120 million people in the US use cellphones, according to the Cellular Telecommunications & Internet Association.
Consumers don't want to read e-mail on tiny phone screens and pay extra to get Internet access through the devices, researchers and analysts said. Downloading news or e-mail on the devices can be slow compared to PCs, and writing messages on tiny keypads can be frustrating, they said.
Getting the Web over mobile phones "was a dud," said Dan Steinbock, researcher with Columbia University's Institute for Tele-Information.
America Online wants customers, who are online an average of 70 minutes a day, to stay connected the other 23 hours, said America Online's Ashkin.
For that to happen, most homes need high-speed Internet access because such connections are always online. Slower lines used by most US households require users to access the Internet every time their computer is turned on.
At the end of 2001, 8.6 million US homes will have high-speed access in their homes, or 14 percent of all households with Internet access, according to Jupiter.
That will grow, although slower Internet access will remain the predominant method of getting online for at least the next four years, Jupiter says. For example, in 2005, 51.4 million people will log on through slow online connections, compared with 28.8 million through fast access.
America Online's e-mail pager and a scaled-down PC made by Gateway Inc that costs about US$500 are examples of how America Online is charging too much for the Internet devices, analysts said.
"Consumers don't want to pay more than US$200 for hardware that lets them send e-mail on the fly," said Jordan Rohan, an analyst at Wit SoundView, who has a "strong buy" rating on shares of AOL Time Warner.
Prices for Internet-connected devices will come down over time, said America Online's Schuler.
Internet-connected pagers and mobile phones are geared to business use, said Faith Popcorn, chief executive of BrainReserve, a provider of information on consumer behavior and trends to large companies.
Web-connected devices will catch on in about three years after companies redesign devices to mesh personal uses with business, Popcorn predicted.
"When people understand how they can be using them more for family life," such as keeping children's schedules, the devices will become more popular, she said.
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