America Online to 'Bundle' Service

Firms Plan to Spend More on Marketing Sends Stock Down 13%

by Sandra Sugawara

Friday, October 2, 1992

Inc. officials yesterday told securities analysts they plan to spend more money marketing their computerized information service with other computer products, an announcement that sent the price of the company's stock down 13 percent.

Lennert Leader, chief financial officer of the Vienna-based company, said the marketing plan will push up costs and perhaps slow sales in the short run.

The company plans to spread some marketing expenses over a longer period so that earnings per share should not be affected.

Leader said a number of longtime investors agreed with the company's strategy, which is intended to boost sales in the long run.

But many analysts "took this as negative news," said Steve Eskenazi, an Alex. Brown & Sons Inc. analyst.

America Online's stock closed at $13, down $2, with 268,200 shares traded.

America Online, which had profit of $3.54 million on revenue of $26 million for the fiscal year ended June 30, provides computer services -- electronic mail, conferencing, news, sports and stock quotes -- over telephone lines. As of June 30, it had 180,000 users.

Prodigy Services Co., with 1.73 million users, and CompuServe Inc., with 1.05 million users, are the two largest and fastest-growing on-line services, according to Information & Interactive Services Report, an industry newsletter.

Currently America Online recruits about 70 percent of its new customers through direct marketing, such as advertisements placed in computer magazines. Although customers sign up quickly, they usually only stay with the service about two years.

The company's new marketing strategy is aimed at strengthening its ties with Microsoft Corp., Lotus Development Corp., Tandy Corp. and other computer and software companies that include free America Online software with their products.

Columbus, Ohio-based CompuServe, an on-line service owned by H&R Block Inc., yesterday announced a similar deal with CompuAdd Computer Corp.

Prodigy, another on-line service, has "bundled" its software with International Business Machines Corp. computers.

Bundling the software with other products is a slower method for signing people up, because of the time it takes to get the computer product to the store shelves. But customers usually keep the service for a longer time, because they are a more targeted group, according to Leader.

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