When America Online made a triumphant-sounding announcement Monday that the company is upgrading its enterprise unit in an attempt to sell remote access to large corporations, it prompted a certain amount of head-scratching among analysts.
"The competition is formidable there," said Abhi Chaki, an analyst with Jupiter Communications, pointing to services offered by everyone from established giants IBM and MCI, to rising contenders like Concentric Networks and Netcom. "There are far too many options in the business services space."
AOL announced a range of enhancements to its struggling 2-year-old enterprise-services business Monday, particularly in the area of security, where it announced new partnerships with a who's who of industry leaders, including Security Dynamics, Check Point Software, Aventail Corp, and AXENT Technologies.
"[We already have] the largest dial-up network, and now with these security partners, we have a secure network to offer corporate customers a virtual private network," said David Gang, AOL's senior vice president for strategic development.
Gang said AOL will target companies with 2,000-plus people connected remotely. Potential customers will be companies with large sales forces in the field, like pharmaceutical firms and large technology companies, particularly those already having an existing relationship with AOL. Oracle, for instance, is already on board.
But in the context of the competitive landscape in business network services, analysts say AOL is going to have a tough time shaking its image as a consumer-focused operation, and an unreliable one at that.
"I don't think, for now, AOL's reputation and image, in terms of offering business-class solutions, is compatible with its image as a mass market service," Chaki said.
Businesses demand comprehensive service agreements, guaranteed bandwidth and network availability, Chaki said. "[AOL] has been very bad at that," he said. "Only last week they suffered network outages. That is not in line with what businesses need."
But AOL cites what it says is the most reliable network in the industry, with downtime currently averaging .05 percent of total around-the-clock running time, and a company spokeswoman stressed that AOL Enterprise is concentrating on remote access services.
The thinking is that since company research shows that AOL's peak usage times are in the evenings - with modems sitting idle during the day - adding business customers would be an obvious way to make full use of the network. In that respect, the AOL Enterprise plan makes all kinds of sense, according to Amy Sachrison, an analyst with the Aberdeen Group.
Since residential customers use the service mostly between 9 p.m. and midnight in their own time zone, a successful push to add daytime business users would be "great synergy," Sachrison said. "The more subscribers they get on the network, the more economies of scale they get," she added.
Because of the size of the AOL network, Gang said he sees the enterprise unit's main competitors as large telecommunications companies and large network service providers like IBM - not Internet service providers like Concentric or Netcom.
But Jim Balderston, an industry analyst with Zona Research, said the service AOL expects to offer doesn't make sense in the context of who it claims as competitors. Large telecommunications companies and network service providers like AT&T typically offer soup-to-nuts services that would include remote access as a standard subset.
"Why would someone sign up for everything except remote access [choosing to use AOL instead]?" asked Balderston. "But [Zona] is reserving judgment. This is a wait-and-see situation. Let them show us."
Another reality underlying the latest AOL announcement is investor expectations. With its stock established as a hit on Wall Street, the company is compelled to show that it can continue to improve on the bottom line.
The AOL Enterprise announcement is only the latest in a series of tactical maneuvers and comes on the heels of several lucrative deals concluded by the company.
Last week, AOL announced that health-care provider Provident American agreed to pay what could ultimately amount to US$40 million to be the exclusive direct marketer of medical insurance to AOL's 11 million customers. The previous week there was a similar announcement from Software.net, which agreed to pay $21 million over three years to be the exclusive direct marketer of downloadable software on the AOL network and AOL.com. In between came word from long-distance carrier Tel-Save Holdings that it had agreed to pay $100 million in a similar exclusive marketing deal. That arrangement is paying off to the tune of nearly a half million new Tel-Save customers for AOL in the first fiscal quarter.
"Going forward, from quarter to quarter, you are going to see lots of new announcements aimed at increasing revenue," said Jupiter's Chaki. "But not all of them are going to be slam dunks."
