Daily Archives: August 7, 2006

AOL Subscribers Meet Frustration in Switching to Free Services

AOL subscribers looking to switch from paid subscriptions to free services have been frustrated by AOL’s demand that they call a toll-free number to make the change rather than to do it online.

According to an article (yes, subscription required) in the Wall Street Journal, online tonight but to be published in tomorrow’s edition of the financial daily, AOL hasn’t made switching to free services as straightforward as many subscribers would prefer.

Instead of having the option of making the change online, subscribers must phone a toll-free number and navigate a number of phone-system decision trees before finally getting an opportunity to speak to a live person. At that point, they are asked if they are sure they want to make the change, and are given a couple paid-services pitches for good measure. Only then does the subscriber go from being a paid user to a free user of AOL’s services.

AOL claims it’s all being done in the best interests of subscribers, many of whom, according to AOL, don’t understand the ramifications of the decision to switch from the paid services, which include dial-up access, to the free services that are available to any Internet users interested in partaking of them. AOL says many of these subscribers might not have an Internet-access alternative at hand, and that they need to understand that the move to free services does not include Internet access.

That might be true, but the last thing AOL needs in light of recent events, particularly the raging controversy over its public release of subscriber search data, is another public-relations setback. Despite AOL’s protestations to the contrary, it appears the company didn’t prepare adequately for its subscribers to make the change to free services.

Nobody is saying the logistics behind such changes are easy or simple, but AOL owed it to itself and to its customers to get this transition right. It seems to have failed the test, at least part, and it did so at a time when it could least afford the blunder.

AOL Offers Free Anti-Virus Software, but Who Will Use It Now?

AOL is making news today, there’s no question about it. Unfortunately, most of the news has been extremely bad, headlined by its public release of log data relating to Internet searches made by its subscribers.

The company is falling over itself to apologize for what most observers classify as a major privacy transgression, but the damage has been done. AOL’s integrity and trustworthiness have taken serious hits, and it remains to be seen whether the company can do anything to atone for such a serious error in judgment. AOL is in a full-scale damage-control mode, but who can it contain or control damage that already has been done on a massive scale?

Anyway, on the same day as the news about the company’s disclosure of subscriber search logs, putatively in the interests of academic research into search patterns, AOL was attempting to make news on a different front. That news has been completely overshadowed by the controversy over the search data, and rightly so, but I still want to mention the other bit of news AOL made today because I think it might have been a successful foray for the company if it had occurred under more favorable circumstances.

AOL introduced free Windows-based antivirus software today, and made it available to anybody who wants it, not just to AOL subscribers, whose numbers are thinning faster than those of some endangered species. Called Active Virus Shield, the software offers basic protection against viruses, spyware and other malicious software, according to AOL. It is being delivered in partnership with Kaspersky Lab,  a well-respected (as AV vendors go) Russian developer of antivirus, antispyware, and firewall software.

Other free antivirus software is available to Internet users, including offerings such as Grisoft’s AVG Anti-Virus and ClamWin, based on the open-source Clam AntiVirus engine. Still, there’s no doubt in my mind that Active Virus Shield would have become the most popular free antivirus software on the market. It might still achieve that status, but the road got rockier and much steeper in the aftermath of today’s devastating backlash regarding the release of subscriber-search data.

The problem is, AOL’s free antivirus software comes with conditions. Active Virus Shield users must agree to allow AOL and its partners to deliver ads to them. Furthermore, Active Virus Shield collects a wide range of data from users’ personal computers that might be used for marketing purposes. The information collected by the software includes an email address, which is required to download and install it, plus usage stats, data regarding ad responses, and details relating to users’ personal computers.

After today’s controversy, is anybody going to trust AOL with his or her personal information? Actually, some people will do it (never underestimate the power of free stuff), but the numbers won’t be nearly as impressive as they might have been if AOL had taken better custodial care of the subscriber search data now circulating on mirrored websites across the Internet.

Symantec, McAfee, Microsoft, and Trend Micro might have been feeling more pressure today if not for AOL’s latest exercise in self-destructive behavior. As it stands, they should have a relatively easy time scaring users away from AOL-branded antivirus software, irrespective of whether it’s offered at no charge.

Meanwhile, Kaspersky probably is cursing its fate, having allied itself with a company that can only shoot straight when it’s aiming at itself. This could have turned out so much better for AOL and Kaspersky. Instead, they both have nobody to blame but AOL.

AOL Exposes Personal Search Data, Shoots Itself in Process

As reported by InfoWorld, among copious others, AOL has raised serious privacy concerns by releasing the details of Internet searches performed during a three-month period by hundreds of thousands of its subscribers.

Ostensibly made available for research purposes, the data no longer resides where AOL initially posted it (http://research.aol.com), but it has been cached by Google’s search engine and mirrored at several other sites. A cached copy of the page said the data comprised about 19 million searches performed by 658,000 users from March through May.

Earlier this year, controversy ensued when the Department of Justice (DoJ) requested access to search data from AOL, Microsoft, Yahoo, and Google, with the latter resisting the government’s data grab on privacy grounds. AOL was among those that acquiesced to the government’s request, and now it has decided to go one giant step further by publicly disclosing search data that is more detailed, personal, and revealing than anything previously in the government hands.

Notable bloggers are in an uproar, with TechCrunch, Techdirt, Paul Kedrosky and scores of other weighing in with near-unanimous condemnation of AOL.

At the very least, this debacle represents a public-relations nightmare for AOL. The company has begun apologizing profusely for what it calls a mistake and a misunderstanding, but that’s probably not nearly enough expiation for this particular sin. I wouldn’t be surprised to see AOL users desert the company’s services in ever-greater numbers now, as they have been provided with yet another compelling reason to abandon a badly listing ship.

Is Video AOL’s Comeback Chance?

Fortune magazine, which (like AOL) is owned by Time Warner, has published a piece looking at whether AOL has a serious chance of getting back into the game for online consumer patronage and advertising revenue.

It’s a candid article, looking at the strategic shifts and wrong turns AOL has taken over the past four years. It takes the reader right up to last week’s decision by AOL to offer the vast majority of its online services and software at no charge, effectively de-emphasizing its questionable reliance on a dwindling base of paying dial-up subscribers.

The verdict seems to be that AOL finally has made a right move, but likely has made it far too late. It must do a lot more to close ground against Google, Yahoo, and MSN, as well as against newcomers MySpace (owned by News Corp.) and YouTube. Offering more free storage than Google and providing personalized email addresses probably won’t be enough to persuade consumers to switch sides; nor will be enough for advertisers to reallocate their promotional expenditures.

At the end of the article, the great hope for AOL is alleged to be its video portal, which was given an overhaul last week. I realize a case can be made that AOL is uniquely positioned to capitalize on the burgeoning popularity of online video, but a similar “synergistic” argument was made when AOL merged with Time Warner back in the twilight of the Internet boom. We all know how that turned out.

Even in video, where AOL is said to possess unique assets that should confer competitive advantage, it’s going up against strong competition, not only Google, Yahoo, and Microsoft, but a slew of startups, led by YouTube.

At least, when it comes to online video, AOL is not as far behind as it is in the other online services, such as email, news, and social networking. Then again, AOL has not demonstrated a proclivity to lead through innovation. Traditionally, it has followed the lead of others rather than blazing its own creative trail. That will have to change, even in video services, if AOL is to remake itself into anything more than a fading icon of the Internet’s initial era of surging growth.

McAdam’s Past Raises Questions About F5’s Present

In a story today at the TheStreet.com, Scott Moritz digs into the past of John McAdam, current CEO and president of F5 Networks and past president and COO at Sequent Computer Systems.

In late May, F5 became one of the first companies enmeshed in the growing wave of stock-option backdating investigations, announcing that it had received a grand-jury subpoena and had been apprised of an SEC investigation into its stock-option granting practices.

Questions surrounding F5 deepened last month when the company reported that an internal review had identified at least one discrepancy between the time an option-award should have been granted and when it actually was recorded. As a result of the discovery, the company announced that it would restate results from fiscal 2001 through the first two quarters of fiscal 2006; it also deferred the release of its earnings report for the quarter that ended this past June.

In Moritz’s piece today, he writes that McAdam has a history of involvement in stock-option backdating irregularities. Says Moritz:

In four years at Sequent, McAdam had the good fortune to receive some suspiciously well-timed stock-option grants — just as he has at Seattle-based F5.

Sequent’s federal filings show three of McAdam’s last five option grants were dated when the stock was at a monthly low. In one instance, a grant was dated Oct. 28, 1998. That was just prior, as luck would have it, to a big November run-up.

Moritz also recounts a mysterious “orderless shipment” that occurred under McAdam’s watch at Sequent. That tale might not be relevant to what’s happening at F5 today, but it’s easy to see where Moritz is heading with his inclusion of that anecdote. He’s wondering whether it represents a pattern, one that might have recurred under McAdam at F5.

At this point, there’s no evidence that stock-option backdating at F5 resulted in the commission of fraud against the company’s shareholders. Let’s hope it doesn’t come to that.

What’s interesting about the controversy over the “orderless shipment” at Sequent is that it dissipated when Sequent was acquired by IBM for $810 million in July of 1999. Is it possible that F5’s current situation might end similarly, but with EMC rather than IBM stepping forward as the acquiring party?

Why Nortel Tied Itself to Microsoft

Nortel Networks is attempting to stem a potentially serious erosion of IP-telephony customers, with company CEO Mike Zafirovski and other senior executives spending plenty of personal time with marquee customers pondering removal of their Nortel IP phones and PBXes in favor of competing products from Cisco, Avaya, and Alcatel.

Zafirovski claims Nortel is back on a growth track, having stanched the loss of customers and gotten out from under a cloud of uncertainty caused by a seemingly endless accounting scandal, multiple earnings restatements, repeated layoffs, decimated employee morale among surviving staff members, and a general malaise that threatened to move the company several steps closer to irrelevance in most of the markets in which it still competes.

Many market analysts remain skeptical of Nortel’s prospects, with Prudential analyst Inder M. Singh adding to the chorus late last week. In a research note, Singh opined that Nortel’s restructuring plan has not been well executed, making the company’s profitability targets unattainable in the near future.

Meanwhile, as an article from Bloomberg attests, Nortel is faced by necessity to focus more on retaining its current customers than on growing its business through the addition of new ones. That’s especially true in IP telephony, where numbers from Synergy Research indicate that Nortel has suffered a steady erosion in market share. In the first quarter of this year, Nortel held 12.2 percent of the IP telephony market, down from 13.9-percent market share in the same quarter a year earlier. At the same time, Cisco and Avaya gained share at Nortel’s expense. Nortel is fourth, behind those two vendors and Alcatel, in the overall market.

Is it any wonder, given the circumstances in which it has placed itself, Nortel has tied itself to closely to Microsoft in a unified-communications partnership that, while important to Microsoft, is of infinitely more significance to Nortel?

Microsoft might have needed Nortel to provide telephony credibility and reliability to its unified-communications master plan, which ultimately involves running all enterprise communications — email, instant messaging, telephony, conferencing, and collaboration — from a Windows desktop, but Nortel needed Microsoft even more. It still does.