Network: Casting the Net wide

AOL introduced the Internet to millions of users. But now it has to diversify.

THERE MAY be no such thing as a free lunch. But there are such things as free Internet service providers, as British consumers have found out over the past few months; and now there are free computers, as well.

Both are being mulled over by AOL, the world's largest Internet service provider. It is keenly aware that its massive and expanding subscriber base is its greatest asset; that to attract more customers requires increasing ingenuity and investment; and that the word "free" goes down pretty well with consumers.

AOL, for many people, is the Internet. "You've got mail" is an instantly recognisable line that made its way into a film title; the company positioned itself as the Great Provider for the vast mass of people who were venturing on to the Net for the first time, and most of them stayed. But Dixon's FreeServe has knocked the stuffing out of other ISPs in Britain, attracting perhaps 1.3 million registered users, while AOL has 600,000. In short, it got left behind.

The company's Virginia headquarters confirms that AOL is looking at the idea of following suit, perhaps introducing a service under the name of one of its other brands - maybe Netscape, the browser company which AOL owns, or ICQ, its web-based messaging service. It might even do a deal with a telecoms company to offer cheap calls, thereby providing what some officials call "more than free". Nothing will happen for some months, but the company is working on it.

In the US, AOL has done a deal with eMachines, a maker of cheap (under $600) computers, to offer new subscribers to its CompuServe Net service a rebate of up to $400 on a new computer. Some eMachines models go for $400, so effectively you get the computer free. "AOL and CompuServe 2000 software will be integrated into all eMachines personal computers, and will be accessible through icons prominently featured on the eMachines desktop," says the company. You have to sign up for three years - an eternity in Net terms - but it's not a bad deal.

The slogan of "AOL everywhere" is also being boosted by a deal with 3Com, manufacturers of the Palm Pilot, to allow the hand-held devices to send and receive mail via AOL accounts. AOL is also working on ways of keeping people logged on as long as possible. So AOL 5.0, the new version of the company's software that will be put into beta testing soon, has all the latest bells and whistles: a calendar, a new search engine, and a gizmo that detects whether the user has a high-speed connection and reacts accordingly. It also has "You've Got Pictures", developed in partnership with Eastman Kodak, which enables users to share and swap pictures. Drop your negatives off, and you get them back via AOL as digital pictures.

But it is the free PCs which have won the most attention. For many people, getting on to the Net is the main (if not the only) reason to buy. Gateway and Compaq have bundled Internet services with their machines for some time; now, the computers are being bundled with the Internet service. Circuit City and Best Buy, two leading US retailers, are both offering rebates that make the machines essentially free; Best Buy has a tie-up with Prodigy. And Microsoft offers $400 credits with PCs bought at the office equipment shop Staples.

To some extent, AOL is shifting into hardware, though the company prefers not to harp on this: it wants and needs good relations with the manufacturers. More to the point, "AOL everywhere" is not just a slogan for growth: it is a means of survival. AOL's advantage so far has been its ease of access to the Net, its ability to promise a smooth entry into a world that seems forbidding for most users. Its service could reach 30 million subscribers by 2002 from about 16 million members now, and it has also expanded in Asia, Europe and Latin America: it bought a 10 per cent stake in China.com, the Chinese portal, and plans to launch in Hong Kong later this year.

In the US market, it faces intense competition in the race to dominate broadband. AT&T, now set to be the largest cable operator in the US, has teamed up with Microsoft, both of which have their own Internet access arms. AOL will begin testing broadband access via digital subscriber line (DSL), a telephone technology, this year. Last month it invested $1.5bn into Hughes Electronics for ventures with its DirecTV and Hughes Networks Services arms.

But is the company positioning itself for future growth or reacting after the event? As recently as March last year, AOL's chief executive, Steve Case, said that broadband "will happen, but it's nowhere close. If you keep an eye on Main Street, not Silicon Valley, it pays off... Thou shalt not launch before the market is ready."

However, AOL has been written off by the technology press many times, only to show its resilience as a brand, as a product and as a company.