EarthLink Adjusts Marketing Plans

National ISP finds the dial-up well is running dry, EarthLink is thirsty to drink from the flood of potential broadband users.

by Jim Wagner of internetnews.com [October 31, 2000]

Tuesday, the nation's second-largest Internet service provider EarthLink, Inc., reported its third quarter performance posting a net loss of $41.3 million or 33 cents a share.

EarthLink's results underscores its desire to satisfy customer demand for broadband Internet services and the potential riches high-speed access holds for the Atlanta-based firm.

EarthLink heads contributed its lackluster performance to low consumer awareness of its service, competition with rival national ISPs, and a downturn in the number of new dial-up subscribers it acquired during the reporting period.

Price of acquiring new subscribers
Gary Betty, EarthLink chief executive officer, said it's hard to get new dial-up customers when companies like America Online and MSN are burning money to nab new subscribers at the point-of-PC-purchase.

"Studies show that 40 percent of all PCs being bought are with the $400 rebate programs from Microsoft and AOL trying to sew up and capture the retail market," Betty said. "That takes away potential customers we might have otherwise gotten."

Betty said the two ISPs are also giving away a free service for a year to customers that purchase PC-makers bundled access, browser, computer deals. Earthlink plans to stick its toes in the water with retailers in the fourth quarter, but only in areas where the company can compete.

"The problem is, we aren't considered top of the line by potential customers," Betty said. "To address that, we've hired a new ad agency to roll out a marketing campaign. We find that our conversion rate with people who try out our service is much higher than our competitors."

Although the cost of providing dial-up services has steadily decreased, there may not be much money available in EarthLink's marketing budget to organically grow its new subscriber base.

Growth by acquisition
EarthLink finished the third quarter with 4.3 million subscribers, an increase of 546,000 dial-up accounts. But much of EarthLink's subscriber-side growth came as the result of completing its acquisition of OneMain.com in September.

EarthLink executives expect little — if any marketing-driven dial-up subscriber growth in the fourth quarter. The ISP is only devoting 10 percent its $130 million marketing budget to sell dial-up services. Instead, EarthLink plans to improve its market share by growing its dial-up subscriber base through acquisition — it's going to gobble-up smaller ISPs for their customer base.

"Right now we're wrapping-up our OneMain.com integration, which should be completely integrated into the EarthLink platform by the end of the first quarter 2001, in April," Betty said. "We will continue to look at acquisition of smaller ISPs to gain dial up customers, which is the easier way to go, as the cost for acquiring subscribers keeps going down."

Future is DSL
The majority of the EarthLink's fourth quarter marketing budget will be devoted to growing its digital subscriber line division.

EarthLink added 59,000 new broadband customers to its fold in the third quarter. With 139,000 DSL subscribers, EarthLink weighs-in as the fifth-largest DSL provider in the nation, behind SBC-Prodigy, Verizon, and US West.

EarthLink expects the fourth quarter to produce even bigger gains in DSL subscribers, as it works with Covad Communications Group to further deploy do-it-yourself starter kit next month.

Betty reported that the nearly 25 percent of its new broadband customers used the splitterless solution to connect to its DSL services. He anticipates that as much as 50 percent of EarthLink's new DSL subscribers will utilize its self-install kit in the fourth quarter, noting that the ISP currently has a backlog of 50,000 customers waiting for DSL installations.

According to internal tracking, EarthLink dial-up users average 40-hours online each month. Meanwhile, EarthLink's broadband users are averaging a whopping 150-200 hours connected to the Internet every month.

"It's a whole new environment," Betty said. "The reality is, when you have instantly available Internet access, people use it differently."

—End