Report: AOL gets much of its cash from duped subscribers

Now that AOL has struck out on its own, the firm's business model seems to be attracting more attention, not all of it positive. As Business Insider points out, a recent New Yorker piece suggests that AOL generates much of its revenue from subscribers who don't actually need its dial-up service... but purchase it anyway.

The New Yorker article itself is hidden behind a pay-wall, but Business Insider has grabbed a couple of choice quotes. Much of AOL's subscriber base is reportedly made up of "older people who have cable or DSL service but don't realize that they need not pay an additional $25 a month to get online and check their email." AOL's "dirty little secret," according to one former executive, is "that 75% of the people who subscribe to AOL's dial-up service don't need it."

I guess that explains why, as Business Insider adds, the number of AOL subscribers has shrunk from 35 million in 2002 to just four million as of the third quarter of last year. That drop isn't stopping the company from turning a profit, though. AOL posted net income of $171.6 million on revenue of $563.5 million that same quarter. AOL says about 43% of that $563.5 million came from subscriptions, with the rest originating from advertising and "other" operations. The New Yorker piece alleges that AOL draws 80% of its revenue from subscriptions, though.

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