Aol Europe Vs. Freeserve Case Study

AOL Europe vs. Freeserve Case

Question 1. 

Freeserve ENTER (expand beyond its current customer base)

1. AOL Fights (reduce prices)

AOL payoffs:

•    New service for Free internet service without abandoning the subscription model. 

•    A new deal with Dixon that could displace Freeserve. 

Freeserve payoffs:

•    Invest in more network capacity. 

•    Loose contract with Dixon. 

•    Not be able to generate content, e-commerce and ads revenues, being internet service free. 

2. AOL does not Fights (no price reduction)

AOL payoffs:

•    No investment in new service. 

•    A decrease in market share. 

•    Against market trend.

Freeserve payoffs:

•    Invest in more network capacity. 

•    Invest in the marketing of the service without being sure the market left is pro free-internet. 

Freeserve NOT ENTER (Does not expand beyond its current customer base)

1. AOL Fights (reduce prices)

AOL payoffs:

•    Maintain current customers 

Freeserve payoffs:

•    No investment in more network capacity. 

2. AOL does not Fights (no price reduction)

AOL payoffs:

•    Competitions coming from other firms besides Freeserve (other free internet providers)

Freeserve payoffs:

•    May no investment in more network capacity. 

Question 2. 

AOL was offering interactive news, entertainment, information, shopping, buddy lists, e-mail service, electronic chat capabilities, and parental controls – all under $30 per month. In the late ’90s, AOL was the world’s largest Internet Service Provider (ISP) membership base. Membership fees represented over 2/3 of AOL’s revenues. Advertising revenue per user $4-$5 per month. Direct network cost per user was $5-$9 per month. Thus, Freeserve might enter with similar pricing as AOL was providing. Alternatively, Freeserve can choose the customer segments, which were not AOL current customers. Finally, Freeserve might want a business model that has not been explored by AOL.

Question 3. 

In the case, the revenues for Freeserve were: A company that originated a call (typically British Telecom) had to share a portion of its revenues with the company that terminated the connection. A company that ended connections, Energis, agreed to transfer a part of its call revenue back to Freeserve. AOL can provide same services and same prices as Freeserve were using, and potentially lock up all existing customers and even attract more. Moreover, AOL could have engaged a better deal with Dixon that Freeserve has had.

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