Q1: The explanations to the reason why AOL was so successful in the industry online market comparing to its competitors CompuServe and Prodigy will be as follows: · AOL offered the unique and board array of features including Online Community, Processing and the like, thus their services are fairly differentiated · AOL retained good relationship with its customer because of the quick access to AOL’s online service which only required to include a personal computer, a telephone line, and a pc, and also reflected in AOL’s rate framework which was the easiest for consumers to understand and anticipate, in accordance with its competition · The bargaining benefits of AOL with supplier can be achieved by making strategic relationship with American Express, and so forth, and doing its purchases of Internet application developers, along with AOL’s growing membership rights base, in order to strengthen the new fun services industry by means of going after a number of projects. · The threat of new enchant is definitely low, as there is not very much service providers, just like AOL, served as middlemen between thousands of content services and an incredible number of customers, which usually provided lucrative profits ahead of 1995.
Q2: There are several important changes occurred in the commercial on the web industry in the year of 95 and after: · With the advent of the Internet World Wide Web and the entry of Ms Network, content material providers acquired substitution syndication channels that offered greater control over many · Under the background that the migration of proprietary services and content to Web sites, the exclusive offerings of AOL was decreasing, thus it had been likely reduce the market share of AOL in the marketplace and subsequently posed unfavorable effect on it is profitability · Since everybody with a PC was his or her own author, customers will sign up for a web on-ramp assistance provided by others and they had been tend to utilize the other companies’ browsing software to browse the world’s database, led to the situation that content services were starting to make use of these types of distribution channels.
Q3. Based on the annual reviews and footnotes, AOL’s accounting policy was going to capitalize reader acquisition costs prior to 1995, which in my view, has not been likely to be validated in that period based, intended for the doubt whether ts customers may migrate online still continued to be since this could possibly affect the progress in its customer and the earnings of the services, although the CFO of AOL attributed the choice towards the explanation that the period that the earnings would be received was coordinating with the time the expense, however there was a rising distance between the reported income and its tax salary, except for a big change in its service quality, these two numbers bear a consistent relationship to each other. Q4. The company should certainly shorten the size of amortisation from the acquisition costs instead of increasing it. The reason why of this assertion are based on living cycle with the industry which has been supposed to be fairly short also because of the regularly changing environment of the industrial online sector with enormous uncertainties, that was likely to require conservative accounting policy to reflect the financial statistics so as to better match earnings with expense.
Nevertheless, AMERICA ONLINE even expanded the amortization period due to its subscriber purchase cost by about 15 months to 24 months, which made it will be tend to confront big risks when buyers switched to other on-line service under uncertainty. Therefore , the company’s response seems to be inconsistent with my own view. Q5. If AMERICA ONLINE followed the policy of expensing customer acquisition items rather than capitalizing them, there would be a huge amount of reader acquisition costs, leading to a comparatively decreasing income and maximize operating damage in the cash flow statement and also lower value in the balance sheet for the last same period or perhaps compared to it is peers, which might lose the attractive searching of the accounting figures mainly because it was eager to raise cash from the public market so as to pay their bill.
