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AOL Spent $300 Million Just on Promotional Discs in the 1990s

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I get a chill when I think about where we were technologically in 1995. Not a shiver of marvelment over the progress we made to reach that era, but an incapacitating shudder to think of the Hell on Earth we had to endure to go online in the mid-'90s. The dial-up screeches, the disconnections should someone pick up a phone, the endless wait-time to download a pirated copy of Adobe Photoshop 4.

Let's never go back. Promise me we'll never go back.

But back in the day, when dot-com empires were being forged and online companies were throwing digital spaghetti against the wall, AOL seemed to be finding its groove. Subscribers would call a local number and access the Internet at dial-up speeds for an hourly rate or flat monthly fee. Service was absolutely horrendous, but when you're the only game in town, there wasn't much of a choice.

Especially when you consider the mountain of promotional discs that would fill your mailbox every week.

Recently, Steve Case -- the then-CEO of AOL -- was asked the cost of the company sending out all the CDs during the 1990s.

His answer: "A lot." Case said it was AOL's goal to spend 10% of lifetime revenue to nab new subscribers. And at that time, an average user would spend roughly $350 over the course of 25 months of service. So Case estimates that $35 was spent on each user to persuade them into joining AOL.

To put it another way, it cost AOL $300 million for promotional discs alone -- according to AOL's former Chief Marketing Officer Jan Brandt. She said, "At one point, 50% of the CD’s produced worldwide had an AOL logo on it."

But it worked. Brandt claimed that AOL was raking in customers at a rate of one every six seconds. Case also said, "As we were able to lower the cost of disks/trial/etc we were able to ramp up marketing. (Plus, we knew Microsoft was coming and it was never going to be easier or cheaper to get market share.) When we went public in 1992 we had less than 200,000 subscribers; a decade later the number was in the 25 million range."

And by the time the company merged with Time Warner, it had a market cap of $150 billion. We all know what happened next, but it's astonishing to think that, at one point, AOL was one of the biggest names in the tech sector.

Uhp. There's that chill again.
POSITION:  No positions in stocks mentioned.