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AOL's CDs: 50% of All CDs Manufactured in the World

Abstract

At peak production in the late 1990s, AOL was pushing out so many CD-ROMs of its dial-up software that, by the account of marketing chief Jan Brandt, half of all CDs manufactured in the world carried the AOL logo. The company spent well over $300 million on the campaign, and Brandt has said the true figure may have run into the billions. The CDs appeared in cereal boxes, pizza deliveries, magazines, hotel rooms, airline seat pockets, and direct mail. It worked: AOL acquired subscribers at roughly $35 a head against something like $350 in lifetime revenue, and the campaign is now studied as one of the most aggressive direct marketing efforts ever run.

The Ubiquity

Between approximately 1993 and 2001, AOL CDs appeared in nearly every physical location where Americans spent time:

  • Inserted into magazines (Time, Sports Illustrated, Consumer Reports)
  • Included in cereal boxes and food packaging
  • Attached to pizza delivery boxes
  • Left in hotel rooms with the television remote
  • Distributed in airline seat-back magazines and with in-flight meals
  • Included with new computer hardware purchases
  • Sent in direct mail to every address in America
  • Distributed through brick-and-mortar retail stores
  • Attached to newspapers

The CD offered free hours of AOL internet access, starting at ten and escalating over the years to 500-, 750-, and 1,000-hour trials. The scattershot delivery meant many households received the same offer half a dozen times over. Collectors have since catalogued thousands of variants, differing in artwork, offer, and packaging.

The Strategy

AOL’s dial-up internet business was fundamentally a customer acquisition business. The question was: how many customers could be acquired at a cost that the subscription revenue would justify? The CD distribution answered this at scale.

The economics that justified it:

  • A disc, produced and delivered, cost around $1.50.
  • Brandt’s first test mailing cost $250,000 and pulled a 10% response rate, against the 2% to 3% that direct mail normally returns.
  • Acquiring a new subscriber cost AOL roughly $35.
  • That subscriber was worth something on the order of $350 over their lifetime.

A tenfold return on acquisition spend is why the discs kept coming long after the joke had worn thin. AOL was not carpet-bombing America out of exuberance; it was buying subscribers at a price the subscription revenue comfortably covered.

The Decline

The strategy stopped working for two reasons: the internet moved to broadband, which came installed by the cable or telephone company rather than off a disc, and saturation drove response rates down as the remaining unconverted households thinned out. AOL phased the discs out by 2006.

The AOL brand, the CDs, and the dial-up era are covered in broader context by the dot-com era and internet commercialization history.

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