Anyone who was into computers in the 90’s would have got some AOL CDROMs – a lot of them. Despite being apparently hugely wasteful, they were incredibly successful, building AOL into the leading ISP. However they provide an excellent case study of how good marketing campaigns can produce incredible return on investment – even when they are perceived as being ineffective.
Customer acquisition campaigns are very interesting to study – if you can get the data. So I was fascinated by the TechCrunch article discussing Steve Case’s reply to “How much did it cost AOL to distribute all those CDs back in the 1990’s?“, which was posted on Quora.
AOL allocated a percentage of average lifetime revenue to acquiring customers – in fact they spent 10% of what they expected to earn from the customer on acquisition. Even with the relatively high margins associated with the access business, this is still huge compared to the amount many technology companies spend on customer acquisition today.
And the campaign clearly worked. In his answer, Steve Case highlights the huge subscriber growth:
1992 we had less than 200,000 subscribers; a decade later the number was in the 25 million range
the subscriber growth helped grow AOL from a market cap of $70 million at the time of their IPO to $150 billion when the merger with Time Warner occurred.
So if we take the TechCrunch estimate of $35 spent to acquire each new customer, then we might assume that AOL spent $875 million on the CD campaign. However this resulted in an increase in the company’s value of about $150 billion – a return of about 170 times the marketing investment!