IM: Instant Money?

AOL counts on loquacious teens

Teen users and mobile devices are likely keys to early efforts by AOL Time Warner to make money directly from its instant messaging technology.

Instant messaging (IM) has become a teen phenomenon — so much so that Internet backbone providers regularly experience traffic surges when schools let out until evening mealtime, according to Daryl Schoolar, industry analyst at Cahners In-Stat Group. Much of that traffic is attributable to instant messages, he said.

AOL Time Warner Co-Chief Operating Officer Robert W. Pittman insisted that IM is, at this point, only a feature of the AOL service that draws subscribers at $21.95 per month and keeps them using AOL. Indeed, IM is an extremely "sticky" application: More than half the time that AOL users spend online is consumed by IM, chat and e-mail, according to research company Jupiter Media Metrix.

But newer mobile devices, ones attractive to teens, also offer AOL the chance to earn additional revenue directly from what is otherwise a free service, according to industry analysts.

AOL is heavily marketing a version of Research In Motions Blackberry pager, called the AOL Mobile Communicator. It lets users send and receive e-mail and IM over a public two-way wireless network.

The device sells for $330 — but service is available only to users who are full AOL members. AOL charges those members $20 per month for use of the device, in addition to the monthly fee. This is the first time AOL has directly derived revenue from users for instant messaging.

AOL declined to release figures, but said the device has been well-received by consumers of all ages since its November debut, despite the price.

"I was surprised that it doesnt really seem to be as big a barrier to purchase as we thought," said Lisa Hook, chief operating officer of AOL Wireless.

The company said it is not specifically targeting teens with the Mobile Communicator; Hook said the company is "sensitive to issues about kids taking this into school."

But the companys announcement of the device described features parents could use to shield teen users from unwanted messages. And some analysts said teens will be among the most frequent buyers, especially as the price of the technology drops.

"Pagers are already extremely popular with teens," said Jupiter analyst David Card. "If [AOL] could get the price down, it could make this a modest killer app."

Some analysts said other, less expensive portable devices will be even more attractive to the teen market.

For example, AOL has invested in Cybiko, an Illinois company that sells a $99 mobile communications device aimed directly at the teen market. While today the handheld device works only within 900 feet of another unit, Cybiko intends to offer longer-range messaging features, including connections to Internet service providers, later this year.

"AOL is looking for different ways to get their information off the Internet and screens, and onto mobile communications devices," said Donald Wisniewski, Cybikos president.

His company hopes to blend some of AOLs IM into versions of Cybikos device, and Wisniewski said the continuing revenue stream is of interest to both Cybiko and AOL.