America Online, Strategic Analysis

In: Business and Management

Submitted By tnby8c
Words 356
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America Online offers a product that is differentiated amongst it’s competitors to achieve a competitive advantage. Their strategy to offer an unmatched internet experience is what makes America Online a leader in their industry. America Online offers products ranging from real-time talk, online classes, online shopping, electronic mail, and internet access. Their competitive strategy is focused on the needs of their customers and ultimately, their wide range of products will help them reach out to new customers and build a lasting relationship with current customers.

2 Key Success Factors:
1) Wide Range of Products offered with a high-speed Web browser. (ability to retain customers)
2) Their persistent marketing creativity. (ability to get new customers)

2 Major Business Risks:
1) Industry is relatively new and threat to new entrants is high. (competition)
2) AOL Subscribers transferring to the Internet World Wide Web and Web Browsers (unbundling of services)
3) Their resistance to change

2 Key Areas of Accounting Policy:
1) Capitalization of marketing costs (over 12 or 18 months) associated with acquiring a customer including direct mail, advertising, start-up kits, and bundling costs.
2) Amortization of software development costs over 5 years.

There seems to be little discretion and judgment involved with these accounting policies. Capitalizing marketing costs appears to be a stretch of the accounting rules and policies. They should be recording those costs as expenses on their income statement. On the other hand, America Online is amortizing software development costs over 5 years in an industry that is constantly changing and evolving. It appears once again that this is a stretch of the accounting policy and the amortization period should be reduced.

Accounting can be used to measure strategic success, especially when one…...

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