Summer Slump Hits AOL

S A N F R A N C I S C O, Aug. 29 -- In these ponderous final days of summer, it’s becoming quaint once again to imagine the limitless growth prospects of the Internet. Sure, drkoop.com is sickly, Value America is valueless, and Living.com lives no more. But the continued surge of Internet infrastructure stocks — optical networking stocks in particular — suggests that the Net, if not the Web, knows no bounds.

That the Web is having some downright laborious days this summer isnot lost on a handful of Internet analysts and investors. And nowhere is the sluggish pace more evident than at the most mature Web companyof them all, America Online. The question raisedis no small one: America Online’s growth has slowed this summer, buthas it slowed for good? And what does the answer mean for the rest ofthe Internet?

To begin with, the numbers aren’t encouraging. In the quarter endedJune 31, AOL saw its average number of subscribers rise 5.4 percent, to19.03 million from 18.05 million in the quarter ending March 31. Butgetting subscribers is easier than getting them to use AOL’s services.And buried within the numbers, for the first time in at least three years, the total number of minutes AOL users spent online fell, by 4.5 percent.

And it gets worse. Excluding the 5.4 percent growth coming from new users,average minutes of usage per household fell 9.4 percent from the previous quarter.

The Tip of the IcebergMore warnings of slowing growth were to come. On July 27, WorldCom said that it had a drop in traffic, due in part to a decline in usage from AOL — its biggest single customer. “We were expecting a large-volume increase,” CEO Bernard Ebbers told analysts on a conference call. “Last year, we had much less impact from AOL seasonality.”

All this news had a pronounced, and even contagious, effect on thestock of both companies. AOL dropped 12.5 percent after it announced the slowing growth. WorldCom has fallen 21.9 percent since July 27.