The Rise and Fall of AOL

[Pyser]

I just got an email from AOL saying they are going completely free. Anyone can use their software, email, all that jazz. Which no one of course will do, since the internet has improved on just about everything AOL did.

But it got me to thinking...has any business giant ever risen and fallen as quickly as AOL? I mean, they either bough or merged with Time Warner...which took, what, 50 years to build up?

And AOL did it all in 10 years. Amazing. Talk about an absolute failure to keep up with the times.

[Hurst2112]

sure it wasn't spam?

[Subby]

AOL set to become a freebie
Reuters
Published on ZDNet News: July 27, 2006, 5:22 AM PT

Time Warner, whose shares touched a two-year low in mid-July, is set to introduce on Aug. 2 its fourth plan in five years to save online unit AOL.

AOL is widely expected to announce that it will give its e-mail and Web services away for free, hoping to win back customers who have switched to other free services from rivals like Google and Yahoo.

The new strategy, which will be discussed at a Time Warner board meeting in New York on Thursday, aims to boost online advertising sales. But analysts say it is a risky move as its subscription business currently accounts for 80 percent of AOL's revenue.

AOL is still expected to continue to charge for dial-up Internet access, but it will no longer advertise the service.

"I think a lot is riding on Aug. 2," said Larry Haverty, a portfolio manager at Gamco Investors, which owned 14.1 million shares of Time Warner as of March 31. "People like us have been patient with strategy. From what I've heard, I'm comfortable.

"But seeing is believing," Haverty added.

Once the reigning king of online services, AOL has lost about 30 percent of its subscribers since 2003. The 2001 merger of AOL and Time Warner has been blamed for destroying some $200 billion in market value.

Free services are now viewed by some investors as the only hope of survival for AOL in a world dominated by faster-moving companies, including News Corp.'s MySpace.com.

"They should have done what they contemplated two years ago to aggressively develop AOL as a Web service," said Morris Mark at Mark Asset Management, which owns 1.22 million Time Warner shares as of March 31. "Its position is so much more powerful than the advertising revenue that they're generating.

Time Warner's enterprise value trades at 7.6 times its expected 2007 earnings before interest, tax, depreciation and amortization, compared to News Corp.'s 11.9 multiple and Walt Disney's 9.81 multiple.

Gamco's Haverty hopes Time Warner's online advertising sales will rise at least 30 percent, when the company posts its second-quarter results on Aug 2.

That would put AOL roughly on par with Yahoo, but still lag Google's 77 percent advertising growth in the second quarter.

AOL strategists may be emboldened to act aggressively after a 26 percent growth in online ad sales in the first quarter.

But a Wall Street Journal report earlier this month cited unnamed sources as saying Time Warner could lose up to $1 billion through 2009 from its plan to offer free services.

Time Warner on July 11 dismissed the report and called the newspaper's assessment "incomplete" and laden with "largely erroneous financial information."

Six days later, its stock had slipped to a two-year low.

"Time Warner's stock chart is like the flatline EKG of a dead person for the last three years," Joan Lappin, chairman of Gramercy Capital Management, wrote in Forbes.com, calling for Chief Executive Richard Parson's resignation.

Lappin, whose firm no longer holds media stocks, was a longtime media analyst who has watched the company since the late 1960s, when it was just a magazine publisher.

The sentiment on Time Warner's stock, however, appears to be improving judging by activity in the stock options market.

There are already more than 200,000 outstanding calls that give holders the right to buy Time Warner shares at $17.50 and $20 by mid-January 2007. The stock closed at $16.27 on Wednesday on the New York Stock Exchange.

"The high, open interest is a sign that players have been positioning in these options, and placing relatively cheap bets that Time Warner will rise between now and the end of the year," said Frederic Ruffy, an analyst at Optionetics, a California-based options education firm.

Haverty said he hopes the stock gets a 10 to 15 percent boost when the dust settles.

[Hurst2112]

i'd join aol again if i could get back manmeat69 as a username. ;)

[Antmeister]

I'm surprised they didn't fall sooner. I had AOL way back in 1995. We got rid of it the following year due to the fact that I could get regular internet access a lot cheaper than using AOL. Back then, though, it was a better alternative since the web was still in its infancy and AOL provided a lot of features that you couldn't get with regular internet access. However, by the time broadband came about, I thought AOL was going to be gone then and was surprised that it stayed around. It may have been for the fact that there were parental controls, but it never made sense to me to pay for both broadband access and AOL at the same time.

[Ksyrup]

To me, the whole concept of AOL was doomed to fail once people became more and more familiar with the internet and how to use it. I'd be interested in knowing what the age is of AOL's subscription base. My guess is it is dominated by 11-16 year olds and 45+ year olds. Basically, people who are too young to be trusted by their parents to be on the net without some boundaries, or people who are older and don't quite understand the internet without AOL's boundaries.

Back when I first discovered the internet in 93-94, I was on Compuserve. Once I got the feel for it and the cost issues with surfing the web lessened, I no longer needed the crutch of a self-made "internet universe" to roam around in. That's all AOL is. And now that we're 10+ years along and even elementary school kids understand how to surf the web, what does AOL offer anymore? Fewer people should need to use it as a crutch, especially at $20+ dollars a month.

*shurg*

[KWhit]

But it got me to thinking...has any business giant ever risen and fallen as quickly as AOL?

Yes.

Maximum Football.

Well, except for the rising part of it. Or the business giant part.

[Ksyrup]

I'm surprised they didn't fall sooner. I had AOL way back in 1995. We got rid of it the following year due to the fact that I could get regular internet access a lot cheaper than using AOL. Back then, though, it was a better alternative since the web was still in its infancy and AOL provided a lot of features that you couldn't get with regular internet access. However, by the time broadband came about, I thought AOL was going to be gone then and was surprised that it stayed around. It may have been for the fact that there were parental controls, but it never made sense to me to pay for both broadband access and AOL at the same time.

I think you and I are on the same page... :)

[Antmeister]

i'd join aol again if i could get back manmeat69 as a username. ;)

LOL! My current username for FOFC was first created in AOL back in the day. I guess I didn't get too creative since then.

[Hurst2112]

LOL! My current username for FOFC was first created in AOL back in the day. I guess I didn't get too creative since then.

same with mine. back in the sideline days...june 99

[Antmeister]

I think you and I are on the same page... :)
Nice. I am standing on the same page with some sort of gooey Ksyrup. :D

[Ksyrup]

I attract ants.

[Hurst2112]

I attract ants.

holy shit that was a good, quick comeback.

[Antmeister]

I attract ants.

LOL!

[Bonegavel]

I tried years ago to get my in-laws to switch from the $20+/month AOL to a local company ( enter.net ) and my FiL didn't want any part of it and said things like, "I won't be able to get to my web sites" no matter now much I explained it to him. I watched the stuff he went to and NONE OF IT was the proprietary AOL content.

Scarier yet are the folks that get high speed and KEEP AOL!!!?! Somehow they think they need to keep AOL.

[Godzilla Blitz]

But analysts say it is a risky move as its subscription business currently accounts for 80 percent of AOL's revenue.

What a wonderful idea! Let's give away 80% of our revenue in order to boost the other 20%!

With ideas like this, it's no wonder they are going down the tubes.

[st.cronin]

With ideas like this, it's no wonder they are going down the tubes.

lol

[Swaggs]

Whatever happened to Prodigy and Compuserve?

My early internet days were through Prodigy. I remember it was like 30 hours for $24.95 + $2.95 for each extra hour. I had a few "ouch" bills back then. :)

[MikeVic]

Whatever happened to Prodigy and Compuserve?

My early internet days were through Prodigy. I remember it was like 30 hours for $24.95 + $2.95 for each extra hour. I had a few "ouch" bills back then. :)

Ungh... I remember getting Compuserve in Canada. I don't know why it cost so much, but my parents said it was the long distance charges. Who knows, since I didn't use it THAT much. But needless to say, a $200 bill later, and I didn't have the internet for awhile until a local dialup provider popped up.

[Arles]

I finally got my dad off AOL last year in favor of cable. His biggest concern was updating all the contacts with his new email and that was the reason he waited until last year. He ended up using an AOL service for $9 a month to keep his email live for 3-4 months while he moved over to cable. I'm guessing the hassle of changing emails (and business cards) is another reason many older people don't want to move (esp those who run their business off their AOL email).

[kcchief19]

Whatever happened to Prodigy and Compuserve?

My early internet days were through Prodigy. I remember it was like 30 hours for $24.95 + $2.95 for each extra hour. I had a few "ouch" bills back then. :)
Those were the days. I thought I had found Nirvana with Prodigy on a 2400 bps modem. I liked CompuServ, but it was very temparamental -- too much downtime.

What amazed me about AOL was that this was a company that did such an incredible job of seeing where online service was going and setting the curve, then just completely lost it and fell behind. I don't know if AOL never saw broadband, Google and low-cost dial-up coming, or just didn't know how to react. My gut is that the true brains behind AOL -- the underlings working for Steve Case, not Steve Case himself -- all cashed out and left at the top, then there was no visionary leadership left to tend the store.

But that AOL/Time Warner merger may go down as one of the biggest disasters in corporate history. It's a testament to the rest of Time Warner that the company has managed to overcome a core aspect of its empire simply vanishing off the face of the earth.

[saldana]

i cant link to the article right now from work, but there is a story on CNNMoney.com about AOL elimininating 5000 jobs, including about 3k when they sell off their entire european internet division.

[Pyser]

Whatever happened to Prodigy and Compuserve?

My early internet days were through Prodigy. I remember it was like 30 hours for $24.95 + $2.95 for each extra hour. I had a few "ouch" bills back then. :)

im not positive, but i want to say aol bought prodigy.

[MizzouRah]

AOL was my first internet ISP. I thought it was the coolest thing after using BBS's.

[Swaggs]

Looks like Prodigy was bought by SBC:

Prodigy at a Glance
Prodigy Communications, a subsidiary of SBC Communications, is one of America's leading Internet service providers (ISP) serving the largest number of high-speed digital subscriber line (DSL) Internet customers in the United States. Founded in 1984 as the first consumer ISP, the company together with SBC has grown to serve more than 3.6 million customers.
SBC and Prodigy by the Numbers


3.1 million customers - including more than 1.3 million DSL Internet customers
More than 3,500 local access numbers across the United States
More than 90 percent of the U.S. population can access Prodigy dial service with a local telephone call
85 percent nationwide brand recognition
According to a major national consumer advocacy magazine survey published in September 2001, Prodigy ranks among the top three national ISPs in terms of overall customer satisfaction, ahead of AOL and MSN
Ranked No. 1 in network reliability and No. 2 in network performance by Inter@ctive Week's September 2000 "Internet Service Provider Customer Satisfaction Survey"
Recognized as one of the top three national providers for network availability during business and evening hours in Network World's January 2001 "Top ISP Report"
In 2000, Prodigy provided its members with 99.9 percent network uptime, allowing customers to connect to the Internet and stay connected
Austin, Texas, headquarters and Yorktown Heights, N.Y., data center
Wholly-owned by SBC Communications Inc. (NYSE: SBC), San Antonio, TX

[SirFozzie]

AOL bought compuserve

[Buccaneer]

I was on CompuServe in the early 90s mainly because Microprose had a BBS there, with appearances by Sid and Brian! I got hooked up with Netcom around 95 for email and web surfer. I never did nor had ever understood the appeal of AOL, esp. with those keywords. I remember just a few years ago seeing or reading an ad and it mentioned an AOL keyword. I had to snicker.

[Philliesfan980]

I was a Prodigy guy in the early 90's as well. I remember reading Peter Gammons on there - was really great stuff for the times.

Its amazing what has changed in 15 years.

[Buccaneer]

I think my favorite internet/bbs story was being on the Microprose BBS the day that Sid announced them leaving and forming Firaxis. You wouldn't believe the number of people clammoring to get on board, investment-wise. There were people with cash in hand wanting to get a piece of action. Sid thanked them all but politely declined.

[MizzouRah]

I ran a Color 64 BBS on my Commodore 64 called "Message Express", it was so much fun.

[cartman]

I was VKVW87C back in the day on Prodigy. That was my first exposure to online sports leagues. There was a board for All American College Football and NFL Pro League Football. The developers of the game were also frequent posters, kinda like another place I currently visit. :) There was no career mode back then, we simply played single seasons. From what I've heard, Prodigy does still exist, and in fact is the #1 ISP in Mexico.

[sachmo71]

I ran a Color 64 BBS on my Commodore 64 called "Message Express", it was so much fun.


Vanilla Pilot ROXOR

[Buccaneer]

I have no idea what my handle was at CS. I know it was before my piratical gaming days so I couldn't have been Bucc.

[Philliesfan980]

Color 64 has nothing on WWIV :)

[vtbub]

Prodigy was a Christmas present in '91.

[Critch]

When I used to work for Worldcom we shared a bus from the last metro station out to the AOL and Worldcom buildings.

That was a bus that got quieter and quieter every week til there was hardly anybody taking it.

[MizzouRah]

Color 64 by Greg Pfountz or something like that. I bet that guy made a killing.

[Lorena]

i cant link to the article right now from work, but there is a story on CNNMoney.com about AOL elimininating 5000 jobs, including about 3k when they sell off their entire european internet division.

Here it is: (http://money.cnn.com/2006/08/03/technology/aol_cuts/index.htm)

AOL to slash 5,000 jobs
Online giant expects to cut more than a quarter of its work force as part of its restructuring plan.
August 3 2006: 4:13 PM EDT

NEW YORK (CNNMoney.com) -- AOL said Thursday that about 5,000 workers will probably be let go within six months as the company moves away from its old dial-up Internet access business in a bid to win more advertising dollars online.

"At a company meeting this morning, [AOL CEO] Jon Miller told AOL's worldwide work force of 19,000 people that within six months, it was likely that around 5,000 employees would no longer be with the company," an AOL spokeswoman told CNNMoney.com.
pic
AOL has been slow to keep up with changes in how people use the Internet.

The news came a day after AOL announced what was widely expected: that it was going to offer many of its services for free to broadband customers.

Executives at AOL are hoping the changes will reignite growth as AOL seeks to move from a subscription-based business to one that taps the rapid growth in online advertising.

As part of the restructuring, AOL expects to cut as much as $1 billion in costs next year, executives said.

Under the plan, AOL will give away e-mail, software and other Web services for free to high-speed Internet users as it tries to attract more users to its Web site and more advertisers. (Full story).

The restructuring also includes selling its European Internet access businesses that employ about 3,000 people, according to Reuters. It was not immediately clear if that number was part of the 5,000 jobs the company is expected to shed.

The new strategy is meant to wean AOL away from the dial-up service that for years had made it the biggest Internet service provider, before faster broadband connections became popular.

The latest plan is the fourth overhaul for AOL in the last five years.

Shares of Time Warner (down $0.04 to $16.63, Charts) fell about 0.5 percent in afternoon New York Stock Exchange trading Thursday.

In addition to AOL, Time Warner owns CNNMoney.com, Time magazine, Warner Bros. movie studios, CNN, HBO, cable systems and other media properties.

[AZSpeechCoach]

I went onto cable internet 2 years ago, but I kept AOL and the lowest subscription possible because of my e-mail addresses and also because there are those times when I am away from home (Father's house, In-Laws), and I need to dial in. Since not everywhere in my world is broadband, I need to have something.

[-Mojo Jojo-]

I don't know if AOL never saw broadband, Google and low-cost dial-up coming, or just didn't know how to react. My gut is that the true brains behind AOL -- the underlings working for Steve Case, not Steve Case himself -- all cashed out and left at the top, then there was no visionary leadership left to tend the store.


They definitely saw it coming. They just lost out on the lobbying war and the incumbent cable and phone companies killed them (and every other ISP) when they convinced the FCC to shut down local loop unbundling. Apparently they thought competition would be bad for the market and we'd all be better off dealing with monopoly or duopoly internet service. A lot like what's going on now with net neutrality...

[LloydLungs]

I was VKVW87C back in the day on Prodigy.

Whoa! I'd forgotten about those letter-number jumble IDs with Prodigy back in the day. I think I was VCGR30B now that I think about it. It's amazing the useless stuff that's still taking up space in my brain.

I remember the HUGE uproar in '93 on Prodigy when they finally went pay-per-hour. Until then they had a flat rate of something like 15 bucks a month. I think there was a service called GEnie that had a flat rate that took in a bunch of Prodigy refugees, then they couldn't handle the overload and went to a per-hour charge themselves. Then I *think* there was a service called NSN (??) that had a per-hour rate that took some Prodigy/GEnie people, then THEY couldn't handle it and went per-hour... and so on and so forth. Eventually everybody seemed to settle on AOL until becoming comfortable with the internet at large and realizing AOL sucked.

Ahhh, the fledgling days of the internet in the early 90s. Prodigy was really great till they gutted their customer base with the rate hike.

[stkelly52]

What a wonderful idea! Let's give away 80% of our revenue in order to boost the other 20%!

With ideas like this, it's no wonder they are going down the tubes.

Sure in the short term you lose the 80%, but AOL has come to the realization that if they don't offer this for free, then in the next 5 years they will lose almost all of that 80% anyway. This way they hope to keep the people who are already using their services and boost revenue with advertising.

[Rizon]

It was just all downhill after v6.0.

[Buccaneer]

They definitely saw it coming. They just lost out on the lobbying war and the incumbent cable and phone companies killed them (and every other ISP) when they convinced the FCC to shut down local loop unbundling. Apparently they thought competition would be bad for the market and we'd all be better off dealing with monopoly or duopoly internet service. A lot like what's going on now with net neutrality...

So much good information packed in so few words. Very nice, something to think about.

[Godzilla Blitz]

Sure in the short term you lose the 80%, but AOL has come to the realization that if they don't offer this for free, then in the next 5 years they will lose almost all of that 80% anyway. This way they hope to keep the people who are already using their services and boost revenue with advertising.

I agree that they're in an awful position, but one argument that I'd make is that this is largely because their product is awful. If the end user has a basic understanding of the internet, he doesn't need AOL. Furthermore, AOL can mess up host computers to the point that it's often the first question our tech support asks when dealing with home-user computer problems.

My impression of the product--and I think this is an impression that is shared by many--is that you would have to pay me a substantial monthly fee to put up with the aggravation of using it. I not interested in installing it on my computer, even for free.

I do think the "give it away free" strategy is probably the best way to attack the problem, but the way it has been done--with announcements of 5000 job cuts and no fanfare--gives the impression of a desperate ship that is sinking. I also question the timing, with still 80% of revenue from subscriptions.

If it were my product, I would have revamped the product to be less invasive, run an aggressive advertising campaign touting the features of a new and more computer-friendly AOL, and finished it with the teaser that it would be totally free as of such-and-such a date.

[st.cronin]

I agree that they're in an awful position, but one argument that I'd make is that this is largely because their product is awful.

I agree, that's their real problem.

[cartman]

I knew I had this sitting around somewhere:

http://www.thegreatcornholio.com/images/prodigy.gif

[Pyser]

holy scary. looking at that thread reminded me: XSKB54A. I havent thought of that combination in a DECADE, and it just came back to me like that. wow. freaky.

[Butter]

I have no idea what my handle was at CS. I know it was before my piratical gaming days so I couldn't have been Bucc.

Anrhydeddu?

[Godzilla Blitz]

I agree, that's their real problem.

To add to this, I think their biggest problem right now is one of image.

A prevalent perception is that AOL is to the Internet as training wheels are to bicycles. Tech savvy internet users scoff at the idea of using AOL and tell most people who use it to get rid of it. I remember when I was using AOL back in its early days, my students made me feel Amish for doing so. I wasn't "with it": I was the kid who was afraid to give up his training wheels. Once I saw how easy it was to go without AOL, I realized how silly it was to be paying AOL money. Still, it took me a year or so to get over my fear of "losing my email address" (I had [email protected]).

For AOL to succeed, they have got to change this perception. This "give-it-away" free strategy will only work if they can revamp their image and win back the tech savvy user.

[Swaggs]

That reminded me of mine, as well: PVPQ11B

[st.cronin]

To add to this, I think their biggest problem right now is one of image.

A prevalent perception is that AOL is to the Internet as training wheels are to bicycles. Tech savvy internet users scoff at the idea of using AOL and tell most people who use it to get rid of it. I remember when I was using AOL back in its early days, my students made me feel Amish for doing so. I wasn't "with it": I was the kid who was afraid to give up his training wheels. Once I saw how easy it was to go without AOL, I realized how silly it was to be paying AOL money. Still, it took me a year or so to get over my fear of "losing my email address" (I had [email protected]).

For AOL to succeed, they have got to change this perception. This "give-it-away" free strategy will only work if they can revamp their image and win back the tech savvy user.


I don't know if I completely agree with this. Yes, their image is bad, but why is their image bad? It's because they have a crap product. Essentially, they sell you a computer virus. If they reworked their product into something that had value, their image would change.

If I were their CEO, I would focus on security and privacy. I think those are two areas where there might be a fairly open market available for AOL.

[Godzilla Blitz]

I don't know if I completely agree with this. Yes, their image is bad, but why is their image bad? It's because they have a crap product. Essentially, they sell you a computer virus. If they reworked their product into something that had value, their image would change.

If I were their CEO, I would focus on security and privacy. I think those are two areas where there might be a fairly open market available for AOL.

Interesting thoughts on security and privacy. I don't know much about what they offer or what the market is like.

Otherwise, I think we're saying the same thing. The point I was trying to make was that even if they fix their crappy product (as we both agree they should do), I think they still have the additional task of changing the public perception of their product, especially among the higher end computer user.

[st.cronin]

Interesting thoughts on security and privacy. I don't know much about what they offer or what the market is like.

Honestly, I don't know much either. I'm just thinking in terms of what AOL does (configures your pc for web surfing) and what people want that AOL's competitors don't seem to provide (security and privacy). As usual, though, I don't really have any idea what I'm talking about. :D

[Deattribution]

Personally, I think they're screwed no matter what they do. I can't think of anything that they can do that would make me want to make the jump considering there are so many alternatives now and how bad of a reputation AOL has.

I'm not exactly sure how they thought they would get away with a terrible product, and even worse customer support while giving all those customers a voice to the world thru the internet to tell them how shitty they are.

Does anyone know what Time Warner thought they were going to gain from this merger? Even when it wasn't complete, it still made no sense considering AOL had no where to go but down, and really was a one trick pony.

[Godzilla Blitz]

Does anyone know what Time Warner thought they were going to gain from this merger? Even when it wasn't complete, it still made no sense considering AOL had no where to go but down, and really was a one trick pony.

I always felt that Time Warner feared they were going to get left out of the Internet boom. Part of the issue was the feeling that TV and the movie industry were going to get run over by the Internet, and AOL had this huge, growing base of subscribers--in essence, they were going to become the new media giant of the digital world. AOL stock was booming and the top seemed limitless. Time Warner wanted to make a bold move into the digital world before the old TV world vanished.

Now it seems silly, but things were pretty crazy then.