AOL and Time Warner: Hell-bent on self-destruction.

AOL: How America Gets Online!

Here’s a quiz: name one company that got its start as an online service called Gameline for Atari and grew so big that they soon adopted a motto claiming they were the Internet – or at least the only way most people could access it.

Oh, how the mighty have fallen. In the 19 years since America Online took the country by storm with easy access to chat rooms, message boards and websites, and even introduced simple technology to allow the serfdom to mail letters to one another through the hourly-rated ether, their Kingdom has fallen to access issues, lousy customer service, internal mismanagement and fraud, and a tragic rebirth as something they never knew how to be in the first place and still can’t become after roughly 15 years of trying: an advertising conglomerate.

AOL’s Kingdom no longer is. It has long been ceded to a more open dynamic that allows people to find what they need without obeying their dictates. Yet like England’s royal family, AOL still gets a passing nod as the former tyrannical ruler and must be watched lest they grow tyrannical again. The good news is another out-of-control, arrogant grab at power from AOL is highly unlikely, if not downright impossible, given how far they’ve fallen in the public’s eyes. The bad news is that like England’s royal family, we still have to endure the dysfunctional bunch as they pose for pictures, hold court with the press, and pretend they’re doing something useful. Like the royal family, the only useful thing they provide now is gossip, and even that is limited these days to small talk along the lines of, “Now tell me – does AOL still exist ? Really!”

When will AOL finally be taken out of the online equation? Looks like this year is one to mark on your calendars.

Once Upon a Time The Kingdom of AOL Flourished

All bowed to mighty King Steve Case as AOL’s subscriber list grew to a rumored 22-25 million happily enslaved subjects within its first five years. AOL was so powerful they had the ability to unilaterally censor content and to decide top news headlines for tens of millions of well-confined visitors every day. Their email business grew to unparalleled heights. Having an email address that ended in meant you supported the one true Kingdom; it was an expensive privilege and conferred a certain Web-savvy snobbishness.

And Then It Was Gone

AOL’s subscriber list has steadily waned since 2004 when, like all great rulers, they finally reached an apex and had nowhere else to go but down. Their technology was stale; their prices were horrendous; their bloated software and its unbelievable snafus were legendary; their fraudulent games drew public attention to their far-from-spotless reputation, and their management since Steve Case has been entirely inept, with the brief (and highly questionable) exception of the Jon Miller Era.

The answer at AOL since then has been that there is no answer – no way to win the subscribers back – no way to fix the soot-streaked reputation – no way to make the software desirable- because AOL was no longer the Internet – AOL was now but a mere footnote to it.

The Sixth Day, AOL-Style

To go from being both King of the Internet and its sole benefactor to kneeling at its side as its lowly ad-broker is quite a dizzying reclassification of its own persona but that’s the rebirth AOL chose to pursue with Jon Miller running the show in 2006. Rather than provide the Internet, they would cover a small portion of it in ads; rather than decide the content, they would outsource the page people use to find it; rather than charge people for what they could find only on AOL, they would give the content away for free. Jon Miller stood back, looked at what he (re)created: and said: “It is good passable.”

AOL Can’t Lead In a New Niche

The only reason AOL has the biggest ad network of any online company is simply because they can afford to. Rather than use in-house knowledge and technology, they bought what they needed piece-meal style and assembled it into Platform A, their ad inventory and ad technology showcase. That platform can only be successful if it outdoes the competition on financial and technical merits, not because there is any grassroots or far-flung desire across the Internet to see it reach that goal.

AOL’s ad conglomerate showcases the bastards of the Internet, loved by no one, orphaned by their own and sold into slavery at AOL for the right price, which has often been exorbitant. Its success is far from guaranteed. While we wait to see if Rob Enderle was right about AOL, let’s look at the cold, hard facts: TWX is trading at $10-14 less than it was a year ago, profits are down 23% at AOL year over year, advertising revenue is up only 1% (more or less a rounding error in either direction), and AOL has leeched another 647,000 subscribers, the steady decline in membership leaving them with what the media refers to as just 8.7 million “hard-core dial-up users”. Rob’s not looking too bad now, is he?

Bewkes: “So let’s sell the only part of Time Warner we need!”

In a stunning show of mathematical illiteracy, Jeff Bewkes looked the numbers over last quarter but rather than unload AOL in its entirety while he can still get the biggest bang for his buck, he saw that the Time Warner Cable division saved his company from going completely under – it was the only segment of the company that turned any profit at all – so what did he do? He decided to sell it, people, that’s what he did.

I’ll place my bets with Rob Enderle, only I’ll take it one step further: there is nothing left for AOL to try to save their sinking ship – and no way for Time Warner to save themselves unless they jump off of AOL’s Titanic and find a way to make their remaining properties float away from the out-sized wreck of Time Warner’s previous mismanagement.

Sources: Most of the historical information in this post is from Wikipedia.