A decade ago it bought a mansion. This week, AOL moves into a one-bedroom.
America Online Inc., one of the firms that pioneered the Internet access business during the dial-up era, will officially return to its independent roots Thursday when it lists on the New York Stock Exchange. For almost a decade, AOL has been tied to Time Warner Inc., after the Internet firm used its inflated stock price to engineer one of the most audacious – and, ultimately, financially ruinous – mergers of the dot-com age.
With its dial-up subscriber base dwindling, AOL will try to reinvent itself as a content provider. The company already owns about 80 Web destinations – from tech sites to gossip blogs to ultra-local news providers – although AOL has previously avoided overtly branding the sites as its own. Now the company is hiring laid-off journalists, buying niche content websites and trying to position itself to advertisers as a one of the Web's best advertising destinations.
But when it begins this new stage of its life, a company once valued at $240-billion (U.S.) will likely be worth little more than 1 per cent of that.
The $160-billion AOL-Time Warner deal in 2000 was supposed to herald unprecedented synergies, leveraging the tech company's subscriber base and the media firm's content. But it never worked out, and investors saw billions of dollars wiped out during the nine-year process.
The deal's valuation was fuelled by a wave of investment during the height of the tech sector mania – an exuberance that, analysts say, clouded the fact that one of the companies involved in the merger was running a dial-up business at a time when people were about to move into broadband, and the other company was peddling content such as monthly magazine subscriptions at a time when instantaneous content delivery was becoming the new normal.
“At the time, if you really stopped to consider the strengths, you had a company that made money off a dying technology marrying a company making money off a dying content delivery system,” said Forrester Research analyst James McQuivey.
“It shouldn't have taken a neuroscientist to figure out that they weren't going to be making money.”
Today, AOL is slowly moving away from the dial-up business that first made it a powerhouse. Instead, the company's news buzz phrase is “content-driven.” In effect, AOL functions as a portal, the same way Yahoo and MSN do – a one-stop homepage for users looking for everything from the day's news to real estate listings to the latest gossip. In the past few months alone, AOL has launched a teen pop-culture blog called Just So you Know, acquired a mixed-martial-arts news site, and a Canadian online music magazine.
The company already maintains a strong position in the online display ad marketplace, and according to the October, 2009, ComScore rankings, AOL's websites were the fourth-most-visited in the U.S., behind Google, Yahoo and Microsoft.
“Becoming a standalone public company positions AOL to strengthen its core businesses, deliver new and innovative products and services, and enhance our strategic options,” AOL chief executive officer Tim Armstrong said when the Time-Warner split was announced in May of this year. “We play in a very competitive landscape and will be using our new status to retain and attract top talent.”
But the strategy is not without challenges. In the past, AOL could depend on its subscriber base of more than 20 million users to navigate through its Web properties. However AOL's subscriber base today is about a quarter of what it was at the beginning of the decade.
At the same time, advances in search engine technology raise the possibility that Web users may simply see no more value in visiting portals such as AOL, opting instead to find whatever special-interest content they're looking for directly through a site such as Google, Mr. McQuivey said.
“The challenge is very significant,” he said. “Five years from now will people have learned other ways of getting the same content online? Probably.”
