The word "noughties" seems to have been invented for the sole purpose of writing up lists for the decade - top 10 movies, best technologies, worst mistakes, biggest scandals... Come to think of it, the last 10 years have been characterized as much by greed and folly and redemption, as by excitement and new creative and techno-social frontiers. For me, the one company that seems to symbolize the last 10 years, all its excesses and it's redemption seekers, is AOL.
AOL recently listed on the NYSE - as a separate entity from Time Warner, on 10th December 2009. From the time the announcement was made, to the time AOL actually listed, Tech Crunch reported that the market cap of the company had gone from £3.15bn to £2.5 bn. Since launch, AOL's share price has hovered between 24 and 26 but the outlook doesn't look good.
Again, as reported by many sites, including Tech Crunch, Citi analyst Mahaney has rather expectedly set the cat among the pigeons by taking a dim view of the company's future. He points to the 28% annual subscriber decline and near 40% EBITDA decline.
Still it would be unfair to do any year on year comparisons at this point when AOL has just been cast off from Time Warner. Surely we need to give AOL some time before we make a real judgement? And analysts from Barrington Research and Bernstein still rate AOL as "Outperform".
To tell the AOL story, though we really need to go back to the end of the last decade. When AOL was the biggest, baddest and most aggressive fish in the sea. When the entire Internet economy was AOL's back yard and Steve Case and Bob Pittman were the reigning digital deities. (Much of this comes from the Kara Swisher book "There Must Be A Pony In Here Somewhere") which I would urge you to read.
When AOL was first formed out of Quantum's need to find a new brand name for it's consumer service, the World Wide Web hadn't entered the lexicon. In March 1992, AOL was floated at a price of $11.50 making many of it's senior employees the earliest "Internet" millionaires. Paul Allen was an early investor but Case & company soon decided to cut Allen adrift and rebuffed offers from Microsoft as well.
But the company that pretty much invented and popularized mass scale, anonymous instant messaging and chat room societies, went on a rocket ride from there on, not just becoming one of the earliest and most recognizable megabrands of the Internet, but also setting the precedent for the financial aggression that characterized the late 90s.
Lets recap - AOL bought Netscape, which was, if you remember, the company that started the World Wide Web revolution. In doing so it killed the enterprise business of Netscape but this kind of callousness was just the start. At a time when the overwhelming majority of Internet users were in the US, most americans used the AOL dial up service and so AOL also quickly became the first default "portal" for the Internet. Company after company would soon pay exhorbitant rates to be featured on the AOL homepage.
Barnes & Noble paid $ 40 million in 1997, eBay stumped up $75 million 2 years later. There were another dozen or so companies that paid an arm and a leg to be the category representative in the AOL portal. It also soon evolved to a stage when a deal with AOL was the best way of registering a spike in your share price or earning a good valuation with venture capital companies. AOL knew and exploited this ruthlessly, negotiating options for shares in these businesses as well.
Not satisfied with just aggressive deals, AOL went that mile further, beyond the boundaries of accepted behaviour, when it did round-trip deals with many of its partners. Typically AOL would invest cash in these companies, and the money would be used to fund advertising on AOL.
AOL became a part of the S&P 500 and immediately it's value went from $14bn to $65bn and man of AOL's senior team took immediate advantage - with Steve Case earning $61 million by selling shares in 1998 alone.
AOL then pulled off the most audacious deal of the decade, if not of all time, when it effectively acquired Time Warner. This is the subject of Swishers book, and it is underlined with the same aggression, arrogance and disregard for others that had characterized AOL's journey. Apparently they even had "Putz" t-shirts made in a derogatory reference to the Time Warner team.
The deal came just before the dot.com bust of 2001 and that's how the Internet economy entered the noughties. Indeed this was the ultimate "convergence" model, with AOL's access and technology capabilities, packed with the strength of AOL's content. At the Time Warner board meeting, once revered analyst Mary Meeker is said to have said that AOL had a sound business and would do well as long as they moved quickly into Broadband services.
Alas, like many other areas, execution was severely lacking here. As reported by CNET in 2003:
AOL so far has picked up only crumbs as its share in the growing broadband pie. As of December, it had signed on 650,000 subscribers to its bundled $54.95 a month broadband service. The leading high-speed service in the United States, Comcast, boasts nearly six times that number, with 3.7 million subscribers.
AOL's slow growth in the broadband market has been matched by a recent decline in its core group of dial-up subscribers. Last quarter, the company reported that its overall subscriber rolls dropped by about 100,000 members, its first net decline in years.
That has put the company between a rock and a hard place, according to some analysts.
"AOL is primarily aiming its marketing efforts to its installed base," said David Card, an analyst at Jupiter Research. "What it has to do is avoid losing a dial-up access customer to a broadband service."
CNET also reports how AOL have fallen behind in the broadband race in another article in the same year.
"Not only does (the decline in subscribers) show the maturity of the dial-up market and AOL's inability to capitalize on the transition of its subscribers to broadband, but it may also be the result of the company getting rid of underperforming subscribers," Kaufman Bros analyst Mark May said.
Was it that this once nimble and street-smart company found itself weighed down by the lumbering, vast and old-world Time Warner business and couldn't move as fast, suddenly? Or did the fat-cats of one of the biggest payoffs in Internet history stop being as hungry or as sharp?
Whatever it was, the story of AOL-Time Warner has been one of decay over the past 10 years, especially on the AOL side of the fence. Within the first year of the merger, the AOL-TW stock had hit $25, a 52 week low. The following year AOL TW took a $54 billion write down (non-cash) charge to reflect the fall in its stock price.
For much of the rest of the decade AOL-TW kept out of the public eye. And increasingly it started to become more TW and less AOL - a moral and political victory for the old world. Content was still paramount, if not king, and Time Warner had a pretty good story to tell in this space.
Today, AOL Broadband in the UK is actually a Carphone Warehouse (Talk Talk) service. And only the brand name remains. Searching for Broadband providers in the US will show you Time Warner Cable but not AOL. The AOL.com site for the US, lists content, advertising, mobile and instant messaging services but not broadband or internet access.
AOL owns a number of content brands and still controls it's most recent big acqusition - Bebo, for over $700 million. It's other jewels include Mapquest and Engadget and Popeater. But it is now dependent on advertising which is a notoriously fickle business, instead of the steady, utility like access business with it's monthly bill. AOL's 5m odd dial-up users are still its most predicable (though predictably declining) source of income. Tim Armstrong, from Google, has been working hard at reinventing AOL as an advertising driven business, but despite still being the 5th largest website in the US (it was recently passed by Facebook), it's a moot point whether AOL will survive the next decade, and if so, in what form. In fact it's immediate future seems to be less than rosy.
Which brings me to my other questions, if the last decade was called the noughties, what will be the next one be nicknamed? Teenies? One-ties? And how much more fleeting will success become?
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