Strategy

It's FItting that Don Logan, the legendary Time Inc. magazine man, now oversees AOL. A few years ago, Logan was asked what he thought of Time's Internet portal, Pathfinder. He responded by saying that it looked less like a portal and more like a black hole. Having made short work of the AOL executives whom he briefly reported to, Logan now speaks warmly of the company's future. But you get the feeling that he still doesn't really believe it -- that once you get past the monthly fee and the obvious revenue streams, the growth path that he sees looks less like a road map and more like a Rorschach test. There are a number of reasons why AOL's glory days may be in the rearview mirror, but let's reduce it to five.

1. Interoperability Ain't Happening. The AOL - Time Warner merger always hinged on the interoperability of the two companies' IT systems. Put simply, their servers and software had to be integrated so that, for example, an HBO customer who liked The Sopranos would be identified as such to all of the other parts of the enterprise. The big idea of the merger was a kind of reflexology: Touch one part of the body, and other parts respond. But it never happened. It never came close to happening, because interoperable IT hardware and software are expensive. Given ebbing revenue (despite grandiose promises of escalating top-line results), there simply wasn't any appetite within the company for a huge investment in interoperable IT. Truth be told, there wasn't much appetite for IT spending at the Time Warner companies at all. Time Warner people hated geeks. Once interoperability didn't happen, then what was the point of the merger other than cross promotion? Time Warner answered that question late last summer when it went back to using various email applications instead of AOL.

2. The Competition Is Better. Walter S. Mossberg, the famous tech writer for the Wall Street Journal, did a head-to-head comparison of the new MSN and AOL 8.0 and declared that MSN was better. Ouch! I agree with Mossberg, but that's not the point. The point is that innovation and creativity have calcified at AOL. Despite its enormous advantages in terms of size, reach, potential richness, and all that that entails in terms of being able to attract the best talent, the company is nevertheless making a product inferior to MSN's.

3. Real Creativity Is Happening Elsewhere. The major development in the Web world over the past two years was the emergence of Blogger as a publishing tool. There are now about 500,000 blogs, and the number grows by the month. There are no blogs at, on, or as part of AOL. In the space that it supposedly owns, the company entirely missed the development of this big idea. Meanwhile, Apple is making computers that let you edit movies and burn perfectly customized CDs. Such capabilities aren't really enabled by AOL. It's still stuck in emails, Instant Messaging, and snapshots -- a fact that's driven by the company's reliance on narrowband customers, who provide most of the company's monthly fee revenue. All of which leads to a big problem.

4. The Company Doesn't Have a Broadband Strategy. This isn't fair, since the company does have a broadband strategy that it talks about in terms of community, connectivity, and commerce. But the various divisions of Time Warner hate AOL and will do everything that they can, passive-aggressively, to make sure that AOL's broadband strategy encounters nothing but pain on the content-provider side. And, weirdly, the fact that AOL is married to one of the nation's largest cable-system operators (Time Warner Cable) on the distribution side actually hurts AOL's broadband strategy: It prevents the company from becoming an active player in the world of WiFi. AOL, standing alone, could have been a major force for WiFi buildout. Now it's shackled to Time Warner Cable. That's broadband, but not mobile broadband, which is what people want.

5. The Internet Is About Community, Not Commerce. In Anne Kreamer's column (see opposite page), AOL chief executive Jon Miller talks about building community and connectivity and then seamlessly integrating commerce into the user experience. Miller's background (and great success) came in running Ticketmaster and Expedia for Barry Diller. He knows how to move the merchandise. He was hired to move more of it at AOL. I suspect that he will accomplish that goal, at least to some degree.

But he seems an unlikely choice to build out the AOL community or communities of interest. And the vitality of those communities, the cultures they create, and the innovation they unleash are crucial to AOL's brand essence. Like other brands that are literally "owned" by their consumers, a huge part of AOL's mojo is that it continues to "happen" -- change, transform, adapt, and break new ground. Right now, compared with everything else that's happening on the Web, AOL is boring, stodgy, and stuck in the mud.

What's the solution? The best thing for all concerned would be for Time Warner to sell AOL. Better yet would be for a group of people to come along and take it private. It won't be great again until it's untethered from the great ship of corporate stasis. To get its mojo back, AOL has to be cast out. Interestingly, this may be exactly what AOL Time Warner CEO Dick Parsons has in mind.

John Ellis (jellis@fastcompany.com), a writer and consultant, works in media, politics, and technology. You can read his weekday musings on the Web (www.johnellis.blogspot.com).

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