Photo illustration by Glen Wexler
In May 2007, nearly six months after he was hired, AOL chief executive Randy Falco gathered his employees together for an "all hands" meeting at the company's Dulles, Virginia, headquarters. Until then, Falco had remained a mystery to much of his team, often holed up at the New York offices of Time Warner, AOL's parent. He had spent 31 years at NBC, rising to the top as the network was sinking to fourth place. Many in Virginia wondered why the board had chosen this old-media type. There were rumors he barely used email. The meeting took place at Seriff Auditorium, AOL's largest. It was the nerve center from which the company's brain trust had hooked America on the Internet, a triumph that changed the world and threw off fabulous lucre. Falco, 54, a large man with pale skin and silver hair, was dressed strategically in a casual sports coat and an open-collared shirt. His executive team sat in the front. As he delivered his remarks, bathed in cool PowerPoint light, his halting image was Webcast to employees in their cubicles across the sprawling white-brick-and-glass campus.
The event was intended to rally the troops. Falco's handlers had rotated the seats in the auditorium 90 degrees, a gesture signifying change. New chief operating officer Ron Grant -- who had been plucked from the staff of
Many were put off by the remarks. "Falco and Grant seemed tone deaf," as one longtime employee puts it. "They didn't understand what they should be saying to get us on board." It was as if the new bosses couldn't appreciate the loss of dignity AOL had suffered since the disastrous merger with Time Warner in 2000. The company had endured lawsuits and federal sanctions, and had shed two-thirds of its employees. Annual revenue had withered from $9.1 billion to $5.2 billion, and subscribers from 27 million to 10 million. To emerge from the morass, AOL needed charismatic leadership with a strong vision. Instead, its overlord from Gotham sent down Smithers and Mr. Burns, as employees took to calling Grant and Falco.
Worse still, there had recently been a rush of genuine hope. Less than a year earlier, Falco's predecessor, Jonathan F. Miller, had persuaded Time Warner to tear down the walls around AOL's proprietary content, opening it up as a free, ad-supported business similar to Yahoo. AOL went on to deliver 46% ad-revenue growth that quarter and 49% the next. After years of floundering, AOL suddenly seemed to be back on track. Optimism on Wall Street helped drive Time Warner's long-stagnant stock price up 40% in six months. Yet in the middle of this rally, Miller was abruptly fired in favor of Falco. Morale plummeted. For inspiration, employees got bad jokes, PowerPoint slides, and rotated seats.
Within weeks of Falco's presentation, AOL closed the quarter that would end its brief renaissance. Ad growth had slowed by nearly two-thirds. In the fall, 20% of the workforce was laid off. Time Warner's stock slid below $15, its lowest level since 2003. When Microsoft issued a $45 billion offer for AOL rival Yahoo, Time Warner's shares barely budged. "As we exit 2007," wrote
The question is: Why? Eight years removed from the Time Warner merger and more than four years after AOL was expunged from the public company's official name -- an eternity in our evolving Internet age -- AOL has been unable to find a way to innovate out of its troubled past. Yes, AOL has been plagued by internecine battles with its corporate parent and by a dial-up subscription-revenue model that could not possibly survive in the modern era. But it has also failed to exploit a wealth of formidable assets, including a ubiquitous brand, millions of regular users, the Web's dominant instant-messaging service, the iconic MapQuest and Moviefone, the most popular finance site, a top celebrity-gossip site in TMZ, an innovative video search engine in Truveo, and deep television and music offerings.
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Recent Comments | 11 Total
March 22, 2008 at 12:07am by Not Disclosed
///Then there were the technology challenges. AOL's sites were written in a proprietary code, Rainman, that was incompatible with standard browsers and search engines. Ad servers couldn't read it either -- one reason ad revenues slumped from $2.6 billion in 2001 to $781 million in 2003. The company would have to invest a fortune in tech upgrades just to get to the starting gate.///
This is just pure BS. Which is perpetuates from an article to an article. The saddest part is that AOL execs believe that even today.
There was nothing that prevented Rainman from generating the content that was quite compatible with "standard browsers and search engines". It was done and it is done even today. Take AOL France Welcome Screen as an example.
Technical illiteracy of AOL execs made them trust snake oil salesmen. But that did not help either, did it?
Let me ask you: why it was so important to make AOL "go after Yahoo"? Why not make a bunch of Web brands they had chase Yahoo and leave AOL Flasgship service alone? Netscape, AIM, ICQ, Winamp, Compuserve! Sure they could make a thriving web brand from at least one of those if there was a theoretical possibilith of thatthey, couldn't they? And they would not have to deal with that dreadful Rainman. why not just leave the AOL Sevice alone? The "New Coke" marketing lesson: don't mess with the products that work! I guess they did not teach that in Harvard business school.
March 25, 2008 at 9:50am by Bob Jones
To be fair, S&B didn't know what they were getting into. While AOL was growing, there were still problems that needed to be dealt with. There continued to be a need for a vision about where and how AOL would play as a Web company - we can't expect S&B to have that vision as they were relative newbies. S&B and TW thought they could go in with purely execution in mind while riding the gravy train to growth. Big mistake. After spending the first 6 months learning about the company, the industry, and the problems they faced, S&B tried what they thought to be fast and prudent moves to solve the problems but it was 1 year too late and some of it backfired. Instead of treading new ground, AOL was back to playing catch up to the competition. This is the problem when office politics overrule logic and vision. And, in my opinion, is largely a result of the shark infested waters at TW.
March 25, 2008 at 2:23pm by Media Maven
Turning around AOL was a task no one could accomplish, given the constant demands from the parent company to generate income growth to offset the performance of Time and other old media assets. That tactic forced the company to obsess about mechanisms to prop up the dial-up cash cow, even as the tectonic plates of technology were shifting underneath them. Did AOL, at some point over the last 5 years, have assets to exploit to shift to a new business model? Yes, but at no point could the transition to an ad and search model be supported without re-baselining the business, a journey that Dick Parsons, Jeff B, and others were unwilling to undertake. They have a major role in the accountability chain for the whole AOL journey.
So, with these short-term earnings constraints, what did you get? A half-hearted transition, with the dial-up business still generating the majority of the earnings out of an aging and not very credit-worthy user base.
I think that some of the moves (the purchase of advertising.com, userplane, weblogs, the formation of TMZ.com, and the shift to a more robust free portal to retain customer traffic, etc.) were all decent moves, given the performance and investment constraints imposed on AOL, but without a new wave of initiatives to keep the journey moving forward at speed, in 2007 you began to see the languishing advertising growth starting to occur. In my eyes, Bebo is the first real new move by Randy Falco and Ron Grant that isn't a derivative of the Jon Miller-crafted playbook (I would say their hubris in claiming some intellectual highground over Miller was bad form as leaders, but that's another topic), and that's how I will grade them as business strategists going forward. I wish AOL the best of luck, but with the TWX stock trading at new lows, even when rumors of AOL being purchased hitting the wires, I think the analysts (Jessica Reif Cohen et al) still bullish on the stock should have their tickets pulled - they have done their clients a huge disservice by keeping them in the stock as it fell from its $23 peak...
March 25, 2008 at 3:37pm by Anonymous still anonymous
What a sad testimony to a fallen dynasty - one that others should take note of. AOL's problem was one of arrogance - pure and simple. The universe took care of this by installing a "tower of babel" that still exists today. The only thing left are employees who wistfully yearn for the "good old days".
March 25, 2008 at 5:43pm by Mark Zorro
I have not followed anything about AOL but I find the responses to this article as well as David Case's piece highly insightful. Normally I don't focus on corporate autopsies or ugly micro-details but I can learn much by digging into the piece because David Case has written comprehensive piece (with or without flagged sections by respondents) and the prose laced with meaningful numbers is brilliantly presented. It actually surprised me to read this level of detail here and I really am only going to significantly grow my learning if I continue to come across pieces that are incomprehensible to a dweeb thinker......M.
March 26, 2008 at 9:15pm by James Belle
perhaps they should have learned from Yahoo's mistake in hiring a guy from Hollywood to do a tech job! I don't think AOL is necessarily a dead man walking, they can still turn it around.
March 26, 2008 at 11:40pm by Bill Later
Enough already... Can someone just please shoot this company in the head? Elvis left the building when Pittman moved to NY in 2000 to take his ill-fated CEO in waiting spot at TW. There hasn't been any talent left in Dulles since. Idea: Number the employees and fire the odd-numbered ones (hell, ok, the even ones then). Then distribute all the savings to shareholders in a dividend. They deserve it after the stock's performance for the past 8 years.
May 2, 2008 at 5:25am by Desmond Haynes
Interesting read http://techwatch.reviewk.com/2008/04/comscore-reports-increase-in-traffi...
... building AOL into a major digital ad-sales firm.” The content push “is part of AOL’s bid to reinvent itself as an ad-supported Web company following its August 2006 decision to make its Internet-access service free. Visits to AOL’s Web sites slowed as a side-effect of that decision. … To draw visitors back, AOL redesigned sites in the news, sports and health categories. It also created a half-dozen new sites that don’t use the AOL name, such as a technology-focused site called Switched, a hip-hop site called BlackVoices, and a Web trend tracker called Urlesque.com, as well as Asylum. Dropping its name was an acknowledgement that the brand wasn’t hip enough for the consumers AOL was trying to attract.” AOL “also adopted some common tricks of the trade, such as making its sites appear higher in search-engine results....
May 16, 2008 at 5:02pm by Kasey Marcum
Very well written, David.
I am surprised that the employees aren't fleeing at an alarming rate. It has been obvious for a while that AOL should just give it up. Not sure why one would continue to work in this kind of environment.
October 26, 2009 at 2:54am by Somchai Yhai
I agree with James Belle,
"Tech job for tech guy".
Somchai Yhai
VP of Marketing at หางาน
December 6, 2009 at 3:50am by Anuwat Makpat
Very well written, David. Thank.
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