Photo illustration by Glen Wexler
Neither Time Warner's now-CEO Bewkes nor Falco or Grant would agree to speak with us. But in extensive interviews with dozens of current and former AOL insiders (many of whom would speak only on background), what emerges is a tale of failure on multiple fronts: short-term thinking, bad technology, bungled product development, a dramatic miscalculation of what drives page views on its own site, and a risk-averse culture more prone to imitation than innovation. "Pretty much everything we worked on," says a former AOL manager, "executives pointed to someone else's product and said, 'We want that.'"
At the simplest level, AOL's troubles in the past couple of years are the story of a business without a vision and therefore without guiding principles to clarify which risks are worth taking -- and which are worth sticking to. Back in its heyday, AOL's mission statement hung on a plaque in the lobby in Dulles, in shiny silver lettering that read, to build a global medium as central to people's lives as the telephone or television... and even more valuable. By 2000, that vision had been accomplished, and no next-stage aspiration had risen to replace it. AOL did finally convene a committee to write a new mission statement in 2006. They came up with this gem: "To serve the world's most engaged community." It is a creed that could just as well suit a Hardee's.
To understand, in a quick snapshot, AOL's interconnected shortcomings, there is no better example than the company's social-networking efforts. Way back in the 1990s, when Facebook founder Mark Zuckerberg was still in junior high, AOL pioneered the field. It created platforms for community interaction, and its Member Directory featured profiles similar to what MySpace would eventually offer. It invented buddy lists to let users know whether their friends were online. "There's very little that MySpace and Facebook have that AOL didn't have a version of 10 years ago," says Joe Dzikiewicz, a former AOL systems architect.
But as time passed, AOL let that leadership slip away, and it wasn't until 2005, after watching News Corp. snap up MySpace, that AOL moved in earnest to capitalize on its legacy. That fall the company hastily conceived AIM Pages, a social-networking site designed to exploit the huge user base of AIM (formerly AOL Instant Messenger). Employees seized the opportunity like furloughed prisoners at a brothel. "Everyone wanted a piece of it," says a former manager who was at the center of the storm.
"People were like, 'This is going to make careers.' We thought it would save the company." According to initial projections, the service would be half the size of MySpace in just six months, says Kerry Parkins, a former VP.
There was a "me too" aspect to AIM Pages. Before it had a name, employees called it "AIMSpace," and used MySpace as a template. AOL was eager for AIM Pages to produce revenue quickly, though its business department couldn't decide how to monetize it. They rushed headlong into false starts, developing lame features such as advertiser-friendly "affinity networks" for people who were crazy about Cadillacs or Mountain Dew. Programmers had to grind away on elaborate schemes, only to see them abandoned later. "The direction on the product changed constantly," says one product manager.
The launch, in May of 2006, was catastrophic, AOL's version of Britney Spears's tottering comeback at the MTV Video Music Awards. Larded with JavaScript and riding on seven preexisting AOL systems, it was slow and buggy. The influential blog TechCrunch panned it, questioning what value it added in the already-crowded social-networking sector. "As soon as it bombed, no one wanted anything to do with it," says a product manager. Six months in, AOL replaced AIM Pages with a simpler version called AIM Profiles. This time, the objective was to copy Facebook, engineers say. When that didn't fly, it was merged with the old Member Directory. It now attracts about 170,000 page views a day, according to comScore; Facebook's figure is 1.2 billion.
AIM Pages' creators are irked that the company never promoted the product. When MySpace launched, its founders stoked viral interest by recruiting L.A. bands, which then brought their fans. AOL was still rooted in the mentality of publicizing something on the welcome screen, which in the 1990s would generate millions of visits. Executives expected AIM Pages to rise from the crib and dance on its own: "My take on Web products is that if they're good, the world will discover them," says a former executive. "AIM Pages didn't make sense for us. It was just too late."
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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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