Digital Matters - Issue 31

All of these probabilities are causing AOL great concern. AOL knows only too well that a decline in fee revenues will result in a devaluation of the company's currency, which is its stock. If Wall Street decides that AOL is less like a cable-TV company (market capitalization equals number of subscribers times dollar value per subscriber) and more like Yahoo! (market capitalization equals earnings times multiplier), then AOL will lose at least half of its market value -- just like that.

Against this triple-whammy threat, all that AOL has going for it is simple, down-to-earth human nature. What AOL provides is an Internet environment that works. Perhaps the only common denominator for Americans today is that no one has any free time. Despite the most advanced technology, time famine eats away at all of our lives. So, for most people, content is much less important than convenience. Keeping up with every new twist in Internet technology is not something that most people have time to do. What most people are looking for is an Internet solution that gathers all of the best Web sites in one place.

That place doesn't have to be the first one to offer such a solution. It doesn't have to offer the most advanced technology. It doesn't have to offer the highest-quality content. It doesn't have to be an industry leader. The only thing that place must do is continue to help its customers combat the problem of time famine -- by eliminating drudgery and by enhancing fun.

And continuing to do that is the core of AOL's strategy. The company has forged alliances with four regional Bell operating companies (RBOCs), and it is likely that by the time you read this, it will have one or two more signed up. For better or for worse, we're stuck with the RBOCs until wireless telephony becomes ubiquitous and crystal clear -- and that could take another decade or longer. Once the RBOCs roll out a high-speed modem service, with AOL as their "content partner," most of us will go with that option for one reason: convenience. One telephone line, one Internet service, one content provider -- one bill. And since the RBOCs are the last companies on Earth that you would expect to make the Internet easy, they need AOL more than AOL needs them.

The rest of AOL's strategy is to provide as much convenience as possible to as many people as possible. The company is working on two offerings -- a bill-paying service and a full-service bank -- that will not only offer convenience but also save time. Once those services are operational, AOL's online-shopping services will be even more convenient than they are now -- which is why companies like the Gap are entering into partnerships with AOL. They're paying hefty fees to do so, but if AOL maintains its customer base and continues to focus on what those customers really want, then those fees will be well worth it.

And therein lies the real strength of the AOL brand. AOL's customers believe that the company will keep current with the most convenient options that the Internet has to offer. AOL may not have the best products in every category, but it will definitely cover all the categories. It may not be the first to offer a bill-paying service, for example, but its customers believe that when it does offer such a service, that service will meet their needs. And as long as AOL maintains its customer base, marketers will have to come to it, since that's where their customers will be.

The major complaint that you hear about AOL (aside from its susceptibility to technical malfunctions) is that it gets in the way. Why get political news from AOL when you can get it from the Washington Post? Why get an airline ticket from AOL when you can get one for less from priceline.com? Why go to an intermediary when you can buy direct? Disintermediation is where it's at. Go to the source. Middlemen only mark it up and muck it up.

That's great, except for one thing: the way that most people live. Most people use the Internet for email. Most people don't have the inclination or the time to figure out how to make the Internet work for them. They want someone to do it for them. They like sound-bite service because they have a hundred other things to do. And as baby boomers age and echo boomers grow up, that time crunch will only get crunchier.

In the 1990s, the Internet was largely about disintermediation. In this new decade, it will largely be about reintermediation. The problem with disintermediation is that it's open-ended: It requires a flexible time investment. The beauty of reintermediation is that it enables a company to extract the best of the Web and then offer up a manageable menu of services.

There won't be a demand for a bunch of companies that offer multiple services under one roof. Two or three will do. And one of them will be AOL. It's true that AOL faces a tough couple of years ahead. It's true that AOL's fee structure will come under severe attack by Microsoft and others. And it's true that AOL's stock price will take a hit as a result.