AOL and Yahoo: Fingers in the Dike

Both companies seem reduced to saving their businesses, not innovating — and that’s a recipe for failure in today’s lightning-fast tech cycle.

AOL and Yahoo both revolutionized the Internet. And both have completely lost their way.

Back in the 1990s, AOL introduced millions of people to email and online content. Yahoo taught people how to find things online.

Now both seem reduced to saving their businesses, not innovating. In today’s lightning-fast tech cycle, that’s a recipe for failure.

Take AOL, Yahoo! and Microsoft’s decision to sell advertising on each other’s sites to fight Google’s dominance. That’s like putting up levees to stop a hurricane: you know you’re still going to get clobbered in the long run. As if to spite them, Google display ad chief Neal Mohan said in a blog that its top advertisers nearly doubled their ad spend over the last year.

AOL announced the departure of the TechCrunch’s  acerbic founder, Michael Arrington, in a terse press release moments before Arrington appeared on stage to launch its namesake conference. So much for a $25 million acquisition designed to bring Arrington’s unique voice to AOL.

Arrington left after clashing with AOL content queen Arianna Huffington. AOL purchased her Huffington Post for roughly $300 million earlier this year. And what did AOL get for its money? The media world’s most effective search engine optimization vehicle — wire service material carefully labelled to attract the maximum audience — along with an army of mostly unpaid bloggers. (Arrington sported an “unpaid blogger” T-shirt during a brief appearance at the conference, which I attended.)

AOL wants to build a content juggernaut that will attract millions of people. Sound familiar? It should. Think AOL Time Warner in 2000.

Yahoo, meanwhile, gave up its raison d’etre when former CEO Carol Bartz signed a 10-year deal for Microsoft’s Bing to power its back-end search in 2009. Yahoo’s 43% stake in China’s Alibaba, worth $2.32 billion last March, may or may not have served to protect its interests in China. It did nothing to freshen the brand.

Bartz, of course, was just fired and replaced by Yahoo CFO Tim Morse, who reportedly once joked that managers who didn’t make their numbers would be electrocuted at one of the company’s data centers. Cute, but you get where his focus is.

Some speculate that Yahoo and AOL’s problems might be solved if you merged them together to create critical mass. A bigger mess is more likely. Sadly, the best thing to do with either is probably to dismantle the parts and sell them to companies that actually know how to make content profitable. Time Warner might even be interested in a morsel.