Is There Life Left in AOL?

It’s lost traffic, buzz and soon even Time Warner, but don’t count the internet “dinosaur” out yet.

Last Updated: May 14, 2009 @ 12:52 PM

Quick word-association test: AOL is …
 

What usually comes to mind are things like ancient, dial-up, uncool, web 1.0.

 

But maybe we shouldn’t be counting AOL out just yet.

Since Time Warner announced in a securities filing late last month that it may spin off AOL into its own company, Internet watchers have been, if not excited, at least intrigued at the prospect of a once-again independent AOL. The time might be right for a reimagining — a “reboot,” a la "Star Trek” — of a brand that has lost half its traffic and all its buzz.

 

It’s almost hard to see through the fug of the AOL name, but the company has a lot going for it, including a large user base, new management and diversified web products — including the dial-up business, which is unglamorous but brings in revenues. Losing Time Warner will only accelerate what AOL is acknowledging is a need to do things differently in order to survive. (See accompanying story, "The Analysts Analyze AOL.")

Frequently called one of the most disastrous mergers in history, the $182 billion 2002 deal that united AOL and Time Warner took one of the biggest online brands and implanted it into a lumbering old-media corporate animal.

 

AOL was never again able to compete strongly with the Yahoos and the Googles of the world.

 

But what feats of reinvention might be possible with AOL off Time Warner’s back?

 

Even pre-merger, AOL had an image as uncool and boring, training wheels for the “real” Internet. As a brand it has not evolved much since then. In fact, nobody even wants to buy it. Google owns a 5 percent stake in it, which it has been trying to unload.

 

But AOL does have a massive user base — it has 106 million unique monthly visitors and had $4.1 billion in revenue last year, though its ad sales were down 18 percent in the last quarter of 2008, to $109 million. (Yahoo had a 12 percent decline in the same period.) 

Now, though, with a new CEO, Tim Armstrong, plucked from Google in March, and the chance to shed the layers of Time Warner bureaucracy and recharge a complacent corporate culture, AOL has a fighting chance to succeed in the web 2.0 world, analysts and observers say — even with the weight of its old-timey name. 

Among AOL’s strengths is that it is diversified within the Internet space, with operations in three main areas:

 

* The dial-up business, which sounds positively antique, but generates half the company’s revenues by offering Internet access to people still without broadband;

 

* Platform-A, its online ad network and brokerage;

 

* Its cluster of content sites called MediaGlow, which includes thriving sites AOL has acquired, such as Moviephone.com and gossip headquarters TMZ.com, and a growing number of original niche sites aimed at taking advantage of the fragmented web audience. 

AOL even has its own social network, the relatively obscure Bebo.com, which it acquired last spring for $850 million and which the company is trying to beef up with moves such as last week’s acquisition of SocialThing.com, which will let users sign in with their AOL idea and move between Bebo, AOL content sites, and other sites such as Gmail and Facebook. 

MediaGlow has a surprisingly large roster of sites offering original content, most of which play down their AOL identity, if they don’t hide it outright — another reason the company may end up sneaking up on its critics.  

In an interview with TheWrap in February, the division’s vice president, Martin Moe, described its goals. “Our vision is to create MediaGlow as what we call the new mainstream media — a sustainable format for editorial and journalism of the highest caliber, that can be both in tune with the audience and sustainable as a media business,” Moe said.  

The sites include genre-specific entertainment sites like TVSquad, Cinematical, Boombox for hip-hop fans, theBoot for country music fans, the popular tech blog Engadget, the sports site Fanhouse, the recently launched PoliticsDaily and a new site launching today, WhereItsAt, billed as “an interactive treasure map for pop culture enthusiasts highlighting iconic pop culture landmarks from music, film and television located across the country.”  

After the spin-off announcement, AOL did not respond to requests for interviews. But judging from information that has made its way out of the company, the hunt is on for a clearer mission and identity in a post-Time Warner future.

 
Armstrong himself has scoffed at the notion that AOL is too backwards to compete.

Asked why he left cutting-edge Google for AOL — “your grandmother’s Internet” — in a videotaped interview with Advertising Age editor Jonah Bloom, Armstrong put it this way:  “Everybody is trying to move to Internet Street or Internet Avenue. And AOL has one of the largest houses on that street. It needs some work, but if you were going to choose any business to go to in the world and one firmly planted in the reality of the world today … Look, if we don’t do a good job at AOL capturing [ad dollars], I’ll be really disappointed.”

After Armstrong’s first month on the job, a survey was sent to all employees to solicit ideas for a new mission statement. The five questions included, “What individual words best characterize what AOL should aspire to as a company?” and “What words or phrases do you want to use to describe AOL’s purpose to your family and friends?” 

Armstrong added a note that read in part: “In the town-halls and employee meetings over the past few weeks, I’ve heard over and over again about the need to clearly define AOL’s mission and organize the company around it.  The best source of ideas and insights for crafting our mission statement is you and our collective brain power.” 

The chance to craft a new image and mission statement only begins to get at the advantages AOL will gain by being cut loose from Time Warner, analysts say.   
“Companies who have a laser focus on the Internet have been more successful,” said Sandeep Aggarwal, Senior Internet Analyst at Collins Steward, an independent investment research firm. “Things that are part of bigger businesses, like Microsoft’s MSN or AOL with Time Warner, don’t do as well.” Google, Yahoo or Facebook are stronger because they are “pure Internet play companies — that’s what they do for a living,” Aggarwal said. 

What about the resources AOL was supposed to get from Time Warner? “Being part of a conglomerate has not given AOL any synergy. It has not been able to take itself to another level,” said Tuna Amobi, Senior Equity Analyst for Standard and Poor’s Media and Entertainment Group. The spin-off, he said, “allows them to stand on their own and explore strategic alternatives.” 

 

As BusinessWeek media columnist Jon Fine explained the down side of being yoked to Time Warner, “It takes Time Warner a very long time to decide to do something. It’s like a six-month cycle.”

Some of what has to change, said Greg Sterling, an independent analyst who focuses on the Internet and consumer behavior, is a corporate culture that has promoted mediocrity.

“There have been a lot of changes at AOL, but they don’t seem like a byproduct of vision. Once they redesigned their homepage and it ended up looking exactly like Yahoo. They have been followers — if it’s working in the market, lets do that, too.” 
The strength in advertising sales with Platform-A, Amobi said, is something to build on. “I think they arguably have the greatest reach of any ad network out there.”

 
As for the AOL content sites’ reliance on revenue from display ads, which have finally succumbed to the downturn and slowed their growth, to 4.6 percent in 2008, the weakest since 2002 — AOL is still in a good position, Amobi said.

 

“Internet advertising is not recession-proof," he said. "But the Internet is probably still the brightest part of the overall ad landscape. It’s still the future, it’s still where the growth will come from.” 

Being set free from Time Warner should help with ad sales, Aggarwal said. “I think the viability or attractiveness to display advertisers only goes up, because other media companies who did not work with AOL because it was part of Time Warner can now start working with them.” 

As for that image problem, Sterling sees reinvention as a possibility. “They have a lot of assets and a lot of smart people. They need to be cutting out stuff that’s underperforming, and redefining the brand in the marketplace … they’ve been kind of like Sears, mainstream, we sell everything, not too far ahead or behind,” Sterling said. 

And brand problems do have a way of fading when products improve.

 
“AOL is a household name, it’s a very well recognized name — that alone will go a long way,” Aggarwal said. “If AOL does a good job of focusing on strong content, increasing the useful features, focusing on mobile internet and social networking, all those things will only help them to gain more mindshare.”

 

As BusinessWeek’s Fine put it: “I don’t see the point of trying to be cool if this stuff is working.”