by Kara Swisher
More troublesome is that this tends to dredge up a habit that has floated around AOL for far too long—that of treating customers as objects to always be leveraged in some manner. AOL executives used to talk incessantly about “renting subscribers” to other companies and recent attempts to foist a range of a la carte services has the same feel to it. As long as “What can we squeeze out of our members?” is the tone, AOL will lose subscribers.
Solution: More promising to me is giving AOL users more and more benefits as a privilege of membership. While it has done this on a small scale, AOL has never really leveraged its power to offer its members special deals all over the landscape. While purchasing clubs and other members-only groups are a specialized business, providing AOL members more and more reasons to stay with the service and to use it more extensively seems like good business. An AOL membership is a subscription—like a Time Inc. magazine—but the relationship AOL has with its subscribers has so much more opportunity for intimacy and interaction. AOL used to have a much better rapport with its users and needs to do so again. Could AOL offer a serious airline miles program? Or major discount at retailers used heavily by customers? Or give its users some kind of “cash” it could spend on the service? The phone alert—which tells you who is calling you when your phone is engaged on AOL—seems minor and will not matter once more people have broadband.
The real point is to treat customers with much more respect and to find ways to reward them for loyalty. Treating members like cows to be milked is not an image that will sustain AOL. As one former executive who was always bothered by the lack of customer focus said: “Those that serve, lead.”
Problem: Lack of Broadband Strategy
Broadband has taken center stage of the “survival of AOL” debate, sucking up all the attention paid by Wall Street and the press, and becoming the only metric that AOL is apparently being judged by. It has indeed become a pimple on the face of a beautiful lady. Critics have fixated on the lower margins that AOL suffers in the broadband environment compared with the higher percentage of fees that cable and telephone carriers can charge. And, indeed, AOL is no longer in the position of getting lucrative deals as a reseller of access. In addition, many worry about the software challenges and their associated costs that AOL faces as it rolls out its broadband product. In other words, the broadband experience for AOL is one that is costly, full of headaches, and rife with risk.
And, the same thinking goes, it’s unlikely to succeed, since cable and phone operators now have competitive options for consumers and are no longer captive to AOL. A range of other Web services is now easy to cobble together that offers the same kind of experience and ease of use. What, many ask, is the point of AOL at all when the Web in concert with broadband has it all?
Solution: So what? Broadband is where the market is going and is the space that AOL has to adapt to and serve. Any company with tens of millions of dial-up customers has to find a way to transition over as many as possible to broadband, and they stand a much better chance of doing so than of finding new users. Rather than bang its head against a closed door, AOL has finally seemed to realize that cable and telephone companies are simply not going to give away the store to them in this shift to high-speed after having seen how AOL took advantage of telephone companies in the dial-up arena. Rather than try to push services like Road Runner out of the way, AOL has to make a product that people want to pay for on top of it. While some think they can’t, I don’t believe it’s a foregone conclusion that everyone will junk AOL for whatever the cable company offers. Cable and telephone companies are notoriously bad about creating compelling consumer offerings, and that gives AOL a big opportunity to shine. No matter how trendy they become, cable companies are still easy to compete with, given their slow-moving nature and customer-abusive tendencies.
AOL’s first efforts at a new broadband product are a good start. All it needs to have are several must-have applications or services that are hard to replicate. For a long time, for example, IM was one of those kinds of thing for the dial-up AOL service, keeping people coming back month after month. And dial-up is also not as big a disadvantage as people think. People who travel with a laptop, for example, can always easily connect to AOL wherever they might be and use broadband at home—a fact AOL should sell more strongly. AOL need not define itself by its access options, especially since it simply does not control the most important future ones, so it should just stress its ubiquity. AOL should be AOL no matter how you sign up.
Problem: AOL’s Place in the Digital Lifestyle
Becoming a part of people’s lives in a constant state of connection is the paradigm everything will ultimately revolve around. But AOL jumped on this trend too soon with its ill-conceived AOL Anywhere effort. Rolled out before there was clarity on how it was going to work, and created out of fear of Microsoft more than anything else, the initiatives produced a bad AOL TV service, a bad AOL on BlackBerry pager service, a bad AOL on cell phone experience, and a bad AOL on network computer service. Its other investments related to digital video recorders, satellites, and other alternative delivery systems were a waste of time, effort, and money. AOL primarily remains a creature of the personal computer and I think it always will be, no matter how much its executives wish it could be otherwise.
AOL has also always paid lip service to the idea of seamless integration of popular services—and then has done almost nothing to realize it. Its arrangement with Kodak on digital pictures was clunky; the music services it backed were badly executed; its efforts at online billing were weak.
Solution: AOL should simply embrace its PC beachhead and make its service the best experience possible for its users, who are increasingly going to be using their computers as an all-purpose entertainment and information device. AOL should take a page from what Steve Jobs has been doing at Apple Computer with its various attempts to actually succeed at seamlessly creating a digital lifestyle for its users. In that albeit small universe, the digital camera works perfectly with the computer, the iPod music player works easily with the computer and software, and now the stellar music service works in tandem with the computer, the software, and the iPod.
Apple is surely aided in the fact that it makes and sells both the hardware and system software, but its efforts are pointing the way to the essential value of a single design environment that helps consumers in getting all their many devices to work together. AOL’s original value proposition was built around the single promise of ease-of-use in the interactive space. It is in one of the better positions to continue to push this role as more and more features and devices add complexity to a customer’s world. For example, wouldn’t AOL be a natural candidate to stitch together the billing and operational issues that come from the myriad wireless networks that are popping up nationwide? But, instead of AOL, that’s being done by entrepreneurs like Sky Dayton at Boingo. The list of what it could do to help consumers navigate the increasing complexity of the connected life is endless. Such a service would be invaluable, especially if AOL could successfully play the role of a neutral party.
Problem: You’ve Got Jail
There is little good news in either the government investigations or the dozens of shareholder lawsuits that the online unit faces. With the division under scrutiny, these issues will continue to cast a dark cloud over its future prospects until they are settled in some fashion. What is there to say? This situation, which is of AOL’s own making, stinks, and it has taken on a life of its own that now seems uncontrollable. While a lot of the charges may ultimately be unproven, that really does not matter now.
The many investigations of AOL are a tarnish that will never go away and, in many ways, part of a fast-and-loose culture that has been in place from its founding. While some at AOL still feel the company is paying the price for the sins of the whole dot-com industry, there is no question that AOL was the biggest and baddest player in the boom and deserves to get scrutinized the most carefully.
Solution: Stop arguing
with the government and settle immediately, if possible. The fact of the matter is that the government, which has gone this far, has got to find AOL guilty of something and a price will be exacted. While I am aware of the complexities of the situation, it is in everyone’s best interests—including the government’s—to get this stuff in the rearview mirror. The company can take a longer-term view on the lawsuits, which hinge in part on the government investigations. But investors should be prepared to suffer some big payouts. While the Wall Street Journal recently estimated that lawsuits could cost AOL Time Warner $1 billion or more, other more realistic observers put the figure in this catfight at $5 billion.
The company should pay the price and move on. While some will say that AOL got off too easy and others will think it was overly pilloried, none of it really matters, since AOL’s focus needs to be on the next iteration of the industry. After all, that’s precisely what AOL’s longtime foe Microsoft did. It was facing much more serious charges from the government related to its monopolistic practices only a few years back. Today, it is considered dominant once again. And the government trial of Microsoft, surely Bill Gates’s worst moment, feels like a distant memory.
Problem: Live Free or Die
In the broader scheme of things after the investigations and lawsuits are over, being under the umbrella of AOL Time Warner right now appears to be of minimal benefit for either AOL or the larger company. Without an iron fist at the top forcing synergies that might make some sense, there’s just no reason for AOL to be attached to Time Warner. While some at Time Warner now posit that having an online unit as a division makes it a stronger media company in the future, I am not sure the overall angry attitude toward AOL will ever turn around substantially enough to give AOL a real chance to thrive. Company divisions can and should work opportunistically with lots of online players, no matter their affiliation, so helping AOL is not a priority.
AOL, of course, suffers much more, most of all in its ability to be nimble. At this point it can hardly innovate or spend much-needed money on research and development; it cannot make any really substantial acquisitions that others in the Web space are making; it cannot cut prices; and it cannot do anything risky or new without a feeling that the upper echelons are watching. In fact, the company has been in talks to start selling off pieces of the online service not integral to the business. That gives its competitors a lot of space to excel. “If Microsoft ever embraced the customer, it would all be over,” AOL’s marketing legend Jan Brandt noted to me in 2003. “The strategy of Time Warner is to milk the failure of vision, so what Microsoft could not do to AOL, we are going to do to ourselves.”
Solution: Brandt has a point; it has ultimately been AOL that has suffered in this merger more than any other part of the company, despite all the Time Warner kvetching. It probably deserves that. But the AOL division currently has an inexplicable negative value on Wall Street, which seems ridiculous given the potential it still has. If Time Warner has no real and profound ideas on assimilation—other than using AOL as a conduit of content—it should, as Steve Case has reportedly been advocating, “integrate or liberate.”
I’ve talked to many at the company, and this does not seem to be a current option. The general idea is that selling after all the trouble is foolish, an emotional decision that would be akin to a fire sale. After riding it all the way down, the argument goes, why not wait to see what happens rather than give in to an act of desperation? Why not just pretty it up and see if it can be stabilized first? One major investor certainly had this view. “My attitude is why sell it at the bottom?” said Gordon Crawford. “There are still a lot of great companies to be built based on the Internet.”
That’s fair enough, if the Time Warner side of the company truly has the commitment to put aside all its anger and let AOL’s strengths rise to the surface. For all its negatives, the rise of the online service is a remarkable accomplishment that shouldn’t be discounted because of serious errors made along the way. I’m certain that any Internet operator—like Barry Diller, for example, who is still sniffing around along with many others—knows the value of AOL even in its current straits. Frankly, I’d sell it to him or anyone else who understands this basic point. Jerry Levin was right about one thing—Time Warner does not have either the DNA or the passion for the vagaries of the online space that defies logic.
Maybe that’s why some at AOL refuse to leave the stage, such as Ted Leonsis. “I’m like that guy at movies—the credits have rolled, the janitors are sweeping up, and I am still sitting there,” he said. He paused and raised his bushy eyebrows dramatically, as if to wonder why that was.
Finally, the most important question I could actually answer. After all the troubles, Ted Leonsis was still in love—and it was a profound love—with the digital future and the promise it still might bring.
And, I might add, so was I.
Also by Kara Swisher
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Copyright © 2003 by Kara Swisher
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Library of Congress Cataloging-in-Publication DataSwisher, Kara.There Must Be a Pony in Here Somewhere: The AOL Time Warner Debacle and the Quest for a Digital Future / by Kara Swisher.—1st ed.Includes index.1. America Online, Inc.—History. 2. AOL Time Warner—History. I. Title.
eISBN: 978-1-4000-5307-0
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