I'm getting
called out for not talking about
this Economist story which details the challenges AOL faces. The blogger speculates that somehow AOL has gotten to me and shut me up.
Now that's funny! I'll take the bait.
Here is my take on the story--line by line!
>> FEW people at Time Warner, the biggest media company in the world,
>> have anything nice to say about AOL, its internet division. Executives
>> who had shares in Time Warner at the time of its merger with AOL
>> in 2000 find it hard to forget how their savings were wiped out in
>> the aftermath-the company's share price fell by 75%-and how
>> arrogant the AOL people used to be. Five years on from the
>> merger, AOL is still the sick man among Time Warner's
>> television, film and publishing businesses, and it is as
>> unloved as ever.
I don't deal with a ton of folks at other Time Warner units in my role.
My job is to create new things, so I'm not involved in integration with existing pieces. However, there are things being integrated from what I can tell (IN2TV being a major one).
In terms of people loving or hating AOL the bottom line is that AOL is going to be the high growth portion of TW's business, and as a result the best hope for increasing the value of the business. Any intelligent TW shareholder knows this and is rooting for us.
The Economist author doesn't cite a single person--not even off the record--who agrees wit his point above. I think he is taking a very three-year ago position. I think the journalist pulled this quote out of the air frankly. It's a sexy lead for his story, but it's inaccurate in my experience.
Folks are rooting for AOL *big time* at TW.
>> Time Warner may soon have to decide whether to push
>> the patient out of the door. It is certainly under no illusions
>> about AOL's prospects, nor is it particularly attached to
>> the business. The firm is already looking into a possible
>> sale of parts of AOL Europe. "For the moment, the doctor
>> says more tests are needed," says Larry Haverty, a fund
>> manager at Gabelli Global Multimedia Trust. By the autumn,
>> he argues, it will be clearer whether Time Warner should sell AOL.
I've never been involved in any of these discussions, so I can't really give any insight into these issues.
The pros of spinning AOL out that I've *read* in the blogosphere and press include:
a) a higher valuation for the business.
b) a currency to attract talent to the business, which would give AOL the ability to compete with Google and Yahoo for talent more effectively.
c) a currency to purchase companies more aggressively, which would give AOL the ability to compete with Google and Yahoo for customers more effectively.
I've yet to read a con for spinning out from the press or the blogosphere.
Can anyone come up with some cons and put them in the comments?
>> In the 1990s, during the early days of the Internet, AOL flourished
>> by sitting at the juncture of three online businesses: advertising,
>> access (as an online-service provider with monthly subscribers)
>> and e-commerce (through its affiliated merchants). But today's
>> internet users have no need to pay AOL extra for its services,
>> because they can go direct to other companies. And AOL
>> failed to recognise early enough that people would move to
>> broadband-internet access, which they can buy straight
>> from the firms that own the network, whether a
>> telephone company or a cable firm. Every year AOL loses a
>> few million of the more than 20m people in America and
>> Europe who pay it for dial-up internet access (see chart).
>> In the first quarter its revenues dropped by 7% to $2 billion
>> and its operating profits shrunk by 17%, to $442m, dragging
>> down its parent's results.
Yep, AOL is a business in transition from access to audience (aka advertising). The biggest Internet companies in the world (Yahoo and Google) make their money by building an audience and putting advertising against it. Our advertising business 26% from what I understand, and that is second only to Yahoo. That's hot.
The only really large businesses in our space that not advertising based on eBay and Amazon which are focused on commerce.
>> AOL's response is to try to increase its revenues from internet
>> advertising. To attract traffic, last year it flung open the doors
>> to its collection of online "content" to every surfer; until then
>> much of it had been available only to subscribers.
Not exactly true.
We also are making experience and services that were never behind the firewall. The Weblogs, Inc. blogs, TMZ, and IN2TV were never behind the firewall. They've always been 100% open.
We're way past the "open the doors" mode--that was like two years ago dude!
>> Most analysts think this strategy is a good one.
>> But investors are impatient to see gains from
>> the advertising business offset the decline of the
>> access side.
When you build the most successful, and fastest growing, subscription business in the history of... umm... well all time, you are going to have some pain as you transition from it.
AOL moved quicker than anyone in the world to capture the access business. If we can take the access market we can shift and take the advertising market--I'm sure of it. Frankly, that's why I'm here and not starting a new company. We are gonna pull this off and I think it's gonna be a business school case of how to jump from one paradigm to another. It's a huge challenge, but it's *highly* educational for me.
>> That may never happen-and if it does, it could take many years.
>> AOL's poor performance is particularly sensitive at the moment
>> because Time Warner's chief executive, Richard Parsons,
>> recently saw off an attack from Carl Icahn, an activist investor.
>> The conglomerate's share price (Mr Icahn's chief complaint)
>> has not gone up since then, and analysts on Wall Street cite
>> AOL as the main reason why they do not advise their clients
>> to buy Time Warner's shares.
May never happen?
It's happening already dude!!!
Our audience business is on *fire*.
How could you say "that may never happen" if it's already well underway? That makes no sense!
>> One of AOL's biggest problems, competitors say, is
>> recruiting the best people in the technology industry
>> and keeping them. Being based in Dulles, Virginia,
>> away from the technology industry's centres, is hardly
>> a draw.
Wrong again.
We have a ton of folks in New York and Los Angeles, and those are the two largest advertising markets in the world. The future of our business is in NY and LA--not the Valley. Why do you think Google and Yahoo just opened HUGE offices in Santa Monica (where I live and work)?
Also, my team is based all across the country (and world in fact). 90% of my team don't come to the office everyday--they work from home! So, this concept that Dulles is a draw back is just inaccurate (and frankly, kind of dumb).
>> Moreover, AOL offers employees less chance to
>> become rich through share options or an initial
>> public offering than other internet firms that are
>> growing.
While that may be true right now, we pay competitive salaries and are much more stable then startup companies. Many of the top executives out there are looking for stability when looking for a job.
That being said, stock options are a good thing--a very, very good thing.
>> In contrast to its big rivals, which are hiring, AOL
>> laid off 7% of its workforce this month.
Wow, this guy is clueless!
The people we laid off were in call centers! You're taking that stat totally out of context. We are hiring in our audience business like crazy.
Get your facts straight dude.
>> Several senior managers are rumored soon to be leaving.
Really. Who?
I only know of one since I've gotten here, and it was an EVP.
[ Note: As a total aside I'm the CEO of Weblogs, Inc. and an SVP at AOL. That is one level below EVP and it puts me on the cusp of being a senior manager I think. Regardless of title, we have a very open structure here and I can talk to Miller and Leonsis whenever I want--and do! ]
>> In search of superspice
>> When he was fighting off Mr Icahn, Mr Parsons called AOL the "internet
>> superspice" of Time Warner. This positive view was bolstered last year
>> when Google took a 5% stake in the business for $1 billion, although
>> the internet giant was motivated less by AOL's attractions than by a
>> desire to stop it allying with Microsoft, an arch-rival. AOL has had some
>> notable successes in its new advertising strategy: last year, for
>> instance, millions of people watched the Live 8 music concert on
>> AOL.com, and AOL made a profit from the event by selling ads around
>> it.
Oh my gosh... some good news! Took you long enough.
>> However, AOL's fortunes in advertising are worryingly dependent
>> on its declining access business. AOL estimates that just over
>> half of its unique monthly visitors are subscribers, rather than surfers
>> with no other connection to the firm. So as subscribers leave, AOL will
>> steadily lose page views. Moreover, each subscriber generates about
>> six times as many page views as non-subscribers, says Henry Blodget,
>> president of Cherry Hill Research, because subscriptions represent
>> households rather than individuals, and because AOL members are
>> heavy internet users. AOL has to swim against a strong tide to keep its
>> position in internet advertising.
This isn't such a big issue to be honest.
Weblogs, Inc. gets the majority of it's traffic from outside of the AOL subscriber base as an example. We are making great products and services that are made for the Web--not just AOL members.
>> Better news is that the company is at least managing to
>> maintain its page views, despite losing subscribers.
Exactly. Proving my point that we are getting really good at building experiences that are good for all web users--not just access members.
>> But its rivals in internet advertising are rapidly increasing
>> their page views and AOL will need to add page views if
>> it is to grow in future. As for its total sales of advertising, which
>> increased by 26% in the first quarter to $392m (or a fifth of
>> total revenues), Mr Haverty says that the performance was
>> acceptable, but unexciting compared with Yahoo!, which
>> increased its advertising revenues by 35% from a much
>> bigger base.
Uhhh... why didn't you include Microsoft and CNET's growth in that paragraph? If you did we would be #2 in the industry, as opposed to how you're spinning it for us to be in last place.
This is classic spin by a journalist... he could have said "second only to Yahoo" but instead they say "unexciting compared with Yahoo."
Silly.
>> During recent years of innovation on the internet, as Google
>> has risen to prominence and other popular new services
>> such as Craigslist, MySpace and iTunes have taken wing,
>> AOL has been distracted by its troubled relations with Time
>> Warner-it was only last year that Steve Case, AOL's controversial
>> co-founder, finally left the conglomerate's board. "AOL largely
>> sat on the sidelines as the internet evolved over the past six
>> years," says Kevin Werbach of the University of Pennsylvania's
>> Wharton School. Now, however, AOL is at last busy launching
>> new services. This week it started a VOIP phone service based on
>> its popular instant-messaging system, and earlier in May it
>> launched a new social-networking service called AIM Pages. AOL
>> has lots of experience in social networking, says Mr Werbach,
>> and it has a good chance of succeeding even against well established
>> competitors such as MySpace, which is owned by Rupert Murdoch's
>> News Corporation.
Reports are that MySpace made $13/$17M last month... you might want to include in this analysis that social software makes no money when compared to content, search, and video.
[ Side rant: Social software is so overrated. it's never going to be a major business. It's going to be a feature of many other real businesses in my mind. Advertisers are never going to want to be on people's personal pages. I've seen this movie before and it was called Geocities. ]
>> Although AOL is having some success in attracting people to its
>> content, the unit is not making good enough use of its parent's
>> wide array of brands. People in Time Warner's other divisions
>> complain that AOL develops new sites on its own and ignores
>> them: AOL Sports, for instance, makes no use of the powerful
>> Sports Illustrated brand, and its new celebrity site, TMZ.com,
>> does not use material from Time Inc's People magazine and
>> websites. Time Warner's divisions are mostly developing digital
>> strategies independently of AOL.
I don't know anything about that to be honest.
However I will say that the future of the Internet is not synergy but rather open platforms. AIMPagest let's people add anything to their page and our RSS reader lets you add anything you want. That's really what users want, not forced integration.
>> For the moment, Time Warner's plan is to do as much as it can
>> to encourage AOL's renewal. "In order to move AOL to an
>> advertising business more rapidly," says Jeff Bewkes,
>> the firm's chief operating officer, "we may ourselves take
>> actions so that AOL will rely less on subscriber volume or
>> subscriber payments." In other words, let paying users leave,
>> as long as new traffic comes-a risky strategy, since so much
>> traffic comes from the subscribers. In the end, the interdependence
>> of the access and the advertising sides of AOL may lead Time
>> Warner to sell the whole business-and put its painful past finally
>> behind it.
I have not met Bewkes yet, but I'm sure i will at some point. My job right now is to make the services that get that advertising so that the transition from access to audience/advertising is as smooth as possible.
Frankly, I love the fact that journalist paint our situation as so dire--being the underdog is always a good thing.
