AOL is a web portal and online service provider founded in 1983 that became the first web Internet giant, using a “walled-garden business strategy” made obsolete by players like Google, who instead invited users to browse the web. On paper, the merger of AOL and Time Warner formed a large and powerful company with the right mix of assets, but AOL had already lost most of its value by the early 2000s.
Background
AOL is a web portal and online service provider founded in 1983 by Marc Seriff, Steve Case, Jim Kimsey, and William von Meister.
AOL was one of the largest media companies of the early internet, dominating email, internet connectivity, online news, and chat. At one point, it had a market capitalization exceeding $200 billion.
The success of the company was relatively short-lived as it faded into obscurity in the early 2000s.
Many attribute the demise of AOL to a merger with Time Warner in 2000, but there are a few other factors worth mentioning too.
Let’s take a look at these factors now.
Broadband internet
AOL had mastered the art of attracting and then monetizing dial-up subscribers but was unprepared for the boom in popularity of broadband internet.
The reasons for this are complex and unclear, especially when one considers that the transition from dial-up to broadband took years.
Some argue that AOL believed consumers wouldn’t pay more money just to receive faster speeds.
Others suggest the company was a victim of the sunk cost fallacy. In other words, it had invested so much in dial-up infrastructure that executives were unwilling to consider a better alternative.
Some still believe it was the relationship with Time Warner which is discussed in the next section.
The result was a $360 billion multimedia conglomerate comprised of Time Warner’s vast media empire and AOL’s 30 million dial-up Internet subscribers.
Unfortunately, the merger occurred just three months before the dot-com bubble burst and the economy fell into a recession.
Moreover, the relationship between Time Warner and AOL was often acrimonious.
This hindered AOL’s ability to make serious inroads into broadband, which cable companies largely controlled.
In the years following the merger, the dot-com recession and a lack of broadband integration lead to a serious decline in AOL subscribers.
In 2003, AOL Time Warner posted a $100 billion loss – the largest in U.S. corporate history.
American Online retired
During the merger above in 2000, AOL executives believed they were taking over Time Warner as part of a stronger company.
However, the inability of AOL to move into broadband made it the weaker of the two companies.
As a result, AOL executives were ousted from power, and the full name of “America Online” was retired in 2006.
AOL then became a small subdivision of AOL Time Warner, itself reverting to the original name of Time Warner. Instant messenger and AOL mail – once the company’s flagship products – were given away for free.
Verizon then acquired AOL in 2015 and announced it would sell the company to Apollo for $5 billion in May 2021.
Though a shadow of its former self, AOL continues to operate today with a portfolio of content sites, including Huffington Post, TechCrunch, Engadget, and Autoblog.
It also owns mobile, desktop, and television advertising services.
The company still sells dial-up internet access to a few thousand customers, with 1.5 million more paying for AOL’s technical support and identity theft protection plan known as AOL Advantage.
Key takeaways:
AOL is a web portal and online service provider founded in 1983 by Marc Seriff, Steve Case, Jim Kimsey, and William von Meister. The company enjoyed short-lived success during the internet boom of the 1990s but declined after failing to adapt to the emergence of broadband.
On paper, the merger of AOL and Time Warner formed a large and powerful company with the right mix of assets. AOL became the weaker of the two companies after it failed to secure broadband access and experienced a decrease in dial-up usage.
AOL was spun out by Time Warner in 2008 and acquired by Verizon seven years later. Today, the company has a portfolio of content websites, media brands, and advertising services. A limited number of customers also pay for dial-up internet access and AOL Advantage.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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