Friday, Sep 5, 2008
The online giant's woes are legion. Will new software and a bet on broadband come to the rescue?
Oct 15, 2002 | In the mid-1990s, around the time America Online was last routinely described as a business without a future, folks at the Usenet newsgroup alt.aol-sucks were preening themselves for their apparent foresight. For some time they'd been declaring that AOL was bad news: that it offered a watered-down version of the Internet, that the company's members were morons and numbskulls and, worse, that the firm cared little for the free expression that was the hallmark of the infant World Wide Web. Finally, in 1995 and 1996, important people -- the media and some regulators -- seemed to be agreeing, and alt.aol-sucks overflowed with anti-AOL glee.
Today, however, as AOL faces what may be its roughest period ever, with its ad revenue shrinking and subscription growth sluggish, alt.aol-sucks is strangely quiet. There is the odd "AOL sucks!" post, or some witless, personal barb aimed at Steve Case, AOL's founder, but there's no passion to it. "To be honest," wrote one poster recently, "I can't see why the group wouldn't be overflowing ... Maybe it's just common sense nowadays -- everyone knows AOL sucks."
It can't be a good sign for America Online that even its most ardent detractors don't care enough about the company to count the myriad ways in which it may suck. AOL, in 2002, is both the world's largest ISP as well as its most beleaguered. Its merger with Time Warner -- which was initiated in early 2000, at the height of the dot-com party, but completed in 2001, when all the guests were leaving -- is seen as a failure on Wall Street. The Securities and Exchange Commission is investigating AOL's "aggressive" accounting practices. Since the merger, the new company's stock price has fallen by more than 70 percent. In response, a series of management changes and a high-profile "restructuring" were undertaken during the summer, and the online service was reduced to just a small unit within the entertainment behemoth it once consumed. Steve Case is now the only former AOL exec with a senior position at AOL Time Warner, and there is talk of dropping both him and the letters A-O-L from the company.
On Oct. 15 in New York, America Online will launch a new version of its connectivity software, which executives promise will address many of the problems plaguing it. Although AOL has released new software each fall since 1998, AOL 8.0, the new version, is hailed as more than a small refinement. It is, instead, the "epicenter" of AOL's strategy to reinvigorate itself and "ignite a new round of innovation and creativity in the industry as a whole," AOL's CEO, Jon Miller, said in a speech recently.
At a time of crisis, AOL is banking on a strategy that takes both a step back to the glory days and a leap forward into the high-bandwidth future. The new software is intended, executives say, to re-energize the sense of community that once tied AOL users together but that was lost somewhere in the dot-com frenzy of the late '90s. Simultaneously, the company is hoping that broadband users will need the same kind of handholding that its masses of dial-up devotees once thrived on.
Neither approach is a sure thing. Few observers are convinced that the new software will save AOL. In an odd twist of online history, experts are saying today the same thing about AOL that people in alt.aol-sucks had come to believe in the '90s: that the company is an anachronism, offering a closed-off, proprietary-content "online service" in the age of the World Wide Web.
"Even if the Internet bubble had continued to swell, AOL's days would have been numbered," James Surowiecki writes in the October issue of Wired. "The reason is simple: It was never really an Internet company. AOL was based on the idea that people needed to live in a halfway house while they became accustomed to the Net." But, the thinking goes, people are now accustomed to the Internet, especially in the United States, AOL's biggest market, and they no longer need a halfway house. If folks can get a better, faster, cheaper online experience by ditching AOL, they'll do it in a heartbeat.
Such arguments have haunted America Online for years, but they've become more important in the nascent age of broadband. The vast majority of AOL's 35 million subscribers dial up to connect; AOL's high-speed DSL service has just half a million customers, about 4 percent of the total broadband market. Analysts blame AOL's poor broadband showing on the fact that the service is a bit more expensive than competitors' systems, and on what's called a "mature market," by which they mean that people interested in DSL are too sophisticated for AOL.
But the thing that people seem to be forgetting about AOL is how it became popular in the first place -- by connecting people. AOL's early dominance was no fluke. In an age when getting online was difficult, AOL may have attracted dial-up customers by giving them a nearly foolproof product, but it kept those customers by offering much more than ease of use. Some observers dismissed AOL as a mere "walled garden," but to many AOL subscribers, the garden offered a bounty that quickly addicted people -- other people. AOL's killer apps were discussion forums, chat and instant messaging, services that were thrilling, early users say, because they let you connect to others in a way that seemed truly new.
At some point during its growth spurt, the critics say, AOL lost interest in improving those key areas of the system and instead focused on creative ways to make money that didn't always benefit users. The company now says that its era of benign neglect is over; it once again cares deeply about its members. The new software improves some of AOL's community services, and it even offers perks to people with high-speed connections. There's still no sign that AOL has hit on a way to make a fast connection an interesting community application -- but that's no reason to count it out.
More than any other broadband provider, AOL is touting its interest in making the fast Internet the easy, friendly, proprietary, content-rich Internet. Whether it can pull off such a system and make money is unclear, but its plans aren't crazy. The firm is betting that broadband users are not very different from the dial-up users who first made AOL big -- that however sophisticated they may become, AOL members will still like a simple interface and a colorful, cheery online place where everybody knows their name.
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