Today, Time Warner announced that they would be spinning off AOL into a separate company, undoing the grand AOL-Time Warner merger of 2001, a business decision that is destined to go down as one of the worst decisions of all time. There are many symbols of the dot-com boom and bust — Pets.com, eToys, computers given away for free — but the AOL-Time Warner merger probably represents the epitome of the bubble, the notion that the internet changed everything, including the business cycle and quaint old notions like “profitability”. Likewise, its demise shows both how wrong that belief was, and also how incredible the pace of change continues to be.
AOL was not my first ISP or online community (since in the early 1990s there was really no such thing as an ISP). The service that came with my family’s first PC, an IBM PS/1, was called Prodigy. Instead of providing phone-based tech support, IBM made everybody use this online bulletin-board system. I used it only a few times; the graphics were crude, of course, and it didn’t have much to offer other than a few chat rooms where I could ask questions about such things as what the heck AUTOEXEC.BAT was for (the days of optimizing memory usage in DOS…now that is an art form that is sadly lost to time).
Once the usefulness of Prodigy wore out, we did get AOL. This was when AOL actually meant something, because the World Wide Web wasn’t very wide at that time: AOL didn’t offer unimpeded access to websites until later in the 90s. Instead, AOL had chatrooms (where we spent much time chatting), file downloads (where we would download freeware games and share planes we designed in Flight Simulator), and, of course, email.
Because it was an insulated community, and because the rest of the internet was only in its infancy, AOL took off. If you wanted to get online and chat with your friends, you had to have AOL. Sure, they had problems, like the busy signals and the hoops you had to go through to cancel your service, but to be successful all they had to do was pretty much show up. There was even a movie that revolved around it. AOL could do no wrong.
So in the midst of the bubble, when old-media companies like Time Warner were trying to figure out how to cash in on the internet craze, perhaps it made sense to them to latch onto this shooting star and go along for the ride. Nobody really knew how AOL and Time Warner, with their vastly different business models, would come together and make money, but that would work itself out, with “synergies” and such. In any case, as computers spread and became more affordable, AOL could only go up, right?
Well, not quite. As the rest of the internet took off, people realized that you could do all of these cool things like post to forums and chat and go shopping without having to go through AOL’s clunky software and expensive service. When the rest of the World Wide Web grew and had much more content than AOL could offer by itself, AOL became useless. A plain-old ISP for $9 a month for dialup (which was what I paid in 2000 after graduating from college) gave you just as much as AOL’s $20+ a month service, but without the crappy, invasive software and without the hassle.
AOL no longer adds any value to the internet. Their subscribers peaked in 2002 and have only declined since; the only people who use it are those who are too unsophisticated to know how to use the “web with training wheels” as AOL is often described. As those people learn, they leave.
The losses at AOL-Time Warner are in the hundreds of billions due to this ill-fated partnership. Time Warner learned that you can’t just glom onto any old internet company and expect to continue making money indefinitely. AOL has learned that you have to add significant value to a product to get people to pay you more than the competition; unfortunately for them, they haven’t yet found what that value is. As an ISP, AOL will probably be around for a while, but they will never regain their status as the online source.
From modest beginning to rock-star ascendancy to an Icarus-like fall and then a reinvention into something else: AOL-Time Warner sums up the dot-com era pretty well. Google and other present-day behemoths, take note: ten or fifteen years is a long time in the age of the internet.