It came as a surprise to lot of folks when Jon Miller, AOL's CEO, was shown the door couple of weeks back. Time Warner had renewed his contract for three years last summer. And Miller is credited for effecting arguably the biggest and most fundamental transformation at AOL (one of many in the Internet pioneer's 20 years of rocky history). This involved changing the basic DNA of the company from an ISP based subscription model to the content based advertising model. So what went wrong? Here is my firsthand observation having been at AOL during this transformation.
Miller opened up AOL's walled garden of content and made most of it available free to web users in a major restructuring in Dec '04 that created three business units: Access (ISP), Audience (advertising) and Digital Services (point subscription products like Safety & Security, music, etc).
Audience became the most glamorous and fastest growing business internally and provided AOL a focused approach to capitalize on the booming online ad market. In some ways it was a last ditch effort to make AOL relevant again with its fast declining dial-up ISP business, which however still generated over 80% of its ~$8b total annual revenue. Opening up the walled garden therefore was a bold move that witnessed severe internal resistance - fear being pre-mature cannibalization of the ISP business. To Miller's credit, he chartered these rough waters admirably by providing the vision of complementarity and synergy between subscription and ad models.
AOL's early success so far (45% growth in Q3 '06 ad revenue) has primarily come from a combination of 1) sudden availability of its vast content for free, 2) the largest ISP consumer base within an immersive AOL client environment that comparatively generates much higher page views, and 3) overall online ad market growth. (1) is difficult to sustain, and (2) is dropping dramatically (AOL lost 2.5M subs in Q3 '06 over the previous quarter and lost 4.9M over Q3 '05). Monthly uniques have largely stagnated over the past few quarters (~110M, incl Time Interactive). People blame Miller's lack of operational experience as part of the reason. Though he did a great job in setting the right strategy and demonstrated persuasive skills in getting it off the ground, taking AOL to the next level requires a seasoned campaigner. His lack of charisma could have also gone against him. Others blame his not-so-cozy relationship with the Time Warner management, which thought Miller acted too independently.
AOL missed the Web 2.0 boat on several fronts (AIM was the original online community, and should have been its "MySpace"), and it has struggled to attract and retain the best talent over the past several years. Location in obscure Dulles does not help either (though the power center may be moving to NYC now).
How Randy Falco, a traditional media veteran with limited online experience, now turns AOL into a nimble, web services and product company could make for another interesting HBS case study (muffed Time Warner/AOL merger being the other famous one).
No comments:
Post a Comment