AOL: AOL is finally set to be a public company once again. The former king of the web is being spun off by parent Time Warner. That can’t hurt its shot at a comeback. But it has a long way to go before it can compete with other internet heavyweights. Its independence may merely prove the preamble to gradual extinction.
The AOL-Time Warner merger in 2001 — which created a $350 billion media giant — marked the height of the internet bubble. Prior to the deal, AOL had a market capitalisation in excess of $225 billion. Now it could be worth less than $5.5 billion, which corresponds to the valuation Google keeps on its books for its 5 per cent AOL stake.
Separating from Time Warner certainly won’t make matters any worse. The conglomerate isn’t known for its technology savoir-faire, and its management has bigger problems to focus on, like its struggling Time Inc. print media business. And AOL has also brought in some fresh blood. The unit hired former Google sales boss Tim Armstrong, a verifiable advertising guru, as its new chief in March.
But AOL still has a way to go before it can compete with Armstrong’s alma mater, or even struggling Yahoo for that matter. Its dial-up internet access business, which accounted for more than two-thirds its revenues in 2001, is an industry in extinction. It finished last year with 6.9 million subscribers, down from more than 30 million before the merger.
That’s led the unit to reshape its focus towards online display advertising. Yet that business hasn’t fared much better. AOL’s advertising revenues fell 20 per cent last quarter over the prior year. And display advertising requires deep coffers for investment and potential acquisitions. That makes competing with other heavyweights tough.
The good news is that advertisers are hungrily searching for alternatives to Google’s hegemony online. AOL may find a niche there. Still, it will be hard-pressed to turn that into a sustainable money-spinner. AOL’s independence won’t hurt matters any, but there’s only so much it can help.
