Not just a company but a mass cultureWith its headquarters in Dulles, VA - far from the madding crowd in Silicon V/Alley - AOL has always been something of a maverick. The company that has been deemed the "Cockroach of Cyberspace" for its confounding ability to stay alive despite near-bankruptcy was started as Control Video Corp., a company that helped Atari fans communicate with each other. When current chairman Steve Case joined the company in 1983, it soon took a turn for the worse. Case renamed the company Quantum Computer Services, and struck deals with Apple Computer and Commodore. These relationships, too, soon turned sour.
Case renamed his struggling company America Online, taking it public in March 1992. As late as 1995, AOL was still foundering, and looked ripe for a takeover. But that never happened. Instead, Case rode out challenges from portals like Yahoo! and Excite, as well as the growing number of free ISPs, and in January 2000, the unthinkable occurred: AOL merged with old media giant Time Warner in a record $156 billion stock-for-stock deal. In an ironic twist that only a Net Slave could appreciate, AOL owns 55 percent of the new company, called AOL Time Warner.
Bringing the world together
AOL provides its customers with numerous convenient services, including information on sports, stocks, news, and weather. Subscribers keep in touch with friends through chat groups, facilitated by buddy lists that notify users when friends have logged on. There are also online forums on any number of subjects, with big-name experts and celebrities drawing audiences to these "auditorium events." Subscribers can also send instant messages, hoping to make new friends with fellow AOL users. Parents have the option of controlling what sites children can access, mitigating the "dangers" of the Internet. Housewives in Orange County can play chess with university students in Budapest. AOL also exploits the power of the Internet as a commercial medium, giving its users the option to do their shopping online. Users may buy books from Barnes & Noble, flowers from 1-800-FLOWERS, lotion from the Body Shop, or a sweater from Eddie Bauer without leaving the comfort of home.
Content is king
For a while, AOL developed media programming for its own popular web site at AOL.com. But in a shift of strategy, in early 1999 the company began relying on outside publishers to provide original content for its customers. AOL inked a deal with Oxygen Media, headed by Nickelodeon creator Geraldine Layborne, to develop its Women's Channel, a site totally devoted to women subscribers. The move spares AOL the time, expertise, and cost to create original programming (not one of its strong suits anyway) while charging media companies like Oxygen millions of dollars for access to AOL customers. In December 1999, employment site Monster.com agreed to pay $100 million in order to be the exclusive provider of online job listings on AOL.
But the mammoth AOL-Time Warner deal will usher in a whole new era of AOL content, unifying AOL's 23 million-plus subscribers with Time Warner properties like Time, HBO, Warner Bros., New Line Cinema, and Warner Music. AOL immediately started providing content from CNN.com and InStyle magazine, though the possibilities for cross-pollination are limitless. With the deal, Time Warner gained a much-needed Internet strategy; its pathfinder.com portal, which was supposed to bring Time Warner content to the Web, was an embarrassing fiasco for the company. AOL benefits not only from Time Warner content, but also from cable television lines that Time Warner uses for its 13 million cable TV subscribers - AOL hopes to use these lines to provide high-speed, broadband Internet access.
Continuing its media expansion, AOL announced in July 2000 a three-year content and promotional agreement with E! Online, which will provide entertainment news and celebrity gossip.
That same month in a move that brought broadband interactive service toward the mainstream, AOL licensed ReaNetworks' streaming media server, RealServer 8, across its internal network. AOL 6.0 will include some of RealNetworks' technology. With broadband service providers like AT&T and SBC pushing for more customers, analysts predict an upsurge in the value of broadband content such as streaming media.
Oh what a tangled Web we weave
The Time Warner deal capped off a string of mergers and acquisitions for Steve Case's company. Case's longtime flirtation with Netscape prompted AOL to purchase the company for $4.2 billion in stock in November 1998. Complicating the deal was AOL's joint marketing and development venture with Sun Microsystems, another Microsoft foe, to sell Netscape's server and Internet software to large corporations. Ultimately, Case was hoping to bring three lucrative businesses - online services, Internet software, and electronic commerce - under one umbrella, and to break its technological dependence on Microsoft. By joining forces with Sun Microsystems, AOL incorporated Sun's Java programming language and Jima networking strategy into a cheap, stripped-down computer network that eliminates the need for Internet-based Windows applications. In theory, this device could deliver AOL's media and electronic commerce services to consumers via a few powerful central computers.
Clash of the titans
AOL squared off against AT&T in a variety of disputes in 1999, one of which has been dubbed the "debate over open-access." AOL desires access to the high-speed connections that cable companies can offer. The cable companies want to keep their connections to themselves. Rounds one and two seem to have gone in favor of AOL and its ilk. In June 1999 federal judges ruled that Portland, Oregon could force AT&T to provide access to rival Internet service providers. The next month Broward County, Florida regulators deemed it necessary for AT&T to provide rivals access to the Internet at the same rates the company provides to itself. Both of these cases are under appeal, and unless the FCC intervenes individual cases will continue to be tried at the local level. Of course, AOL's take on the issue is completely changed after its acquisition of Time Warner. With access to Time Warner's network of cable lines, AOL says it will open its cable system to online rivals, thereby ending a virtual monopoly of cable line providers.
Vengeance
AOL and AT&T are also battling it out over instant messaging. AOL has dominated this area so far, but AT&T wants a piece of the pie. AOL was forced to swallow its pride in August 1999 when a federal judge dismissed a case brought by AOL to prevent AT&T from using "You've got mail," "Buddy List," and "IM" (for Instant Message) on its WorldNet Internet service. AOL lawyers, as expected, vowed to appeal the decision.
Moo!
AOL invested $800 million in the Gateway computer company in October 1999. In return AOL receives prime placement on Gateway PC desktops and Gateway.net, as well as a 5 percent stake in Gateway. Both companies hope to develop non-PC products that utilize the Internet, such as telephones and other appliances.
Heating up Latin America
AOL announced its first step into the crowded South American market in November 1999, when it launched a Portuguese-language site in concert with the Cisneros group of Venezuela. In spite of a sophisticated Brazilian market teeming with competition, officials remain confident about the site's chances. Cisneros chairman Gustav Cisneros told The Wall Street Journal: "We will spend what is needed to be a market leader." The market is already six million users strong and is expected to triple in the next four years.
In July 2000 AOL began offering Spanish service for the first time in Mexico.
Bringing Internet access to the rest of America...
In December 1999, AOL announced a partnership with retail giant Wal-Mart to provide Internet access to Wal-Mart's customers. The two companies plan to create a new ISP that will provide service to towns that lack local Internet access (and that have a Wal-Mart). Wal-Mart's customers can get software to set up an online account, plus AOL 5.0 software that has a prominent link to Wal-Mart's web site.
...and beyond
AOL is considering a floatation of AOL Europe in 2000. In May 2000 the Securities and Exchange Commission fined AOL $3.5 million for shady accounting practices which falsely depicted the true profits and losses the company had earned.
Expanding its horizons
Also in December, AOL announced it would buy Mapquest.com, an online provider of maps and directions. Valued at about $1.1 billion, the deal will help expand AOL's local information coverage. Analysts hailed the deal as rounding out AOL's local community strategy, which began with the purchase of Digital Cities in 1995. Mapquest will be incorporated into services AOL already offers, such as the local information provided by Digital Cities and movie listings and ticket purchases at Moviefone.
Besides its growing list of online services, AOL is also seeking expansion into other areas. AOL is looking into developing alternatives to the desktop computer, and will ship products for the 2000 holiday season that provide Internet access from flat panel displays not connected to a PC. Also, in June 2000, the company launched AOLTV, which offers instant messaging, chats, web browsing, and other features on television sets equipped with a set-top box.
America on wireless
The December 1999 purchase of a communications company provided AOL with the technology to develop a means of sending and receiving instant messages by cell phone. AOL Mobile services debuted in 2000, enabling users to access e-mail, news, weather, stock quotes, movie information, and other content on Sprint PCS Internet-enabled wireless phones.
Continuing the series of wireless-related deals, AOL announced in July 2000 an agreement that would offer its services--including e-mail, news, weather and stock quotes--to AT&T wireless 12.5 million subscribers for a fee.
Teaming up with Citigroup
AOL struck a deal with Citigroup to ease credit card payments and other financial transactions over the Internet. Citigroup, currently the largest financial services company in the US, would become a "clearinghouse" for financial transactions across all of AOL's brands; it would also promote AOL services to its customers. Financial details of the multi-year deal were not revealed.
