AOL: THE EMERGENCE OF AN INTERNET MEDIA COMPANY

Rob Rochester

Company Vision

To build a global medium as central to peoples lives as the telephone or television…and even more valuable. To provide its users with a service that

was fundamental to their lives.

AOL Key Figures

Steve Case CEO

Ted Leonsis President of AOL Services

Bob Pittman Company President

Inspiration

Steve Case becomes inspired by an online service named Source. Dial-up computer bulletin board service. Only used by early tech-savvy adopters.

The users at this point were not concerned with the medium in which they accessed the materials.

Case believed that more user friendly technologies would have the potential to attract the masses.

The 80’s

1983 Case takes a marketing job at Control Video, a

message company similar to Source. 1985

Control Video is renamed Quantum Computer Services, and launched Q-Link Online Service.

1989 Debuted America Online for Macintosh Users could use buttons to enter channels.

Sports News Entertainment Chat rooms

Early 90’s

1991 Quantum Computer Services is renamed America

Online. Used a proprietary technology platform called

“Rainman” Software package used to create the GUI, which

allowed for easy navigation of the features. 1992

Case becomes CEO Targets the masses with a easy and fun to use

service. 181,000 paid subscribers by the end of the year.

(less than half the subscribers of its biggest competition)

Marketing, marketing, marketing

1993 Distributed a windows based version of its online software

with the same easy to use interface which had been featured before.

1994 AOL launched a major direct marketing blitz.

AOL distributed more then 300 million copies of their software.

Each disk allowed a user to log on to AOL with a free 3 month trial.

In January of 1994 alone AOL gained 70,000 new members.

Purchased BookLink Technologies, an internet browser software company.

Allowed AOL’s members to surf the web. By August of 94 AOL had 1 million subscribers, twice that

of its leading competition.

Huge Growth

1995 2 million paying subscribers. Averaging 250,000 new subscribers per month. AOL was responsible for more then 30% of all Internet

access. Market Leader.

1996 5 million members in December a huge increases in pressure from

competition forced AOL to lower its rate to a flat monthly rate of 19.95 for unlimited access.

AOL would gain more then a million new members in the first month.

Huge increase in member sessions and session times. 2.5 million hours of member sessions were logged, and 24 million

pieces of email were sent on the first day of the change.

Rapid growth leads to problems

Rapid increase in not only customers but also the volume of information traveling across the network caused service at AOL to plummet. Hundreds of thousands of users were unable to

connect due to the huge increase in network traffic. 1996

New revenue streams form 10% of AOL’s first quarter revenue came from:

Advertising Transaction Royalties Merchandising

Bob Pittman was brought in to over see day-to-day operations, Pittman had two goals:

Make the company profitable Make AOL a leading brand world wide.

Fixing the problems

Pittman would first: Scale back the direct marketing, which cut customer acquisition cost

from 375$ down to 90$ Second:

Pittman turned to the network traffic problem. 1997

AOL spent over 1 billion dollars to improve its network. 1998

Pittman now oversees all major AOL divisions. Sold ANS communication network to WorldCom (later MCI

WorldCom) in exchange for rivals CompuServe’s content operations.

With its top competitor out of the way AOL raised monthly rates by 2 dollars and saw little to no change with its customer base.

Realizing the power of AOL’s now 14 million customers, Pittman decided to scale back efforts at developing and producing entertainment, and took a new approach to their business.

Instead of buying and developing its own content AOL would simply force content providers to pay for the privilege of being carried by AOL.

AOL partnership deals

Cost of the partnership deal depends on: The level of exclusivity on AOL The area of placement promised The AOL brands on which a content partner gained

carriage.

Four types of deals: Anchor Tenancy

Each channel had 4 anchor tenancy’s. Exclusive provider

Exclusivity on AOL. Primary provider

It would be a provider but not exclusively. Premier provider

A small combination of the other 3.

AOL Market and Industry

Market Increasingly segmented

The “masses”, new or un-savvy internet users. Wanted a condensed and organized way to view the content the Internet

provided. AOL

Web-savvy users made up the second segment. These users liked the variety of information that the Internet had to offer.

Global Network Navigator A more sophisticated version of AOL.

Industry 3 primary expenses

Telecommunications Access fees for connecting its users.

Customer Acquisition Increasing due to the increase in competition from ISP’s

Content Royalties Getting the content your users are seeking.

Technological drivers for change

AOL Broadband internet access had seen

rapid growth allowing Internet users to access the web at great speeds.

AOL started to lose its advantage over the market.

Time Warner New technologies

Interactive TV. Allowed users to skip commercials.

The Merger

Merging the two companies seemed like the best fit for both: AOL

Gets access to all of Time Warner’s customers as well as the access to the 21.5 million homes already connected to the Time Warner system.

Time Warner Could combat emerging interactive T.V. with

new forms of ad based revenue generated through e-commerce and ad supporting content featured in a closed AOL TW universe.

AOL TW Post Merger

Case Chairmen of AOL TW

Levin CEO

Pittman Co-COO Subscriptions, advertising, and commerce businesses.

Parsons Co-COO Content from film, television, production, music, and

books. Ted Turner

Senior advisor

Risks

AOL and Time Warner faced many competitive risks after the merger of the company’s. Increase in broadband coverage. Increase in ISP’s Using a similar model to failed projects.

USA Networks failed merger with internet portal Lycos.

“Open Access” regulations.

Open Access

Open Access Telecommunication companies must provide public

non-discriminatory service to all. Cable companies can “discriminate” against who

they carry. The channels they provide to their customers.

When AOL was a telecommunication company they were one of the leading advocates of open access because it was something that was a crucial part of their business, after the merger with TW they no longer needed open access to get into peoples homes and changed their position.

DSIR

AOL had huge potential for DSIR. Due to its closed circuit. The more people that are connected to

the internet community called AOL the more value each person receives from the community.

Maximizes interactivity.

Conclusion

As we look at this merger now you will find the biggest media conglomerate from the combination of AOL’s new media medium with Time Warner’s huge client base and physical networking, allowing this combination to start the next step in the internet evolution.

Questions……..