6 ms·

They owned a closed "Walled Garden" version of the internet. Once the open internet took off, AOL was doomed.

r00fus 11y ago
They had years to invest in the open internet, buy out a successful internet venture, or adopt internet features into their offering. They failed to do all of the above, and are now in the dustbin of history (and to me, are solely remembered for their acquisition of nullsoft who then created Gnutella - predecessor of P2P file sharing services).
- wpietri 11y ago
  I think they are a great Innovator's Dilemma example. Quarter to quarter and manager by manager they could always do better denying the coming reality. I'd bet there were plenty of people within AOL who knew they were fucked in the long term, and I'm sure some of those actually tried to change things. But it's extremely hard to do anything that threatens existing revenue streams. Eventually the innovative people leave and you're left with the people who can't see the decline or are ok with trying to squeeze the last few drops of cash from the remains. And really, in some ways they're only around now because they did manage to change a little. They've collected some decent content brands, which was basically an investment in the open internet.
  - x0x0 11y ago
    I read a perfect parallel: real networks employees knew their product was shit. But making it not shit would wreck the company: As employees, we weren’t proud of our business tactics, and we griped about them frequently. The topic came up at company meetings, round table conversations with executives, and through a lot of water cooler conversation over email, during lunch, and across the foosball table. One day my manager showed me a horrible graph. It was pretty simple: the graph was steady, then it dropped straight down, then after a short period, the line shot straight back up and stayed level again: “That’s what happens when we do the right thing”, he said while pointing at the drop, “and that’s how much money we lose. We tried it just to see how bad it was for our bottom line. And this is what the data tells us.” “Wow,” I said, taken aback. My employer clearly had two options: “do the right thing” or “be profitable”. That was the position they had maneuvered themselves into through a series of bad management decisions. My manager then said, “More than half the company would have to lose their job in order for us to stop these tactics ... so are you volunteering to be one of them?” https://medium.com/launching-ux-launchpad/the-graph-that-changed-me-385ff833f9c8 https://medium.com/launching-ux-launchpad/the-graph-that-cha...
    - wpietri 11y ago
      Great find. Of course, it's not like doing the wrong thing worked out well for them either: http://www.nasdaq.com/symbol/rnwk/stock-chart?intraday=off&timeframe=10y&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=off&index=&drilldown=off http://www.nasdaq.com/symbol/rnwk/stock-chart?intraday=off&t... Now they're worth maybe 10% of what they were when that guy left Real Networks. The thing that kills me here is that they had more than two options. In the short term, sure, they're stuck. But in the long term, they could have either kept sucking or they could have worked to turn it around.
  - fragmede 11y ago
    There's a similar story about the search engine game. Yahoo had a chance to buy better search engine technology, the only problem was it was too good. If people quickly found what they wanted, they wouldn't spend any time on your page. Time-spent-on-page is how Yahoo measured engagement, and thus ad-revenue. Improving Yahoo's search engine would have threatened existing revenue streams, and Google would be a terrible investment for them, given the metrics in use at the time.
  - tsotha 11y ago
    I doubt they had any trouble seeing the decline. The question is what should they have done? Competing directly with cable companies in wiring up homes for broadband is a mug's game. This was before it was reasonable to do with fiber and they didn't have anything like Google's freighters full of cash. So they rode it down. That was probably the right thing to do - their dial up business is still there and still profitable. They have some viable properties on the content side, which is about the best you could have expected without having them get into an entirely new business (like search).
    - wpietri 11y ago
      I think getting into essentially new businesses is exactly what companies facing the Innovator's Dilemma should generally do. The ad-driven content properties are an example of that, and they're the reason for the merger.
      - tsotha 11y ago
        I think companies should remain focused on their core product. If you find yourself in a buggy whip industry the best thing to do, IMO, is to reduce expenses as much as possible and return as much profit as possible to the shareholders. When it's not worth bothering with any more the company should be dissolved. As an investor I'm perfectly capable of taking my dividend and investing in other businesses - I'd rather not have the officers of a company in which I've invested my money taking Hail Mary shots to preserve their jobs.
        wpietri 11y ago
        I think that only makes sense if you have a completely dead-end product. AOL, for example, had a fair bit of experience in content. They had a lot of strength in networking. They had a zillion users, giving them low marketing costs for new products. They had a strong marketing org and a well-known brand. Reducing expenses to the minimum would basically value all of that at zero, which I think is rarely the right case. Look at the examples in Innovator's Dilemma, for example. The successful companies kept making technology/market transitions, one after the other. As an investor you are capable of taking the cash and investing elsewhere. But you are also capable of selling the stock if you really think they have no hope of innovating.
- bluedino 11y ago
  >> They had years to invest in the open internet, buy out a successful internet venture, or adopt internet features into their offering. None of the big ISP's from the 90's "made it". Earthlink, Netcom, Prodigy... They were all either acquired, went bankrupt, or became DSL resellers. They didn't have any content so they were worthless as broadband took over. There's only a handful of dot-com's still around from those days. Google, Amazon, eBay, Yahoo... AOL would have ran any of those into the ground had they purchased them, and buying ISP's like XO or Covad wouldn't have worked out well, or buying someone like Sun, Cisco, or SGI would also have been a disaster.
- bluedino 11y ago
  >> They had years to invest in the open internet, buy out a successful internet venture, or adopt internet features into their offering. None of the big ISP's from the 90's "made it". Earthlink, Netcom, Prodigy... They were all either acquired, went bankrupt, or became DSL resellers. They didn't have any content so they were worthless as broadband took over. There's only a handful of dot-com's still around from those days. Google, Amazon, eBay, Yahoo... AOL would have ran any of those into the ground had they purchased them, and buying ISP's like XO or Covad wouldn't have worked out well, or buying someone like Sun, Cisco, or SGI would also have been a disaster. There truly was nothing they could have done.
  - todayiscrown 11y ago
    Hmm .. May be they could have bought sbc/att/Comcast/twc? Given their valuation at that time, they could have bought pretty much anybody.
    - berberous 11y ago
      They did buy twc...
    - dragonwriter 11y ago
      > Hmm .. May be they could have bought sbc/att/Comcast/twc? They bought Time-Warner in 2001 for $164 billion to create AOL Time-Warner. The expected synergies of the acquisition largely failed to materialize, the AOL name was dropped from the combined entity in 2003, and AOL was spun back out of Time-Warner in 2009.
      - amyjess 11y ago
        Interestingly enough, 2009 also saw Time Warner spin off TWC as an independent entity as well. They technically only use the Time Warner name under license now.
  - kristopolous 11y ago
    Prodigy. That was built between CBS, IBM, and Sears. They wanted an Amazon in 1988 ... Didn't happen.
- nostrademons 11y ago
  They did all of the above - you could connect to the open Internet from AOL starting around 1996, they started marketing themselves explicitly as an "ISP + proprietary content" around 1998, they bought Netscape and Mirabilis and several other leading Internet companies. They aggressively dropped their pricing structures to compete with flat-rate ISPs, while their other proprietary competition (Prodigy, GENie) went out of business. In 1997 half of all families on the Internet got it through AOL. [1] They just didn't do all of the above better than the competition. A major factor that killed AOL was the shift to broadband in the late 90s. AOL had a huge infrastructure and competitive advantage in providing dial-up access to consumers. As the Internet grew, though, consumers got hungrier for bandwidth, they got hungrier for content, and the relative share of both of these resources that was not owned by AOL increased. It was easy to justify subscribing to AOL when they were $10/month for 56.6K access, your local ISP was $10/month for 56.6K access, but AOL gave you all this extra content. It was a lot harder when you could pay $30/month for 500K/sec ADSL or Cable access that unlocked a whole world of multimedia content. AOL owned none of the infrastructure that made the broadband net possible. GFiber, Loon, and cell phones risk doing the same thing to Comcast, TWC, and Verizon FIOS now. [1] http://en.wikipedia.org/wiki/AOL#1990s:_a_new_Internet_age http://en.wikipedia.org/wiki/AOL#1990s:_a_new_Internet_age
mkr-hn 11y ago
Discovering that I could connect with a browser outside AOL while dialed up kicked off my interest in networking. Unfortunately for AOL, it's also when I discovered I didn't need AOL. I got a cable internet connection as soon as it was available and never looked back.
cinquemb 11y ago
Coming to a Facebook, Snapchat, Twitter near you…
higherpurpose 11y ago
Isn't that what Facebook does now?
- bduerst 11y ago
  It's exactly what Facebook does. There's always a market for walled gardens, if they can keep up with the change in the free internet.
ceequof 11y ago
What, how is that at all different from any of the hugely profitable tech companies today? Apple, Facebook, Twitter, Uber, Airbnb, all of them operate closed platforms.
billyhoffman 11y ago
Yes. This. It's a reoccurring battle that all companies that build some kind of infrastructure and offer content/data services on that infrastructure end up facing. When they built the pipes, there was no data/content, so they had to create it. But now there is so much more content/data that is so much better, and people just want to use these companies as a dumb pipe to get to the good stuff. We see it now with cell phone carriers and cable TV companies who built infrastructure to transmit data, and also wanted to sell you content/data for that infrastructure. Hence phones from a decade ago full of bloatware and crappy ringtone stores and crappy Brew-based "app" stores, and cable providers who (still) have poor DVR interfaces and pay-per-view and TV packages. The iPhone's most powerful innovation wasn't a touchscreen computer in your pocket. It was the business relationship with the cell phone carrier Cingular (and then AT&T). It was wedge that freed the device so people could control it (relatively) more, and allowed people to treat the network as a dumb pipe. Its still early, but Netflix, Youtube, Hulu, etc are largely doing the same thing to cable TV. This goes back further than AOL. You can see it with AT&T, their refusal to allow 3rd party equipment on the POTS network, the rise of Sprint using their infrastructure, and their ultimate breakup. Every time this battle has happened the infrastructure companies lose and get pushed into "dumb pipe."
- x0x0 11y ago
  I think you're underestimating several things: 1 - aol was quite expensive to use: it was a long time before they introduced flat rate pricing. When I got it in the mid 90s, you paid something like $20/mo for 15 hours (it's been a long time) and then paid something like $2/hour for every hour after that. I ran up a $60 charge and then had to be much more careful about how much time I spent online. Lesson: because aol was so expensive to use, it incentivized people to use raw internet which had much less content at that time. But some local isp offered $20/mo unlimited use pricing. 2 - they basically missed the transition to broadband Had they realized they were a content business that had to run access infrastructure out of necessity, I think they could have had a shot at owning the internet. Thankfully they messed that up.
  - amyjess 11y ago
    > you paid something like $20/mo for 15 hours (it's been a long time) I don't think it was that much, because when AOL first came out with their "$20/month unlimited plan" (years after the regular ISPs did), I remember thinking "this is great for people like me, but I kinda feel bad for people who only use their connection for an hour a week". I think it was more like $7/month for your X free hours (and I remember they kept bumping the X as more and more people began integrating AOL into their daily lives until they finally said "fuck it, we're going unlimited"). Also, people would get around it by using the crapflood of AOL CDs they got everywhere to register new accounts every month. They really started ramping up the free hours on those... when you got to "100 free hours", it made more sense to just make a new account and use a new AOL CD every month.
tootie 11y ago
Tell that to Apple.

They had years to invest in the open internet, buy out a successful internet venture, or adopt internet features into their offering. They failed to do all of the above, and are now in the dustbin of history (and to me, are solely remembered for their acquisition of nullsoft who then created Gnutella - predecessor of P2P file sharing services).

wpietri 11y ago
I think they are a great Innovator's Dilemma example. Quarter to quarter and manager by manager they could always do better denying the coming reality. I'd bet there were plenty of people within AOL who knew they were fucked in the long term, and I'm sure some of those actually tried to change things. But it's extremely hard to do anything that threatens existing revenue streams. Eventually the innovative people leave and you're left with the people who can't see the decline or are ok with trying to squeeze the last few drops of cash from the remains. And really, in some ways they're only around now because they did manage to change a little. They've collected some decent content brands, which was basically an investment in the open internet.
- x0x0 11y ago
  I read a perfect parallel: real networks employees knew their product was shit. But making it not shit would wreck the company: As employees, we weren’t proud of our business tactics, and we griped about them frequently. The topic came up at company meetings, round table conversations with executives, and through a lot of water cooler conversation over email, during lunch, and across the foosball table. One day my manager showed me a horrible graph. It was pretty simple: the graph was steady, then it dropped straight down, then after a short period, the line shot straight back up and stayed level again: “That’s what happens when we do the right thing”, he said while pointing at the drop, “and that’s how much money we lose. We tried it just to see how bad it was for our bottom line. And this is what the data tells us.” “Wow,” I said, taken aback. My employer clearly had two options: “do the right thing” or “be profitable”. That was the position they had maneuvered themselves into through a series of bad management decisions. My manager then said, “More than half the company would have to lose their job in order for us to stop these tactics ... so are you volunteering to be one of them?” https://medium.com/launching-ux-launchpad/the-graph-that-changed-me-385ff833f9c8 https://medium.com/launching-ux-launchpad/the-graph-that-cha...
  - wpietri 11y ago
    Great find. Of course, it's not like doing the wrong thing worked out well for them either: http://www.nasdaq.com/symbol/rnwk/stock-chart?intraday=off&timeframe=10y&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=off&index=&drilldown=off http://www.nasdaq.com/symbol/rnwk/stock-chart?intraday=off&t... Now they're worth maybe 10% of what they were when that guy left Real Networks. The thing that kills me here is that they had more than two options. In the short term, sure, they're stuck. But in the long term, they could have either kept sucking or they could have worked to turn it around.
- fragmede 11y ago
  There's a similar story about the search engine game. Yahoo had a chance to buy better search engine technology, the only problem was it was too good. If people quickly found what they wanted, they wouldn't spend any time on your page. Time-spent-on-page is how Yahoo measured engagement, and thus ad-revenue. Improving Yahoo's search engine would have threatened existing revenue streams, and Google would be a terrible investment for them, given the metrics in use at the time.
- tsotha 11y ago
  I doubt they had any trouble seeing the decline. The question is what should they have done? Competing directly with cable companies in wiring up homes for broadband is a mug's game. This was before it was reasonable to do with fiber and they didn't have anything like Google's freighters full of cash. So they rode it down. That was probably the right thing to do - their dial up business is still there and still profitable. They have some viable properties on the content side, which is about the best you could have expected without having them get into an entirely new business (like search).
  - wpietri 11y ago
    I think getting into essentially new businesses is exactly what companies facing the Innovator's Dilemma should generally do. The ad-driven content properties are an example of that, and they're the reason for the merger.
    - tsotha 11y ago
      I think companies should remain focused on their core product. If you find yourself in a buggy whip industry the best thing to do, IMO, is to reduce expenses as much as possible and return as much profit as possible to the shareholders. When it's not worth bothering with any more the company should be dissolved. As an investor I'm perfectly capable of taking my dividend and investing in other businesses - I'd rather not have the officers of a company in which I've invested my money taking Hail Mary shots to preserve their jobs.
      - wpietri 11y ago
        I think that only makes sense if you have a completely dead-end product. AOL, for example, had a fair bit of experience in content. They had a lot of strength in networking. They had a zillion users, giving them low marketing costs for new products. They had a strong marketing org and a well-known brand. Reducing expenses to the minimum would basically value all of that at zero, which I think is rarely the right case. Look at the examples in Innovator's Dilemma, for example. The successful companies kept making technology/market transitions, one after the other. As an investor you are capable of taking the cash and investing elsewhere. But you are also capable of selling the stock if you really think they have no hope of innovating.
bluedino 11y ago
>> They had years to invest in the open internet, buy out a successful internet venture, or adopt internet features into their offering. None of the big ISP's from the 90's "made it". Earthlink, Netcom, Prodigy... They were all either acquired, went bankrupt, or became DSL resellers. They didn't have any content so they were worthless as broadband took over. There's only a handful of dot-com's still around from those days. Google, Amazon, eBay, Yahoo... AOL would have ran any of those into the ground had they purchased them, and buying ISP's like XO or Covad wouldn't have worked out well, or buying someone like Sun, Cisco, or SGI would also have been a disaster.
bluedino 11y ago
>> They had years to invest in the open internet, buy out a successful internet venture, or adopt internet features into their offering. None of the big ISP's from the 90's "made it". Earthlink, Netcom, Prodigy... They were all either acquired, went bankrupt, or became DSL resellers. They didn't have any content so they were worthless as broadband took over. There's only a handful of dot-com's still around from those days. Google, Amazon, eBay, Yahoo... AOL would have ran any of those into the ground had they purchased them, and buying ISP's like XO or Covad wouldn't have worked out well, or buying someone like Sun, Cisco, or SGI would also have been a disaster. There truly was nothing they could have done.
- todayiscrown 11y ago
  Hmm .. May be they could have bought sbc/att/Comcast/twc? Given their valuation at that time, they could have bought pretty much anybody.
  - berberous 11y ago
    They did buy twc...
  - dragonwriter 11y ago
    > Hmm .. May be they could have bought sbc/att/Comcast/twc? They bought Time-Warner in 2001 for $164 billion to create AOL Time-Warner. The expected synergies of the acquisition largely failed to materialize, the AOL name was dropped from the combined entity in 2003, and AOL was spun back out of Time-Warner in 2009.
    - amyjess 11y ago
      Interestingly enough, 2009 also saw Time Warner spin off TWC as an independent entity as well. They technically only use the Time Warner name under license now.
- kristopolous 11y ago
  Prodigy. That was built between CBS, IBM, and Sears. They wanted an Amazon in 1988 ... Didn't happen.
nostrademons 11y ago
They did all of the above - you could connect to the open Internet from AOL starting around 1996, they started marketing themselves explicitly as an "ISP + proprietary content" around 1998, they bought Netscape and Mirabilis and several other leading Internet companies. They aggressively dropped their pricing structures to compete with flat-rate ISPs, while their other proprietary competition (Prodigy, GENie) went out of business. In 1997 half of all families on the Internet got it through AOL. [1] They just didn't do all of the above better than the competition. A major factor that killed AOL was the shift to broadband in the late 90s. AOL had a huge infrastructure and competitive advantage in providing dial-up access to consumers. As the Internet grew, though, consumers got hungrier for bandwidth, they got hungrier for content, and the relative share of both of these resources that was not owned by AOL increased. It was easy to justify subscribing to AOL when they were $10/month for 56.6K access, your local ISP was $10/month for 56.6K access, but AOL gave you all this extra content. It was a lot harder when you could pay $30/month for 500K/sec ADSL or Cable access that unlocked a whole world of multimedia content. AOL owned none of the infrastructure that made the broadband net possible. GFiber, Loon, and cell phones risk doing the same thing to Comcast, TWC, and Verizon FIOS now. [1] http://en.wikipedia.org/wiki/AOL#1990s:_a_new_Internet_age http://en.wikipedia.org/wiki/AOL#1990s:_a_new_Internet_age

mkr-hn 11y ago

Discovering that I could connect with a browser outside AOL while dialed up kicked off my interest in networking. Unfortunately for AOL, it's also when I discovered I didn't need AOL. I got a cable internet connection as soon as it was available and never looked back.

cinquemb 11y ago

Coming to a Facebook, Snapchat, Twitter near you…

higherpurpose 11y ago

Isn't that what Facebook does now?

bduerst 11y ago
It's exactly what Facebook does. There's always a market for walled gardens, if they can keep up with the change in the free internet.

ceequof 11y ago

What, how is that at all different from any of the hugely profitable tech companies today? Apple, Facebook, Twitter, Uber, Airbnb, all of them operate closed platforms.

billyhoffman 11y ago

Yes. This. It's a reoccurring battle that all companies that build some kind of infrastructure and offer content/data services on that infrastructure end up facing. When they built the pipes, there was no data/content, so they had to create it. But now there is so much more content/data that is so much better, and people just want to use these companies as a dumb pipe to get to the good stuff. We see it now with cell phone carriers and cable TV companies who built infrastructure to transmit data, and also wanted to sell you content/data for that infrastructure. Hence phones from a decade ago full of bloatware and crappy ringtone stores and crappy Brew-based "app" stores, and cable providers who (still) have poor DVR interfaces and pay-per-view and TV packages. The iPhone's most powerful innovation wasn't a touchscreen computer in your pocket. It was the business relationship with the cell phone carrier Cingular (and then AT&T). It was wedge that freed the device so people could control it (relatively) more, and allowed people to treat the network as a dumb pipe. Its still early, but Netflix, Youtube, Hulu, etc are largely doing the same thing to cable TV. This goes back further than AOL. You can see it with AT&T, their refusal to allow 3rd party equipment on the POTS network, the rise of Sprint using their infrastructure, and their ultimate breakup. Every time this battle has happened the infrastructure companies lose and get pushed into "dumb pipe."

x0x0 11y ago
I think you're underestimating several things: 1 - aol was quite expensive to use: it was a long time before they introduced flat rate pricing. When I got it in the mid 90s, you paid something like $20/mo for 15 hours (it's been a long time) and then paid something like $2/hour for every hour after that. I ran up a $60 charge and then had to be much more careful about how much time I spent online. Lesson: because aol was so expensive to use, it incentivized people to use raw internet which had much less content at that time. But some local isp offered $20/mo unlimited use pricing. 2 - they basically missed the transition to broadband Had they realized they were a content business that had to run access infrastructure out of necessity, I think they could have had a shot at owning the internet. Thankfully they messed that up.
- amyjess 11y ago
  > you paid something like $20/mo for 15 hours (it's been a long time) I don't think it was that much, because when AOL first came out with their "$20/month unlimited plan" (years after the regular ISPs did), I remember thinking "this is great for people like me, but I kinda feel bad for people who only use their connection for an hour a week". I think it was more like $7/month for your X free hours (and I remember they kept bumping the X as more and more people began integrating AOL into their daily lives until they finally said "fuck it, we're going unlimited"). Also, people would get around it by using the crapflood of AOL CDs they got everywhere to register new accounts every month. They really started ramping up the free hours on those... when you got to "100 free hours", it made more sense to just make a new account and use a new AOL CD every month.

tootie 11y ago

Tell that to Apple.