*michael parekh on IT*: ON AOL'S PIVOT POINT TRANSITIONS

ROUGH SAILING AHEAD

Ted Leonsis, the longest-serving senior executive who remains at AOL, has a post worth reading yesterday (along with a follow-up today), where he gives his perspective on the AOL announcement to transition from a paid to a free service (see my post on this from yesterday).

This Wikipedia entry introduces Ted as the:

"...currently the longest tenured senior level executive at America Online, serving as Vice Chairman of the company, and as President of its Audience business. He has served as President of the AOL Core Service and AOL Web Properties, as well as President of the AOL Services Company.

He is credited with positioning AOL as a media company and being the first to create and invest in made for the medium interactive content properties. Prior to joining AOL in 1993, he was founder and CEO of Redgate Communications, the first venture capital backed new media company.

He now runs all of AOL's Audience based businesses including programming, product development and brands such as AIM--AOL.com, ICQ, Mapquest, Moviefone, and all of its content properties; he is also in charge of sales--commerce--search--and the Google partnership for AOL. He was named Time Warner's Community Action Man of the Year in 2005."

As such, Ted gets frequently overlooked whenever the media compiles a list of senior company executives who also maintain a blog.

Ted's blog is called appropriately enough, "Ted's Take". (Ted explains why he maintains one, and gives more info on himself here).

Anyhow, in his post yesterday, titled "the new AOL", Ted provides some good historical context to AOL's current transition:

"Historically, there have been three other times when AOL made great pivots. At the time, they each seemed counter-intuitive, and yet each led to a period of great growth."

As a Wall Street analyst who covered AOL (then known as America Online), from the mid-nineties through the early part of the new millennium, I had the opportunity to follow these "pivot points" first-hand.

The most dramatic one of course, was the company's transition from a metered online service, to a flat-price, monthly subscription model, on the back of a national TCP/IP based dial-up network built for AOL by UUNET.

That move both almost killed the company, AND "made" AOL into the company that could eventually "merge" with (actually acquire) Time Warner in 2001, under the leadership of CEO Steve Case.

(Steve Case of course has his own ideas of how AOL could thrive as an independent company, which I discussed last December).

Ted explains the current, fourth, pivot point this way:

"The pivot we are undergoing is simply a reallocation of the company's energies and resources to create the world's largest and most engaged audience, and then to use that engagement to choose the best and most appropriate way to make money - through ad sales, search and sponsored links, cost per acquisition, ecommerce transactions, upsells to subscriptions - while still maintaining a large dialup ISP base."

I agree with Ted that this is a major "pivot point" for the company, but would suggest that unlike the last three pivot points, the company, at least to date, is a massive, slow follower, rather than being the pioneer and/or the fast follower it was in the last three pivot points.

Back then, the company pioneered the mass, mainstream customer acquisition programs including free trials vs. an online industry that basically made customers jump through hoops just to open an online account (Ted's pivot point number one).

As Ted points out, the company basically invented what's known as "social networking" with it's instant messaging service (aka IM) through AOL instant messaging, AIM, and ICQ, under the leadership of former executives like David Gang (Ted's pivot point number two).

And AOL did pioneer taking mainstream consumer online services from hourly to flat pricing, fast following similar initiatives by smaller competitors at the former AT&T and others (Ted's pivot point number three).

At this current fourth pivot point, one could argue that the company is a slower follower, offering services that are mostly available to mainstream users already, like totally web based portal services, gobs of free storage and multimedia content.

AOL traversed the last three pivot points as a small, aggressive, spunky and hungry David against an industry-ful of Goliaths, while offering fast growth opportunities to employees, shareholders, and partners, not to mention being the poster-child of a mainstream media always looking for the next, new thing. Talk about strong tail winds.

This time around it's doing it as a captive division of massive media company that at times has treated AOL as an unwanted foster-child over the last half decade.

And it's doing it as an industry Goliath that needs to massively shift it's business model, while shrinking it's employee base by almost a quarter.

All the time being in the mode of constantly convincing it's parent company management, it's board, it's remaining employees, and it's public bond and stock-holders to hang on and bear the transitional financial pain in the next few quarters.

All for the promise of long-term rewards, while it turns this aircraft carrier around through treacherous and rapidly changing industry waters, over the next few years.

Not to mention trying to do all this under the harsh lights of a mainstream media hungrily waiting for it's former darling to bite the dust already.

It's a different, challenging pivot point, with some head winds, to be sure.

Having said all that, I still believe we're in the very early innings of the truly mainstream, broadband, "Web 2.0 and beyond", possibilities of tomorrow's consumer online services (wired and wireless).

And AOL has some great assets to draw on, both within and outside it's corporate boundaries.

It's going to take some pretty solid execution, at every level of the company.

That includes boisterous, controversial, and public attempts by AOL executives like Jason Calacanis to remake AOL properties like Netscape into worthy competitors to today's "poster-boy", Web 20. companies like Digg.com (see the BusinessWeek cover story this week).

And it's going to need an environment where it's leaders can make both insiders and outsiders "believe" again.

Ted's take yesterday starts to put a down payment on that possibility.

Comments

One thing that will help AOL tremendously is their public relations disaster (that still continues) concerning people trying to cancel their accounts. They will need to do a lot to get "good will" back.

Secondly, concerning the ad revenue aspect of the business, this is really the only option they truly have.

I don't think this is a risk at all for them, as all research is showing that online advertising will explode for years to come. They are positioned to take advantage of this over the long-term, if they can keep from implementing outrageous customer service errors.

Posted by: Gary Bourgeault (bizofshowbiz.com) | Sunday, August 06, 2006 at 08:40 PM