[Web] AOL swings from dying relic to coveted partner

By Jefferson Graham, USA TODAY (http://www.usatoday.com/tech/news/2005-10-16-aol-coveted_x.htm)

LOS ANGELES — At a recent industry conference in San Francisco, America Online CEO Jonathan Miller called his company the "largest swing voter" in a four-way battle to dominate the Internet: "It's a significant swing vote that could go many different ways, and people are aware of that."

CEO Jonathan Miller made the point recently that AOL is the "largest swing voter" in the battle for Internet dominance.
By Katie Patterson, USA TODAY

Are they ever. AOL now is in play, with chief rivals Microsoft, Google and Yahoo all talking to parent Time Warner about a stake — for a price tag that reportedly starts at $10 billion. Google has discussed both a solo bid and one in partnership with cable giant Comcast.

It's an amazing transformation for a company that was the poster child for Internet bubble excess after its disastrous merger with Time Warner and charges of accounting problems.

The old view of AOL: a dying relic from another era in which it made its money on dial-up subscribers. The money now is in a booming search-based online advertising market dominated by search giants Google, Yahoo and Microsoft's MSN.

The new view: AOL's huge Internet audience positions it as the last great play to profit from online advertising.

Nearly 6 million subscribers have left AOL since 2002, though it still reported about 20 million at the end of the second quarter. But at the same time, in June, AOL dramatically shifted its strategy. It decided to no longer keep its best content for paying subscribers but instead put it on the open Internet. AOL was willing to lose more subscribers and make up the difference with larger audiences for advertisers.

In effect, AOL became like Yahoo.

"AOL was a company waiting to die," says Rob Enderle, an independent analyst at The Enderle Group. With the new direction, "Suddenly, they had a strategy that wasn't just about putting them out of business. They washed the car and it got a lot more attractive."

Yahoo attracts the largest online audience, with 94.8 million U.S. visitors in September, according to tracker Nielsen/NetRatings. MSN is second with 81.7 million, then Google at 78.7 million and AOL's 60.6 million.

Analysts say the suitors salivate not just at getting access to AOL.com's audience, but more important, to AOL's much-vaunted AIM instant-messaging service.

AIM dominates instant messaging by a 2-to-1 margin over Yahoo and Microsoft: 51.5 million used the service in September. Last week, Yahoo and Microsoft said they would try to take on AIM by letting users of their two services talk to one another, a first.

"The hardest thing in the world is to capture the loyalty of people on the Web, and AIM has done that," says author John Battelle, who runs the widely read Searchblog website. "AIM is a window to the youth market and a platform for so much more than just instant messaging."

AIM currently offers users the ability to make voice calls to each other, from computer to computer with headsets, and will offer calls to telephones soon.

AOL's other popular Internet properties include MapQuest for online maps and directions, Moviefone for movie listings, and AOL Music, which gained much critical attention this summer when it webcast the Live 8 concerts online.

In relaunching AOL on the Web as more than just a page to check e-mail, AOL began investing in original programming. It has offered free concerts and music videos at AOL Music and launched two Web reality shows: The Biz and Project Freshman. The Biz is an online series, about average people competing to run a record company. Freshman follows first-year college students.

"AOL clearly has gotten religion in the past year," says Chris Sherman, the editor of website SearchDay. "They got such a bum rap at the time of the merger for talking about synergies that didn't happen. Well, now the synergies are real. Entertainment and the Internet is merging. And AOL's taking advantage of it."

TV and the Internet will eventually become one, Sherman says, and the company with the largest user base will have a huge advantage. "It will be one device, where we search, do instant messaging and watch TV."

That's why there's such a frenzy going on for AOL right now, says Enderle.

"AOL wasn't attractive until they had a suitor," he says. "Microsoft is interested, and now Google has to protect its relationship and get in and bid — 10% of Google's revenues come from its advertising partnership with AOL. So now Yahoo is concerned. It doesn't want to see its No. 1 rival get AOL and joins in the bidding frenzy."

It was Battelle who interviewed Miller onstage at the Web 2.0 conference in San Francisco recently, and he felt Miller's main point was that AOL was "extremely undervalued."

With all the attention from first Microsoft, then Google/Comcast and now Yahoo for AOL, "He seems to have really gotten the point across," Battelle says.
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