Once-mighty AOL slipping behind the times


Published: Tuesday, January 14, 2003 at 6:01 a.m.
Last Modified: Monday, January 13, 2003 at 10:33 p.m.
NEW YORK - Long before the departure of Steve Case, signs were abundant that America Online had fallen behind the times.
As rivals move from dial-up to high-speed access, offering online games and dating services with video, AOL remains king of a stagnant and increasingly low-tech empire of phone users.
"We have to ask, 'Can they go forward?' " said Jakob Nielsen, principal of Nielsen Norman Group, an Internet think tank. "They have to come up with something new."
Case, who co-founded AOL in 1985, announced Sunday that he would resign.
The Hawaii native rode AOL's skyrocketing fortunes to a mega-merger with Time Warner's media empire in 2001. But with Case piloting the ship, AOL Time Warner succumbed to a dogged post-merger hangover that laid low its share price and toppled Case's stewardship.
AOL's parent got another jolt Monday as CNN chief Walter Isaacson, a former Time magazine executive, quit after losing a ratings battle with Fox News Channel. AOL Time Warner shares fell 15 cents to close at $15.03 each on the New York Stock Exchange.
Analysts say AOL's kingdom of 35 million global subscribers will soon shrink without a big infusion of ingenuity - and a painful push that takes them away from very profitable but increasingly outmoded dial-up subscriptions.
According to Jupiter Research, by 2004 revenues from broadband Internet subscriptions will surpass those of dial-up. AOL currently owns about a third of U.S. dial-up accounts, but just one in 30 broadband subscriptions, said Jupiter's Dylan Brooks.
"This is a classic case of someone being on top of the hill and not seeing the horizon," Forrester Research's Chris Charron said. "AOL developed a killer app for dial-up. They never developed a killer interface for the broadband environment."
As AOL fumbles with merger foibles, competitors forge ahead with new technology.
Yahoo! Inc. announced Sunday that it will let users of its online dating service submit video clips. Amazon.com is increasingly morphing into an online store for consumer electronics goodies.
And last week, There Inc. introduced an online universe in which participants will assume cartoon-like characters that many believe trumps the chat rooms and message boards at AOL.
Worse, perhaps, is the fact that AOL loses its last booster in the corporate office when Case waves aloha in May.
The division's fate then rests solely in the hands of old-line media executives from Time Warner. Some of those executives are thought to be stewing over a company that, from their perspective, was laid low by the merger with AOL.
"That doesn't bode well for AOL," Nielsen said.
Since Time Warner's Pathfinder Internet venture went south years ago, the New York media empire hasn't been credited with much online prowess.
With AOL expected to be tied for third place in 2003 revenues among Time Warner's six divisions, the corporation's moguls might not be in the mood to lavish it with funds and attention.
"From the corporate Time Warner perspective, that could become their decision - sit back and cash in your monthly subscriptions and not do much innovation for (AOL subscribers)," Nielsen said.
Were that to happen, AOL might become "an irrelevant corner of the Internet" like CompuServe, the once-strong service it overtook and later bought, Nielsen said.
Though the parent company has so far failed to find the formula for effectively distributing Time Warner content on AOL, there are less pessimistic scenarios.
They may yet succeed - with the right mix of cajoling and cooperation, said David Joyce, a financial analyst with Miami investment bank Guzman & Co.
A captive audience of 35 million is nothing to sniff at, Joyce said. "It's still a valuable asset, and it can help unite the other parts of the Time Warner empire."

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http://www.corp.aol.com

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