Aol term paper


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Aol term paper

  1. 1. 1Monique SinghAOL Case StudyWCU ID: 653265MKT-425-01Spring 2012AOL, Making their Existence KnownExecutive SummaryThe following report will analyze the after effects of the merger between AOL and Time Warner,and the problems associated with both the merger. It will also explore AOL’s need to transformfrom being viewed as an “ice-age” Internet service provider (ISP) to broadening their productline and target market. In an effort to investigate AOL’s issues from a strategic standpoint, I haveevaluated AOL’s utilization of their resources and how their business plans have either benefittedor deteriorated the company as a whole.The first issue to discuss with AOL is the merger with Time Warner in 2000. According to anarticle by Forbes, 66% of mergers are unsuccessful (Forbes). 1AOL had a chance to rise abovethe statistic, because no Internet company of the time had as much subscriptions, exposure, anddefinitely did not have a media company to stream content from. The idea was innovative,however, AOL may have chosen the wrong media company to merge with because TimeWarner’s culture and strategy alone were extremely different from AOL’s.The next issue pertains to AOL’s current state, after the merger with Time Warner has ended, andthe public’s perception of the company as a whole. Many people are unaware of what productsand services AOL offers, and they are on a mission to become a provider of content, advertising,and Internet service and security. Their marketing strategy has transformed from “creating asustainable model for the ISP business” into a company that seeks “to inform, entertain andconnect the world.” ( are now in the growth stage of their business, as they arecreating new avenues to obtain revenue, rather than sticking to the old-fashioned ISP plan ofproviding only internet service, and now bringing more to the table such as content, blogs,games, and much more. (Ref 1.1)1 Forbes, Mergers and Acquisitions2 Our Values
  2. 2. 2The EnvironmentThe ISP environment is a fairly tough one to judge (Ref 2.1 for a simpler PEST analysis).Consumers of the industry are drawn to either faster speeds or lower prices. Innovation isimportant because some customers will be willing to pay more for a service that guarantees theyare getting quality service and staying ahead of the pack of technology. The economy’s stabilitymay cause some consumers want a service with lower prices, because they can get internetservice in public libraries or schools, while other customers may pay the extra to use the internetin the comfort of their homes.Regulators only generally step in when large companies use their networks to charge peoplecertain prices that can oust smaller companies from the market and create monopolies. A lack ofsmall businesses also limits rural users from using anything but a long distant network, which istoo expensive and would be unfair to people in certain areas. Also, since ISPs are allowed tohave their services available in public schools and libraries, they should allow some restrictions.From a sociological standpoint, ISPs are in a market that makes foreign infiltration difficult.Countries, such as Japan and France, tend to avoid inventions that are not their own as a whole,let alone a provider who can let certain content into their nation’s homes. Some economies alsojust appreciate their own inventions more than other countries’ because it helps their economywhen they support their own services. Another sociological outlook on the economy deals withthe fact that only scientists and scholars used to use the internet, and now virtually anyoneanywhere can. Therefore, demographics and geography do not play as big a role as they did inthe past, and ISPs must try to be available and useable by everyone.It is evident that technology plays a large role in the ISP industry, as it is its backbone. ISPs mustbe innovative and advanced in order to stay ahead of the curve due to society’s reliance ontechnologies for day-to-day activities. This leads to why AOL’s initial merger with Time Warnerwas a wise idea, because people being able to access the internet and then movies, chat rooms,games, music, and more in one place was not being done by any other company at the time.The Industry: Internet Service Providers
  3. 3. 3A SWOT analysis of the ISP illustrates the strengths, weaknesses, opportunities, and threats thataffect the companies in the industry (Ref 3.1) Strengths of the industry lie in the fact that mostcompanies in the industry know all about the schematics that go behind developing a companyand know what it takes to make customers receive the support they need to be satisfied.Having a name that sticks out to customers as a trustworthy brand is more likely to gain newcustomers who do not want to go on the search for a deal with a company without a goodreputation (HP).3The weaknesses of the ISP market fall in the issues with customer service issues. Though manycompanies know the recipe to making customers happy, they are not putting enough resources infinding a properly trained staff to help customers with their issues. Technology is constantlychanging and different types of people young and old are using the Internet, and “as computerliteracy among customers decreases, their need for quality customer service increases” (HP).3Opportunities in the industry are abundant, as a company partnering with other media outlets canboost and ISPs recognition and allow a company to expand among other markets. There areusually opportunities for large companies to branch out into other industries. Large ISPs maywish to consider related industries in the general idea of computing. When moving into a relatedarea, brand name and customer base can be [priceless] (HP).3Digital cable services are extremely threatening to the ISP market. Even though they chargemore for their services, they are providing faster Internet speeds and package deals with theirexisting products. The market can become saturated with new companies who become aware ofthe benefits of having an ISP with fast speeds and different forms of content.The competitors of the industry play a large role in the outcome of an ISP’s strategy. Whenlooking at Porter’s Five Force Model for this specific industry, one can see that the power ofsubstitutes are high in the ISP market because switching costs are low and customers are pricesensitive and competitors with broadband and faster technologies can threaten other services.This also means that the buyer power is high, because they have many different companies tochoose from. The supplier power is also high, since ISPs must use existing networks because it is3 HP, The Structure and Trends of the ISP Market
  4. 4. 4difficult for every ISP to build their own entire network. Suppliers are the backbone of theInternet and control routing and switching traffic (Star Tribune).4Suppliers in the industry face little to no competition in certain regions, and by 2005, it becameevident that smaller ISPs were being bought by larger ones, and high speed internet was moreappealing than dial-up internet (Ref 3.2). Soon enough, suppliers were limited on how fast theinternet speeds could go and “In order to offer faster DSL speeds, up to 40 megabits,independents [had to] agree to let suppliers manage the service, which lower[ed] theindependents profit margin and, in the eyes of several independents, [made] offering the fasterDSL service unfeasible.”(Star Tribune)4As a result, many ISPs found it necessary to create a newbusiness model that allowed them to infiltrate other markets to generate revenue to close the gapsin profit margin.In order for an ISP to gain profitability, they must crate value in a way that attracts customers,such as a low cost or high quality approach (Ref 3.3). Approaches finding a distinctivecompetency include mixing a firm’s capabilities and resources to create a functional strategy andthen creating a strategy around a value creation approach that includes low cost of differentiation(Hill).5The Organization: AOLWhen AOL began providing Internet services, they sought to create a sustainable model for theISP business and were mainly focused on generating revenue purely from subscribers to theirprovisions of Internet service. They were able to stay on top as the phrase “You’ve got mail”resounded in the ears of many after they dialed up to the Internet everyday. Their strengths weresolely in brand awareness and they were a sales oriented company that had 70% of their revenuecoming only from the monthly fee they charged customers for using their Internet service(Kirkpatrick).6AOL also seemed to be less concerned with their environment, and moreconcerned with the employees, with the motto “You first. We insist.”, with no emphasis onCorporate Social Responsibility. Overall, AOLs weakness and constraints lacked on customer4 Star Tribune, Internet Providers Fading5 Charles W. L. Hill, Strategic Management Theory6 David Kirkpatrick, AOL and Time Warner part ways
  5. 5. 5focus and a complete lack of innovation to obtain new sources of revenue and compete with thecable companies coming into the industry.Problem Number One and Its After Effects: Time Warner MergerIn order to compete against the cable companies, AOL merged with Time Warner in order tooffer customers no other ISP was, streaming content from a legitimate source. The merger in theyear 2001 had many people excited about the possibilities that could arise. The new company[was] called AOL Time Warner and [combined] AOLs online services with Time Warners vastmedia and cable assets. In a world where online services, media and entertainment are rapidlyconverging, the new company could have almost unparalleled resources (CNET News).7Thecompany was thought to have a prosperous outcome, because the new company was projected tohave more than 100 million paying subscribers7, which would include AOLs dial-up customersand Time Warners cable and magazine subscribers. However, as the company began to cometogether, there was no synergy in regards to things from clashing company cultures, businessstrategies, and company focus.It became abundantly clear that most of AOL’s corporate heads were staying on top, as 2/3 of thetop positions were filled by the new company (Benz). 8The new company was also not even inthe distribution of ownership, as it was “55 percent owned by AOL and 45 percent owned byTime Warner” (Kramer). 9To add to the issue, those in management positions were not pushingthe employees in their own brand to work with the other company in generating new ideas, andthe environment became a sort of “us versus them”. Since most of AOL’s executives stayed at thetop, the company was working without strong editors to deliver the content, and AOL foundthemselves ill-prepared to step into such a business.A SWOT analysis of the AOL Time Warner Merger (Ref 4.1) shows that the company could havebeen a powerhouse with AOL’s brand recognition and customer base paired with Time Warner’sexperience and content. They missed opportunities to allow Time Warner to stream their contentover AOL’s servers because Time Warner was reluctant to give AOL such a power with their7 CNET News, 20008 Matthew Benz, Culture Shifts At AOL Time Warner9 Larry Kramer, Why the AOL-Time Warner Merger Was a Good Idea
  6. 6. 6products when they hardly had a say in the company. The weaknesses of the merger were theculture class that caused a lack of synergy and a loss of both companies following through withwhat the merger initially started. Because AOL and Timer Warner lost sight of their visions,cable and phone companies were creeping into the ISP industry with high speed Internet andcontent that could threaten AOL as a whole on the innovation front.Problem Number 2AOL and Time Warner eventually parted ways in 2009, but at this point, AOL was not even seenas a competitor against other ISPs, because they were all offering high speed internet as opposedto dial-up. After the split up, AOL was seen as an old-fashioned service provider. Companiessuch as Verizon, Comcast, and MSN were offering high-speed satellite access for customers,which allowed them to utilize their phone lines while still connected to the Internet.Though this problem arose about three years ago when AOL came out of their merger, it is stillan issue for them today. AOL needed a new brand identity and left the world of being purely anISP and ventured into the world of content and advertising while offering Internet provision andsecurity on the side. After companies such as Comcast arose in the ISP industry, AOL had toreinvent themselves and have done so by buying the Huffington Post just one year ago. As apartof the transaction, they obtained the Huffington Post’s co-founder and editor-in-chief. The newmission statement of AOL is to “inform, entertain, and connect the world”, which is aforeseeable goal with the new acquisition of Huffington Post. They have not only obtained thename, but Pulitzer Prize writers whose content is plastered all over their website.AOL NowThe company has also broadened what one would call their product line as they now provide thefollowing:• Global and local content including sources such as the Huffington Post, Moviefone,Engadget, TechCrunch, Patch, Stylelist, and Mapquest.• Paid subscriptions that boast a VIP experience and high quality member support.• Advertisements that are bought by advertisers with the aim to have with premium contentto reach the targeted consumer
  7. 7. 7• Consumer applications, such as blogging• AOL Ventures, a branch that invests capitol in early stage businesses and can give themchecks ranging from $50,000 to $3 million.Also, since the company has drifted from being merely and ISP to now providing content andother services, they are able to expand globally with a development team in Dublin that hasrolled out new AOL homepages for the worldwide audience. These homepages are all aimed atcontent that the country it is made for would want to see, with tabloids pertaining to that specificcountry, even with the language and dialect they use.Many people are not aware of the new things that AOL is doing with their company, and some donot even know they exist. Once known as America Online, AOL has transitioned to providingcontent, advertisements, money for ventures, and much more to societies worldwide. They areusing a cost leadership strategy as they still only charge $14.95 for their ISP that comes withsecurity too.In order for AOL to no longer be seen as and old-fashioned ISP, they must make the publicaware of their existence. Americans were once bombarded with the free trial disks and hearingthe phrase “You’ve got mail” wherever there was a computer. AOL must create a brand aroundtheir new name and make the public aware that they are competitors against sites such as Googleand Yahoo! for advertisements and content. Commercials would be a wise option for AOL toseek, or even acquiring another company that focuses on small and big screen media.It is important for AOL to stay away from merging with another company that is not in theirbusiness, because businesses that are in different industries are difficult to unite into one withoutissues. They must build enough revenue to acquire a company that can get their advertisementsout there, such as Hulu. This would force consumers to watch commercials about AOL, whilestill obtaining the content they want. Such a strategy has worked well with Google’s purchase ofYouTube, as both accounts are even fused together, and you can’t log onto one without thereminder that the other company exists.
  8. 8. 8The task may be difficult because a few media and entertainment companies jointly own the site,but AOL partner with those companies for ownership without merging directly with them. AOLcan be in charge of the advertising aspects of the site, while allowing NBC, ABC, and FOX tostream their content on the site and still reap in the revenue from advertisements. This wouldallow all companies to stay the same internally, and reap in revenues from agencies that needadvertising that AOL has acquired along the way, while also being able to get their own name outthere.Measuring the success rate of such a plan can be done by seeing how many more subscribersAOL gets after one year of synchronizing Hulu accounts to AOL. Subscribers for their Internetservices, free email addresses, blogs, advertising, etc. A probable outcome of the partnershipwould most likely not hurt either company, but allow them to reach customers that wouldgenerally not access the media streaming that is available on Hulu with the content on AOL atthe same time.ConclusionOverall, I believe that AOL is on the right track to bringing their company out of the ice age ofISPs. However, people are unaware of the strides they are making in the industry, and apartnership or acquisition with an outlet that is frequently used would be a good way to get theirname out. The company has made a great start in re-establishing themselves as a “current”company in today’s constantly changing technological business environment, but they alwaysneed to be sure to stay one step ahead and enforce a plan that ultimately causes consumers toknow about the strengths they have as a company.Appendix:AOL’s Current Product Life Cycle 1.1
  9. 9. 9PEST of ISP Industry 2.1SWOT Analysis of ISP Industry Table 3.1Five Forces 3.2Suppliers: HighSubstitutes: HighRivalry Among ExistingInternet Service Providers:High
  10. 10. 10Key Success Factors 3.3SWOT Analysis AOL Time Warner 4.1Sources:Alexander, S. (April 30, 2012). Star Tribune: Internet Providers Fading. Retrived from (2012). Our Values: Our Mission. Retrieved from, M. (2001). BPI Communications: Culture Shifts At AOL Time Warner. Retrieved from of Entry:LowBuyers: High
  11. 11. 11&resultsUrlKey=29_T14612427993&cisb=22_T14612427992&treeMax=true&treeWidth=0&csi=5545&docNo=30Forbes. (2000). Mergers and Acquisitions. Retrieved from Packard (1999). The Structure and Trends of the ISP Market. Retrieved from, C. Strategic Management Theory: An Integrated Approach. Publication date: February2006.Junnarkar, J. and Hu J. (2000). CNET News: AOL and Time Warner Merge. Retrieved from, D. (2009). Newstex: AOL and Time Warner part ways. Retrieved by, L. (May 4, 2009) The Daily Beast: Why the AOL-Time Warner Merger Was a GoodIdea. Retrieved from: