1. 1
Monique Singh
AOL Case Study
WCU ID: 653265
MKT-425-01Spring 2012
AOL, Making their Existence Known
Executive Summary
The 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 transform
from being viewed as an “ice-age” Internet service provider (ISP) to broadening their product
line and target market. In an effort to investigate AOL’s issues from a strategic standpoint, I have
evaluated AOL’s utilization of their resources and how their business plans have either benefitted
or deteriorated the company as a whole.
The first issue to discuss with AOL is the merger with Time Warner in 2000. According to an
article by Forbes, 66% of mergers are unsuccessful (Forbes). 1
AOL had a chance to rise above
the statistic, because no Internet company of the time had as much subscriptions, exposure, and
definitely 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 Time
Warner’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, and
the public’s perception of the company as a whole. Many people are unaware of what products
and 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 a
sustainable model for the ISP business” into a company that seeks “to inform, entertain and
connect the world.” (AOL.com)2
They are now in the growth stage of their business, as they are
creating new avenues to obtain revenue, rather than sticking to the old-fashioned ISP plan of
providing 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 Acquisitions
2 AOL.com Our Values

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The Environment
The 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 is
important because some customers will be willing to pay more for a service that guarantees they
are getting quality service and staying ahead of the pack of technology. The economy’s stability
may cause some consumers want a service with lower prices, because they can get internet
service in public libraries or schools, while other customers may pay the extra to use the internet
in the comfort of their homes.
Regulators only generally step in when large companies use their networks to charge people
certain prices that can oust smaller companies from the market and create monopolies. A lack of
small businesses also limits rural users from using anything but a long distant network, which is
too expensive and would be unfair to people in certain areas. Also, since ISPs are allowed to
have 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 also
just appreciate their own inventions more than other countries’ because it helps their economy
when they support their own services. Another sociological outlook on the economy deals with
the fact that only scientists and scholars used to use the internet, and now virtually anyone
anywhere can. Therefore, demographics and geography do not play as big a role as they did in
the 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 must
be innovative and advanced in order to stay ahead of the curve due to society’s reliance on
technologies for day-to-day activities. This leads to why AOL’s initial merger with Time Warner
was 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

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A SWOT analysis of the ISP illustrates the strengths, weaknesses, opportunities, and threats that
affect the companies in the industry (Ref 3.1) Strengths of the industry lie in the fact that most
companies in the industry know all about the schematics that go behind developing a company
and 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 new
customers who do not want to go on the search for a deal with a company without a good
reputation (HP).3
The weaknesses of the ISP market fall in the issues with customer service issues. Though many
companies know the recipe to making customers happy, they are not putting enough resources in
finding a properly trained staff to help customers with their issues. Technology is constantly
changing and different types of people young and old are using the Internet, and “as computer
literacy among customers decreases, their need for quality customer service increases” (HP).3
Opportunities in the industry are abundant, as a company partnering with other media outlets can
boost and ISPs recognition and allow a company to expand among other markets. There are
usually opportunities for large companies to branch out into other industries. Large ISPs may
wish to consider related industries in the general idea of computing. When moving into a related
area, brand name and customer base can be [priceless] (HP).3
Digital cable services are extremely threatening to the ISP market. Even though they charge
more for their services, they are providing faster Internet speeds and package deals with their
existing products. The market can become saturated with new companies who become aware of
the 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. When
looking at Porter’s Five Force Model for this specific industry, one can see that the power of
substitutes are high in the ISP market because switching costs are low and customers are price
sensitive 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 to
choose from. The supplier power is also high, since ISPs must use existing networks because it is
3 HP, The Structure and Trends of the ISP Market

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difficult for every ISP to build their own entire network. Suppliers are the backbone of the
Internet and control routing and switching traffic (Star Tribune).4
Suppliers in the industry face little to no competition in certain regions, and by 2005, it became
evident that smaller ISPs were being bought by larger ones, and high speed internet was more
appealing than dial-up internet (Ref 3.2). Soon enough, suppliers were limited on how fast the
internet 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] the
independent's profit margin and, in the eyes of several independents, [made] offering the faster
DSL service unfeasible.”(Star Tribune)4
As a result, many ISPs found it necessary to create a new
business model that allowed them to infiltrate other markets to generate revenue to close the gaps
in 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 distinctive
competency include mixing a firm’s capabilities and resources to create a functional strategy and
then creating a strategy around a value creation approach that includes low cost of differentiation
(Hill).5
The Organization: AOL
When AOL began providing Internet services, they sought to create a sustainable model for the
ISP business and were mainly focused on generating revenue purely from subscribers to their
provisions 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 were
solely in brand awareness and they were a sales oriented company that had 70% of their revenue
coming only from the monthly fee they charged customers for using their Internet service
(Kirkpatrick).6
AOL also seemed to be less concerned with their environment, and more
concerned with the employees, with the motto “You first. We insist.”, with no emphasis on
Corporate Social Responsibility. Overall, AOLs weakness and constraints lacked on customer
4 Star Tribune, Internet Providers Fading
5 Charles W. L. Hill, Strategic Management Theory
6 David Kirkpatrick, AOL and Time Warner part ways

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focus and a complete lack of innovation to obtain new sources of revenue and compete with the
cable companies coming into the industry.
Problem Number One and Its After Effects: Time Warner Merger
In order to compete against the cable companies, AOL merged with Time Warner in order to
offer customers no other ISP was, streaming content from a legitimate source. The merger in the
year 2001 had many people excited about the possibilities that could arise. The new company
[was] called AOL Time Warner and [combined] AOL's online services with Time Warner's vast
media and cable assets. In a world where online services, media and entertainment are rapidly
converging, the new company could have almost unparalleled resources (CNET News).7
The
company was thought to have a prosperous outcome, because the new company was projected to
have more than 100 million paying subscribers7
, which would include AOL's dial-up customers
and Time Warner's cable and magazine subscribers. However, as the company began to come
together, there was no synergy in regards to things from clashing company cultures, business
strategies, and company focus.
It became abundantly clear that most of AOL’s corporate heads were staying on top, as 2/3 of the
top positions were filled by the new company (Benz). 8
The new company was also not even in
the distribution of ownership, as it was “55 percent owned by AOL and 45 percent owned by
Time Warner” (Kramer). 9
To add to the issue, those in management positions were not pushing
the employees in their own brand to work with the other company in generating new ideas, and
the environment became a sort of “us versus them”. Since most of AOL’s executives stayed at the
top, the company was working without strong editors to deliver the content, and AOL found
themselves 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 have
been a powerhouse with AOL’s brand recognition and customer base paired with Time Warner’s
experience and content. They missed opportunities to allow Time Warner to stream their content
over AOL’s servers because Time Warner was reluctant to give AOL such a power with their
7 CNET News, 2000
8 Matthew Benz, Culture Shifts At AOL Time Warner
9 Larry Kramer, Why the AOL-Time Warner Merger Was a Good Idea

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products when they hardly had a say in the company. The weaknesses of the merger were the
culture class that caused a lack of synergy and a loss of both companies following through with
what 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 and
content that could threaten AOL as a whole on the innovation front.
Problem Number 2
AOL and Time Warner eventually parted ways in 2009, but at this point, AOL was not even seen
as a competitor against other ISPs, because they were all offering high speed internet as opposed
to dial-up. After the split up, AOL was seen as an old-fashioned service provider. Companies
such 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 still
an issue for them today. AOL needed a new brand identity and left the world of being purely an
ISP and ventured into the world of content and advertising while offering Internet provision and
security on the side. After companies such as Comcast arose in the ISP industry, AOL had to
reinvent themselves and have done so by buying the Huffington Post just one year ago. As apart
of the transaction, they obtained the Huffington Post’s co-founder and editor-in-chief. The new
mission statement of AOL is to “inform, entertain, and connect the world”, which is a
foreseeable goal with the new acquisition of Huffington Post. They have not only obtained the
name, but Pulitzer Prize writers whose content is plastered all over their website.
AOL Now
The company has also broadened what one would call their product line as they now provide the
following:
• 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 content
to reach the targeted consumer

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• Consumer applications, such as blogging
• AOL Ventures, a branch that invests capitol in early stage businesses and can give them
checks ranging from $50,000 to $3 million.
Also, since the company has drifted from being merely and ISP to now providing content and
other services, they are able to expand globally with a development team in Dublin that has
rolled out new AOL homepages for the worldwide audience. These homepages are all aimed at
content that the country it is made for would want to see, with tabloids pertaining to that specific
country, 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 do
not even know they exist. Once known as America Online, AOL has transitioned to providing
content, advertisements, money for ventures, and much more to societies worldwide. They are
using a cost leadership strategy as they still only charge $14.95 for their ISP that comes with
security too.
In order for AOL to no longer be seen as and old-fashioned ISP, they must make the public
aware of their existence. Americans were once bombarded with the free trial disks and hearing
the phrase “You’ve got mail” wherever there was a computer. AOL must create a brand around
their new name and make the public aware that they are competitors against sites such as Google
and Yahoo! for advertisements and content. Commercials would be a wise option for AOL to
seek, 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 their
business, because businesses that are in different industries are difficult to unite into one without
issues. They must build enough revenue to acquire a company that can get their advertisements
out there, such as Hulu. This would force consumers to watch commercials about AOL, while
still obtaining the content they want. Such a strategy has worked well with Google’s purchase of
YouTube, as both accounts are even fused together, and you can’t log onto one without the
reminder that the other company exists.

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The 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. AOL
can be in charge of the advertising aspects of the site, while allowing NBC, ABC, and FOX to
stream their content on the site and still reap in the revenue from advertisements. This would
allow all companies to stay the same internally, and reap in revenues from agencies that need
advertising that AOL has acquired along the way, while also being able to get their own name out
there.
Measuring the success rate of such a plan can be done by seeing how many more subscribers
AOL gets after one year of synchronizing Hulu accounts to AOL. Subscribers for their Internet
services, free email addresses, blogs, advertising, etc. A probable outcome of the partnership
would most likely not hurt either company, but allow them to reach customers that would
generally not access the media streaming that is available on Hulu with the content on AOL at
the same time.
Conclusion
Overall, I believe that AOL is on the right track to bringing their company out of the ice age of
ISPs. However, people are unaware of the strides they are making in the industry, and a
partnership or acquisition with an outlet that is frequently used would be a good way to get their
name 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 always
need to be sure to stay one step ahead and enforce a plan that ultimately causes consumers to
know about the strengths they have as a company.
Appendix:
AOL’s Current Product Life Cycle 1.1

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PEST of ISP Industry 2.1
SWOT Analysis of ISP Industry Table 3.1
Five Forces 3.2
Suppliers: High

Substitutes: HighRivalry Among Existing
Internet Service Providers:
High

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Key Success Factors 3.3
SWOT Analysis AOL Time Warner 4.1
Sources:
Alexander, S. (April 30, 2012). Star Tribune: Internet Providers Fading. Retrived from
http://www.lexisnexis.com.navigator-wcupa.passhe.edu/hottopics/lnacademic/
AOL.com. (2012). Our Values: Our Mission. Retrieved from http://corp.aol.com/our-values/our-
mission
Benz, M. (2001). BPI Communications: Culture Shifts At AOL Time Warner. Retrieved from
http://www.lexisnexis.com.navigator-wcupa.passhe.edu/lnacui2api/results/docview/docview.do?
docLinkInd=true&risb=21_T14612427989&format=GNBFI&sort=BOOLEAN&startDocNo=26
Threat of Entry:
Low

Buyers: High

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&resultsUrlKey=29_T14612427993&cisb=22_T14612427992&treeMax=true&treeWidth=0&cs
i=5545&docNo=30
Forbes. (2000). Mergers and Acquisitions. Retrieved from http://www.forbes.com/global/
2000/1030/0321112a_print.html
Hewlett Packard (1999). The Structure and Trends of the ISP Market. Retrieved from
http://www.hpl.hp.com/techreports/1999/HPL-IRI-1999-002.pdf
Hill, C. Strategic Management Theory: An Integrated Approach. Publication date: February
2006.
Junnarkar, J. and Hu J. (2000). CNET News: AOL and Time Warner Merge. Retrieved from
http://www.lexisnexis.com.navigator-wcupa.passhe.edu/lnacui2api/results/docview/docview.do?
docLinkInd=true&risb=21_T14612427989&format=GNBFI&sort=BOOLEAN&startDocNo=1
&resultsUrlKey=29_T14612427993&cisb=22_T14612427992&treeMax=true&treeWidth=0&cs
i=299488&docNo=1
Kirkpatrick, D. (2009). Newstex: AOL and Time Warner part ways. Retrieved by
http://www.lexisnexis.com.navigator-wcupa.passhe.edu/lnacui2api/results/docview/docview.do?
docLinkInd=true&risb=21_T14612427989&format=GNBFI&sort=BOOLEAN&startDocNo=26
&resultsUrlKey=29_T14612427993&cisb=22_T14612427992&treeMax=true&treeWidth=0&cs
i=299488&docNo=48
Kramer, L. (May 4, 2009) The Daily Beast: Why the AOL-Time Warner Merger Was a Good
Idea. Retrieved from: http://www.thedailybeast.com/articles/2009/05/04/how-time-warner-blew-
it.html