Magazine article Newsweek

AOL's Solution: A Portal in a Storm; Can Its New Web Strategy Catch Up with Established Players like Yahoo and MSN?

Magazine article Newsweek

AOL's Solution: A Portal in a Storm; Can Its New Web Strategy Catch Up with Established Players like Yahoo and MSN?

Article excerpt

Byline: Steven Levy

Nine years ago I wrote a column about the future of the three great subscription online services--CompuServe, Prodigy and America Online. In the age of the Internet, I argued, their business model was doomed. People would not pay for content locked up in proprietary "walled gardens" when a wealth of similar information was available free on the Net. I called the trio "dead men walking." I got only two out of three; AOL kept growing. For years, whenever I saw Steve Case, he'd gleefully bring up my premature obituary.

Clearly I underestimated Case's ability to overcome his company's challenges, and even convince a media giant that AOL could continue to defy commercial gravity. Now, of course, the Time Warner merger is viewed as a colossal disaster--and the bell is finally tolling for AOL's business model. Subscribers are fleeing like beachcombers after a shark warning--down to 22 million, from a high of 27 million. Barry Diller recently said he spurned an offer to buy AOL for $20 billion, a sum analysts reportedly say is more than twice its worth. Compare this with Yahoo's $50 billion cap, and it's no surprise that AOL's new strategy is... trying to be Yahoo. Its new plan involves tearing down the garden wall, opening up its content and building its AOL.com Web into a "next-generation high-speed Web portal."

Not that AOL CEO Jon Miller is going to stop collecting fees that "pay the rent." Giving away the content won't hurry the exodus, he says, because subscribers stay mainly for ISP access, parental controls, security features and customer service. (A cynic might add the following three: 1. inertia; 2. haven't-got-broadband-yet; 3. don't-know-that-you-can-get-AIM-instant-messaging-free-even-if-you're-not-an-AOL-subscriber.) But Miller knows the future depends on huge Web audiences and the ad revenue that comes with that. …

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