The Turnaround of AOL

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Case Details:

Case Code : BSTR195
Case Length : 19 Pages
Pages Period : 2001-2005
Organization : AOL, Time Warner
Pub Date : 2006
Teaching Note :Not Available
Countries : China
Themes: Corporate Turnaround
Industry : Media, Entertainment, and Gaming

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Offering Free Content

One issue that AOL's management had not decided on was the amount of free content to be offered on the AOL website. In July 2004, AOL's top managers assembled to decide their course for the future. At that time, Leonsis and Kelly emphasized the fact that customers were deserting AOL dial up accounts to broadband, and competitors like Google and Yahoo! were getting stronger...

Growth of Advertising Business

AOL knew there was a lot of potential in the advertising model that other sites were using. For example, portals like Yahoo! and MSN were charging US$ 300000 a day for advertising on their home pages by the end of 2004. In July 2005, aol.com started giving free access to features and content on AOL, which had hitherto been available only to subscribers. According to David Liu, Vice-president and General Manager, AOL.com, "The new AOL.com is a next-generation portal that really begins to fulfill the promise of the Internet in terms of bringing real video assets to the users' fingertips - users can actually consume things ... it's not a question mark as to whether this video will really play..."

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Television Goes to the Web

On November 13, 2005, AOL announced that it had bought 30 TV series from Warner Brothers, in order to launch a free ad supported broadband TV network called In2TV. According to Kevin Conroy, Executive Vice President, AOL Media Networks, "With In2TV, we are enabling Web users to experience and interact with television programming in an entirely new way, and creating a new distribution platform for TV content...

Partners Beckon

AOL's innovations attracted suitors from all over. Several leading internet and IT companies like Microsoft, Yahoo!, Google and Comcast were looking at acquiring a minority stake in AOL. The main reason why these companies were looking at partnership was that for several people AOL still remained the only way to get connected to the Internet. AOL was also one of the most popular sites on the internet. The three largest players in the Internet arena - Google, Microsoft and Yahoo! have shown interest in partnering with AOL. The market was abuzz with the news that in these deals, AOL was valued at US$ 20 billion, which was double its Wall Street valuation...

The Road Ahead

A few analysts expressed the view that AOL was merely trudging the path, Yahoo! had already adopted. AOL's plan of providing free online content and services to attract more advertising revenues was not unique, and they felt that AOL should have done it years ago. Parsons was criticized for not providing long term vision for the company. Some analysts felt that Parsons was deliberately not developing any great vision for the company because his predecessors' mighty visions have been disappointing...

Exhibits

Exhibit I: Major Events at AOL
Exhibit II: AOL - Financial Highlights
Exhibit III: Share Price Movements 2001-2005
Exhibit IV: Promises Made During the Merger
Exhibit V: AOL Financial Highlights

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