AOL: THE EMERGENCE OF AN INTERNET MEDIA COMPANY

1. AOL: THE EMERGENCE OF AN INTERNET MEDIA COMPANY Rob Rochester

2. Company Vision • To build a global medium as central to peoples lives as the telephone or television…and even more valuable. • To provide its users with a service that was fundamental to their lives.

3. AOL Key Figures • Steve Case • CEO • Ted Leonsis • President of AOL Services • Bob Pittman • Company President

4. Inspiration • Steve Case becomes inspired by an online service named Source. • Dial-up computer bulletin board service. • Only used by early tech-savvy adopters. • The users at this point were not concerned with the medium in which they accessed the materials. • Case believed that more user friendly technologies would have the potential to attract the masses.

5. The 80’s • 1983 • Case takes a marketing job at Control Video, a message company similar to Source. • 1985 • Control Video is renamed Quantum Computer Services, and launched Q-Link Online Service. • 1989 • Debuted America Online for Macintosh • Users could use buttons to enter channels. • Sports • News • Entertainment • Chat rooms

6. Early 90’s • 1991 • Quantum Computer Services is renamed America Online. • Used a proprietary technology platform called “Rainman” • Software package used to create the GUI, which allowed for easy navigation of the features. • 1992 • Case becomes CEO • Targets the masses with a easy and fun to use service. • 181,000 paid subscribers by the end of the year. (less than half the subscribers of its biggest competition)

7. Marketing, marketing, marketing • 1993 • Distributed a windows based version of its online software with the same easy to use interface which had been featured before. • 1994 • AOL launched a major direct marketing blitz. • AOL distributed more then 300 million copies of their software. • Each disk allowed a user to log on to AOL with a free 3 month trial. • In January of 1994 alone AOL gained 70,000 new members. • Purchased BookLink Technologies, an internet browser software company. • Allowed AOL’s members to surf the web. • By August of 94 AOL had 1 million subscribers, twice that of its leading competition.

8. Huge Growth • 1995 • 2 million paying subscribers. • Averaging 250,000 new subscribers per month. • AOL was responsible for more then 30% of all Internet access. • Market Leader. • 1996 • 5 million members • in December a huge increases in pressure from competition forced AOL to lower its rate to a flat monthly rate of 19.95 for unlimited access. • AOL would gain more then a million new members in the first month. • Huge increase in member sessions and session times. • 2.5 million hours of member sessions were logged, and 24 million pieces of email were sent on the first day of the change.

9. Rapid growth leads to problems • Rapid increase in not only customers but also the volume of information traveling across the network caused service at AOL to plummet. • Hundreds of thousands of users were unable to connect due to the huge increase in network traffic. • 1996 • New revenue streams form • 10% of AOL’s first quarter revenue came from: • Advertising • Transaction Royalties • Merchandising • Bob Pittman was brought in to over see day-to-day operations, Pittman had two goals: • Make the company profitable • Make AOL a leading brand world wide.

10. Fixing the problems • Pittman would first: • Scale back the direct marketing, which cut customer acquisition cost from 375$ down to 90$ • Second: • Pittman turned to the network traffic problem. • 1997 • AOL spent over 1 billion dollars to improve its network. • 1998 • Pittman now oversees all major AOL divisions. • Sold ANS communication network to WorldCom (later MCI WorldCom) in exchange for rivals CompuServe’s content operations. • With its top competitor out of the way AOL raised monthly rates by 2 dollars and saw little to no change with its customer base. • Realizing the power of AOL’s now 14 million customers, Pittman decided to scale back efforts at developing and producing entertainment, and took a new approach to their business. • Instead of buying and developing its own content AOL would simply force content providers to pay for the privilege of being carried by AOL.

11. AOL partnership deals • Cost of the partnership deal depends on: • The level of exclusivity on AOL • The area of placement promised • The AOL brands on which a content partner gained carriage. • Four types of deals: • Anchor Tenancy • Each channel had 4 anchor tenancy’s. • Exclusive provider • Exclusivity on AOL. • Primary provider • It would be a provider but not exclusively. • Premier provider • A small combination of the other 3.

12. AOL Market and Industry • Market • Increasingly segmented • The “masses”, new or un-savvy internet users. • Wanted a condensed and organized way to view the content the Internet provided. • AOL • Web-savvy users made up the second segment. • These users liked the variety of information that the Internet had to offer. • Global Network Navigator • A more sophisticated version of AOL. • Industry • 3 primary expenses • Telecommunications • Access fees for connecting its users. • Customer Acquisition • Increasing due to the increase in competition from ISP’s • Content Royalties • Getting the content your users are seeking.

13. Technological drivers for change • AOL • Broadband internet access had seen rapid growth allowing Internet users to access the web at great speeds. • AOL started to lose its advantage over the market. • Time Warner • New technologies • Interactive TV. • Allowed users to skip commercials.

14. The Merger • Merging the two companies seemed like the best fit for both: • AOL • Gets access to all of Time Warner’s customers as well as the access to the 21.5 million homes already connected to the Time Warner system. • Time Warner • Could combat emerging interactive T.V. with new forms of ad based revenue generated through e-commerce and ad supporting content featured in a closed AOL TW universe.

15. AOL TW Post Merger • Case • Chairmen of AOL TW • Levin • CEO • Pittman • Co-COO • Subscriptions, advertising, and commerce businesses. • Parsons • Co-COO • Content from film, television, production, music, and books. • Ted Turner • Senior advisor

16. Risks • AOL and Time Warner faced many competitive risks after the merger of the company’s. • Increase in broadband coverage. • Increase in ISP’s • Using a similar model to failed projects. • USA Networks failed merger with internet portal Lycos. • “Open Access” regulations.

17. Open Access • Open Access • Telecommunication companies must provide public non-discriminatory service to all. • Cable companies can “discriminate” against who they carry. • The channels they provide to their customers. • When AOL was a telecommunication company they were one of the leading advocates of open access because it was something that was a crucial part of their business, after the merger with TW they no longer needed open access to get into peoples homes and changed their position.

18. DSIR • AOL had huge potential for DSIR. Due to its closed circuit. • The more people that are connected to the internet community called AOL the more value each person receives from the community. • Maximizes interactivity.

19. Conclusion • As we look at this merger now you will find the biggest media conglomerate from the combination of AOL’s new media medium with Time Warner’s huge client base and physical networking, allowing this combination to start the next step in the internet evolution.

20. Questions……..