The Rise and Fall of AOL

America Online (AOL) was founded in 1983 as an online service provider and web portal.  The company was a leader in email, internet connectivity, online news, and chat services, with market capitalization exceeding $200 billion at its peak (Cuofano, 2023). Eadicicco et al. (2017) stated that AOL was the “first popular social network” and that AOL’s Instant Messenger platform was the forerunner for today's messaging apps.

Contributors to the later demise of AOL include the merger with Time Warner, the cultural differences between AOL and Time Warner executives and employees, and the introduction of Broadband Internet (versus AOL’s dial-up product) (Dumont, 2022).

Failure Contributor 1: The Merger

In 2001, AOL purchased Time Warner in a deal valued at $350 billion, the largest merger in American business history (CNET, 2010).  However, the combined company could not successfully integrate mass media content with the Internet.  Three months after the merger, the dot-com bubble burst, causing the economy to enter a recession (Cuofano, 2023). In 2002, the combined company, AOL Time Warner, reported a loss of $99 billion, the largest net loss ever reported (Dumont, 2022). 

Dumont and Li (2022) identified the America Online and Time Warner merger as one of the four “biggest merger and acquisition disasters” of all time.  Due to the failures, AOL executives were ousted, and “AOL” was dropped from the name in 2003 to restore the company name “Time Warner.”  The AOL division was sold to Verizon in 2008 and Apollo in 2015 (Dumont, 2022).  AOL still exists, but it is a fragment of the original company.

Failure Contributor 2: Cultures Wars

Company President Richard Parson indicated that he recognized that the two companies' cultures differed but underestimated their differences.  He stated that the business model collapse and the “cultural matter” were critical contributors to AOL Time Warner's failure (CNET, 2010).

Failure Contributor 3: Failure to Embrace Broadband Internet

AOL was the leader in the dial-up market, but the company did not prepare for the successor, broadband internet.  The hostile relationship between Time Warner and AOL and the resistance to switching from dial-up technology hampered the companies' ability to adapt to broadband internet.   Cuofano (2023) indicated that the company had invested so much in dial-up infrastructure that they were reluctant to consider alternatives.  Subscribers left the company for faster Internet Service Providers (ISPs) and free Internet services like Microsoft’s Hotmail and Google’s Gmail (Eadicicco, 2017).

Scenario Planning

The lack of scenario planning is a factor in the demise of AOL.  The company forecasted the future based on past results and did not consider alternative futures.  As a result, the company stayed with the outdated proprietary business model instead of adapting a new model to provide broadband Internet services.

The Scenario Planning process provides a solid understanding of possible solutions, potential business outcomes, and impacts (Beale, 2023).   Scenario Planning would have enabled AOL Time Warner to make “intelligent bets” on the strategy for the future.  This type of planning may have also assisted with resolving the cultural differences as the factions worked together to develop scenarios for a “new future.”

Forces Involved

Cultural, financial, technical, and social forces contributed to the AOL collapse. The company president stated that the cultural barriers contributed to the failures experienced after the merger.  One financial force was AOL's significant investment in dial-up technology and infrastructure, which made the company hesitant to change to another technology.  As a result, the technological shift to high-speed Internet access contributed to dial-up obsolescence since AOL subscribers switched to companies that provided high-speed Internet.  AOL Time Warner did not adapt to the evolving technology landscape quickly enough, partly due to the “culture wars” experienced by the company.

Scenario Planning for Future Innovation

I plan to encourage the use of use scenario planning at my company to help identify opportunities for the future. We often discuss future scenarios and potential outcomes as we innovate to identify new technology, products, and processes. However, it is not a formal process, and there is no record of the “possible futures.”  There is value in formalizing and documenting the process, considering uncertainty and possible outcomes, and analyzing the scenarios to make business decisions about how to proceed or adapt.

The Social Impact of Change

Scenario planning should consider the social impact of change.  For example, AOL did not consider the social effects of merging the two companies or the social implications associated with users wanting high-speed Internet.   However, since I work for a technology company, I recognize the emphasis on identifying technical solutions and the business executive focus on execution and profits. We will benefit from considering integrating social impact assessment into our plans for developing and incorporating new technologies, assessing business environment changes, and evolving the business and societal culture.

References

Beale, M. (2023, May 15). Scenario Planning: Developing Pictures of The Future. Itonics. https://www.itonics-innovation.com/blog/scenario-planning-developing-pictures-of-the-future#:~:text=Scenario%20planning%20is%20a%20strategic%20tool%20commonly%20used,appropriately%2C%20evaluate%20innovation%20opportunities%20and%20inform%20proactive%20responses.

CNET. (2010, January 18). How the AOL-Time Warner merger went so wrong. https://www.cnet.com/culture/how-the-aol-time-warner-merger-went-so-wrong/

Cuofano, G. (2023, July 26). Is AOL Still Around? What Happened To AOL? FourWeekMBA. https://fourweekmba.com/what-happened-to-aol/

Dumont, M., Drury, A., & Li, T. (2022, February 21). 4 Biggest Merger and Acquisition Disasters. Investopedia. https://www.investopedia.com/articles/financial-theory/08/merger-acquisition-disasters.asp

Eadicicco, L., Peckham, M., Pullen, J. P., & Fitzpatrick, A. (2017, April 3). The 20 Most Successful Technology Failures of All Time. TIME. httpshttps://time.com/4704250/most-successful-technology-tech-failures-gadgets-flops-bombs-fails/

 

 

 

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