AOL’s AWOL Strategy

I recently read an excellent NY Times narrative that looks back at the trials and tribulations of AOL since 1998.  (In the interests of full disclosure, I briefly worked at AOL back in 2005)  Trials and tribulations is putting it mildly.  AOL’s purchase of Time Warner in 2000 for $165B has been an unmitigated disaster for shareholders and employees not to mention many disgruntled customers. What was once touted as a new economy colossus has now become an instructive case study in what not do strategically.

I have outlined some of these lessons below:

1.         With acquisitions, you can’t just talk about delivering revenue synergies through cross-selling services and content sharing.   Although AOL understood the potential, they were never able to realize many synergies tracing to overly autonomous business units, poor technology and executive performance metrics that did not align with the greater good.  Management needed to prioritize these mandates, allocate sufficient resources and maintain a sustained commitment to reap all the potential. 

2.         Properly integrating different cultures is critical to achieving a higher performance entity.  AOL has always been distracted by internecine warfare between AOL and Time Warner executives.  Furthermore, there have been ongoing problems integrating the unique cultures, from the renegade, “change the World” types at AOL and CompuServe to the button-down, old economy world at Time Warner.

3.         Large legacy businesses make Companies vulnerable to disruptive products, changing consumer behaviors and new business models.  For example, by being too dependant on their lucrative dial-up franchise, AOL was unable to move quickly enough to build leadership share in the broadband market, not to mention penetrate the digital download, file-sharing and VOIP businesses.  

4.         Its tough to compete against well-focused and well-capitalized foes across all product categories in all segments.  Despite its size, it is not likely AOL could have effectively competed against Comcast, AT&T, Google, Apple, Skype, Microsoft and Yahoo not to mention countless others.  AOL may have been better off to spin out some of their businesses to improve competitiveness or to pull out of them totally (VOIP for example) to save capital. 

5.         Consistency and realistic forecasting is a prerequisite for success.  The article elegantly documents the twists and turns of a schizophrenic corporate strategy and the embattled executives that had to execute it. Moreover, it should be abundantly clear by now that over-hyping your business is a recipe for disaster.

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