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NOW AOL IS IN PORTAL COMBATIt's designing and acquiring features to compete with the Yahoos of the worldAmerica Online (AOL) didn't become the undisputed champ of the online world by standing still. Despite its image as a less-than-hip service for Internet beginners, the giant has survived and may yet prosper by navigating the shoals of constant change. A company that reinvents itself more often than Madonna, it has so far defeated rivals ranging from low-priced Internet service providers to Microsoft Network. But even as AOL basks in its success as the No.1 proprietary online service -- in fact, the only one, since it bought out its chief rival, CompuServe, last year -- some naysayers are rallying once again, ready to poke holes at AOL's weakest flanks. Over the past year, much of the mad rush on the Web has been to the high-traffic sites portal sites. Yahoo! (YHOO), the leading Web portal, had amassed 18 million registered users by last month, a 50% increase in just six months. Moreover, according to Peter Krasilovsky, a vice-president at industry watcher Arlen Communications in Bethesda, Md., portal sites such as Yahoo have made inroads into traditional AOL strongholds. "Only 30% of the activity on Yahoo involves searches now," says Krasilovsky. And while Yahoo visitors spend an additional 30% of their time on such activities as looking up E-mail addresses, that leaves a fat 40% that they're spending doing E-mail, or attending a chat, or looking at news or financial advice. "Yahoo has been able to show real AOL-like usage," says Krasilovsky. Even so, AOL executives argue that their service -- the only one for which customers currently pay a subscription -- is unique enough to maintain its lead. While Chariman Stephen M. Case concedes that portals such as Yahoo have done a good job of mimicking the AOL model, he argues that reaching the 75% of the mass-market audience that isn't yet online "will require a service that's very much like AOL -- a plug-and-play solution that launches a portal with a variety of content, community, and commerce services." And Case notes that despite the increasing popularity of the Web, most of AOL's 13 million members stay within its walls for 80% of their time online rather than venturing out to the Net. NEWS HOUNDS. Still, Case realizes that no advantage lasts forever. So over the past year, AOL has made acquisitions and taken other steps that could position it as a major portal player. The acquisition of CompuServe and its subsequent redesign for the Web and HTML -- the publishing language of the Net -- gives AOL better access to audiences such as small-business owners. Its AOL.COM Web site now offers 16 channels of information and services, including free Web searching through its Netfind search engine. The recent addition of an electronic news-clipping service called My News Page offers each visitor to the AOL site a level of personalization similar to what other portal sites are attempting. And on June 8, AOL added perhaps the last "missing link" needed to develop a Web portal: It paid $289 million for Mirabilis Ltd., a Tel Aviv-based company that makes an Internet "chat" and instant messaging program called ICQ. Of all AOL's acquisitions, ICQ has the most potential firepower on the Web. Unlike most existing portal features, it focuses on communications, not content searches, and has been an instant hit with the young and hip part of the AOL crowd. The software allows users to keep track of friends on the Net and alerts them whenever they pop online, much the way AOL's Buddy Lists let AOL members track friends on the online service. The program's small size -- just 1.6 megabytes -- and easy installation have made it a hit with Net chatters. In fact, roughly 50,000 new people register each day for ICQ (short for "I seek you"), and the service will soon have 7.5 million users. Just as AOL built up its early following via chat rooms -- and its own popular instant messaging feature -- ICQ holds that promise on the Net. "ICQ is AOL all over again," says Case. Indeed, instant messaging and chat are more addictive than mere surfing for content. Case says users, who download ICQ for free from the Internet, spend 80 minutes a day on the chat service, while AOL customers spend 45 minutes on AOL, and Web visitors surf for less than 10 minutes on portals. AOL had tried to introduce its own Web-based chat software last year through a deal with Netscape, but that was nowhere near as successful as ICQ is proving to be. "With ICQ having cracked that code, it's the best positioned to be the winning Web portal," contends Robert Pittman, president of AOL. And by buying up the largest and most successful of the Web chat services, AOL has made it hard for the other portals to catch up. Competitors claim that AOL lacks the Web savvy necessary to build a successful portal. "Although I'm very respectful of what AOL has built inside its network, it's less capable of bringing focused growth strategies to fruition on the Web," says Excite (XCIT) CEO George Bell. Indeed, AOL.COM has gone through three iterations in three years, moving from a site that offered only information about the company to one that offers portal-like features and functions such as Web searching. "They had no hard-core strategy" for the site, says Arlen's Krasilovsky. Until now, that has hurt AOL in its battle against portal players such as Yahoo! And while Case says AOL.COM "has gone from being an O.K. service to a much more engaging offering," he concedes that only 30% of its visitors are non-AOL subscribers. Others wonder whether AOL can make any money from ICQ, since chatters are less receptive to online ads than other Web surfers. TV STAR? Just to hedge his bets, Case is scouting new markets for AOL. With PC penetration in U.S. households stagnating at around 40%, he is pursuing a long-held vision: offering AOL via consumer-electronics devices, from interactive TVs to screen phones to handheld computers. In May -- nearly a year after rival Microsoft (MSFT) bought the leading Internet TV service, WebTV -- Case acquired a defunct competitor of WebTV, South San Francisco-based NetChannel, for $17 million. Case isn't talking in detail about his plans. But company insiders and industry sources say AOL is considering selling AOL-brand set-top boxes that would deliver an AOL TV service that could include interactive games and chat. "We have a powerful brand," insists Case. "We think it resonates in the consumer marketplace." Indeed, he says, AOL market research has shown that consumers are more likely to buy an AOL TV than a WebTV. The jump to interactive TV would be expensive and risky. WebTV has a head start. And unlike AOL, Microsoft already has significant investments and ties with cable-TV companies Comcast (CMCSA) and Tele-Communications Inc. (TCOMA). Industry experts bet that the winning standard for set-top boxes won't be new boxes such as WebTV or AOL TV, but rather the digital cable set-top box -- advanced versions of existing cable-TV boxes that many households are already get from their local cable-TV companies. And without cable alliances, experts say, AOL will continue to lag. "They may have a pretty good sense how to do things in the desktop space," says Lou Lenzi, vice-president for new media at Thomson Consumer Electronics, which made the set-top boxes for the NetChannel service. "But they're struggling in the TV space." Case shrugs off these concerns. Just as AOL survived the threat of the Internet by incorporating into its service the Web browsers of competitors Microsoft and Netscape (NSCP), he hopes to do deals with set-top-box makers -- and potentially, cable partners. He confirms that he's in talks with equipment makers who might manufacture AOL-brand TVs. "Many platforms are competing for our attention," he says, "including Microsoft-WebTV and NCI [an Oracle (ORCL) unit that license the so-called Net Computer devices, or simple computer workstations with no disk drives] and others who would love to have us adopt their technologies. We're evaluating them now." With AOL's stock at a lofty $106, and considering that the company has a cash hoard of about $1 billion, analysts have been buzzing about other possible acquisitions. One rumor has AOL snapping up a broadcaster, such as CBS Corp. (CBS). Case dismisses such talk. However, as AOL's meteoric rise in an ever-changing market has shown, any portal player that wants to keep up with it had better learn to run fast.
Catherine Yang in Washington, with Richard Siklos in New York RELATED ITEMS
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Updated Aug. 27, 1998 by bwwebmaster
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