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1.11.00
Analyze This: The Impact of AOL's Merger on Small Business
Will the mega-marriage to Time Warner distract from efforts to upgrade services?  

AOL Time Warner

What do the folks at Time Warner know about small companies? Well, in 1998 they made a hit film in which a small business (and Meg Ryan) played a starring role. The title: You've Got Mail.

But beyond that, small companies aren't the first thing that comes to mind when you consider the megamerger of two entertainment giants like Time Warner and America Online. You can't help but wonder whether the proposed $166 billion marriage will mean less attention for the more than 2 million small-business users of AOL.

For now, no one at AOL is saying anything about that -- preoccupied as they are with the vast potential in entertainment and consumer content. Officials didn't return calls seeking comment. But given the way that vendors, online service companies, and advertisers are pursuing the small-business market lately, the new AOL-Time Warner may not be able to ignore the market for long. Indeed, some Web observers say AOL is already trailing smaller, more innovative rivals that are offering online business services to entrepreneurs -- much of it for free.

FOR BEGINNERS. AOL's current offerings for small business are relatively modest and focus heavily on startup and relatively young companies. Besides e-mail, Web hosting, and a few channels on the proprietary site that offer advice, there's not a particularly broad array of resources for established companies. Web sites offered by AOL are often regarded as a starting point for beginners, who migrate to other services and get their own domain name when their business grows.

By contrast, an ever-growing number of application service providers use Web hosting as a platform that they use to sell or rent key business services to growing companies. More sophisticated competitors in the small-business portal space include Intuit, DigitalWork, and Office.com, which provide content and tools. Digitalwork.com, for example, lets you conduct direct-mail campaigns from your computer. Office.com shows you how to analyze your business' profitability or create a business plan.

Given the huge number of small-business subscribers AOL has, says Ray Boggs, an analyst for International Data Corp., it's ironic that AOL hasn't done more. "They have this window that they have not made much use of, and lots of others are coming in through the front door,'' says Boggs. "The question is: Can they get it together?"

It's not that AOL hasn't tried. The service has struggled unsuccessfully for several years to provide content for small businesses on its own. (Business Week is a supplier of business news to the online service.) When AOL acquired Compuserve in 1998, many thought it would use the latter's comprehensive bulletin board network, which provided moderated forums for professionals and businesspeople, as a jumping-off point to develop a full-blown small-business service. There was also talk that Netscape Netcenter, another AOL purchase, might play a major role. Instead, AOL has pushed a site called Workplace, which is partially aimed at small businesses, but is really for anyone with career questions.

DIVIDED ATTENTION. Analysts like Kneko Burney at Cahners In-Stat are dubious the merger will make things much better. "It would be shocking if they were to focus well on the small-business market," says Burney. "Their stronghold is in the consumer markets." Burney says company officials have stressed the importance of the small-business market but have been unwilling to provide concrete details about how they plan to improve AOL's offerings. Analyst Aram Sinnreich at Jupiter Communications is similarly dubious that AOL will be able to stay focused on business-to-business efforts as it morphs into a marketing outlet for Time Warner. "AOL's attention is going to be divided," he says.

Others, like Miles Spencer, co-founder and host of Money Hunt, a small-business show on public television, says the combination of Time Warner and AOL will help the online provider keep its small-business clientele. Besides well-known offerings like Fortune magazine, Time Inc. recently rolled out a revamped version of its small-business magazine, now known as FSB. "AOL is not succeeding today in creating that type of small-business content, and now they can move Time Warner assets down through the pipes," says Spencer. That's certainly welcome. But unless there's another blockbuster movie about entrepreneurs in the works, small business may have to wait in line before they become a top priority.



By Jeremy Quittner in New York jeremy_quittner@businessweek.com

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