OCTOBER 24, 2006
Technology
By Catherine Holahan
What AOL Needs Now
How can Time Warner jump-start growth at its limping Internet division? BusinessWeek.com asked the experts for their advice
AOL is having an identity crisis. It was once the main way to get online. Now the Internet service provider wants to be the place you go to and stay at once you get there. In August, AOL repackaged itself as a free, advertising-supported Web destination. But it has yet to truly set itself apart from the myriad of sites offering comparable audio and video content.
Sure, AOL has a plethora of clips from music labels, TV studios, users, and parent company Time Warner (TWX). But so do rivals such as Yahoo! (YHOO) and YouTube, which is being acquired by Google (GOOG)—not to mention a host of popular, independent video sites such as Heavy. Case in point: On Oct. 23, AOL announced that it would offer Paramount movies and television shows on its site. Movielink, a joint-venture of Paramount (VIA) and Sony Pictures (SNE), is one of a handful of sites already offering such content.
Challenges on Several Fronts What's more, it's hard to make a good first impression when you're putting out public relations fires. Around the time AOL became free, it inadvertently released months of search data on more than 650,000 subscribers (see BusinessWeek.com, 8/23/06, "Fallout from AOL's Flub"). The move drew intense criticism and calls for a boycott. AOL apologized and fired its chief technology officer. However, three subscribers still filed suit.
The company also became the subject of renewed sale speculation when a London newspaper reported this month that Time Warner is considering selling its ailing Internet arm. AOL has refuted the story, but the news is rekindling concerns over AOL's long-term ability to compete for the almighty online advertising dollar (see BusinessWeek.com, 8/3/06, "AOL Casts Its Fate with Ads").
To effectively fight the YouTubes and MySpaces (NWS) of the Web, AOL is going to need more than just compelling content. To win users, AOL will have to revitalize its image and prove it is better than other players in the crowded video space. We asked experts to weigh in on how AOL might do that. Here are their recommendations.
You Can't Be All Things to All People When it was the main ISP for Americans, AOL had something for everyone: chat rooms for soccer moms, programming for families, music for teens, etc. Such a strategy doesn't work as well for a Web destination, says David Martin, president of the brand consultancy Interbrand North America. The most successful Web companies are those that have a clear focus or audience. YouTube, for example, is known as the place for user-generated video. Yahoo Finance is the site for updated stock quotes and company news. Facebook is considered the destination for college kids. "Brand success is based on one simple thing—being relevant," says Martin. "And in the process of being relevant, being relevant to me. If you are trying to be relevant to everybody, then you are going to be milquetoast and you can't succeed on the Internet by being milquetoast."
Judging from its Web site, AOL seems to be vying to be the platform for everything broadband. That's too broad, says Martin. AOL needs to be a destination for a particular niche. It could, for example, vie with YouTube to be the place for user-generated video content aimed at 15- to 30-year-olds. But it would be difficult to do that and also be considered the best place for 55- to 70-year-olds to research health information or watch CNN.
It's All In the Presentation As co-CEOs of Heavy, the largest independent video site on the web, David Carson and Simon Assaad say how you present content can be just as important as having the content in the first place. Video sites must be able to present the thousands of clips they receive in a way that both users and advertisers find engaging. Heavy selects among some of its user-generated videos to create longer form, targeted collages of videos—mixed with its own original content—that advertisers can buy space on.
The result is something unique to Heavy that can then be syndicated in a way that draws users back. "[AOL's] entire business was based around access; that's no longer the model," says Assaad. "On the Internet, your competitor is your partner—that's literally how it works."
Protect Privacy Kevin Bankston, a staff attorney with the Electronic Frontier Foundation, says AOL should use its privacy scandal as a platform to stand up for the security of its users. AOL could announce that it will not store search data for as long as the other major players, such as Google. In this way it could become known as the place to search more privately and securely, without causing users to fear that advertisers will know everything, from where you live to what illnesses you may have.
"I think they could be the one major search engine that very strictly protects your privacy," says Bankston. "I think that is the only way that they can effectively turn this crisis into an opportunity."
An Improved Interface James Goss, a media entertainment analyst at Barrington Research, says AOL can enhance its interface to stand out and lure users. "To maintain the base of subscribers that they have and broaden it…perhaps packaging is half of the battle," says Goss.
AOL may be getting the message. On Oct. 4, the company introduced new Web browsing software that divides its main window into four quadrants, each focused on a different application: e-mail, video, instant messaging, and Web browsing.
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