This article was published in Scientific American’s former blog network and reflects the views of the author, not necessarily those of Scientific American
AOL, Inc., and Time Warner, Inc., made their split official Wednesday as the two companies dissolved the blockbuster merger made nine years ago that ultimately fizzled when neither company held up its end of the bargain.
The matchup was billed in 2000 as a marriage between AOL's Web-driven world and Time Warner's time-tested content-delivery business. Together, their union (estimates for the size of the deal range from $162 million to $180 million) was supposed to pave the way for the convergence of media and the Web.
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In a November 2000 Scientific American article, Peter Forman and Robert W. Saint John took the merger at face value, making a case for it in the name of convergence, which they referred to as "the union of audio, video and data communications into a single source, received on a single device, delivered by a single connection." At the time Forman was president and CEO of San Francisco–based Ligos Corp., a maker of video processing (aka "convergence") software, while Saint John was an independent video producer and multimedia consultant in San Diego. Forman is now CEO of Kulabyte Corp., a San Marcos, Tex., provider of software and services for streaming video, while Saint John is now the director of sales and marketing at Ligos.
Forman and Saint John noted that the big convergence on the horizon would consist of three "subsidiary convergences," consisting of content, platforms (including PCs, TVs, Internet appliances and game systems), and the distribution channels that delivered content to the platforms. Time Warner and AOL seemed to have the bases covered. "Unfathomable only a few years ago, the $180-billion combination already seems natural," the authors wrote.
After all, AOL was at the time the best-known name on the Internet, while Time Warner "controlled a sprawling empire of magazines, music, movie and television businesses," the BBC noted in an article Wednesday.
AOL's role in mainstreaming many functions of the Internet is undisputed—instant messaging, chat boards, keyword searches, social networks and e-mail, The Washington Post reported Wednesday. Who could forget the once-ubiquitous "you've got mail" chime, or the AOL CDs that showed up in your mailbox nearly every week in the late '90s and beyond encouraging you to load their software onto your computer to get dialup Internet access?
Trouble surfaced for the two companies soon after the ink dried on their deal. AOL tried to be the gatekeeper to e-mail and the Web in general, but that model was wrecked when businesses such as Hotmail (later bought by MSN), Yahoo and Google started offering free e-mail and straightforward portals that gave users more freedom when exploring the Web. Although the idea of paying for e-mail seems a distant memory now, AOL continued to charge for its e-mail service until 2006, the Post reports.
AOL proved a poor choice to show Time Warner the ropes of the Web world, and the presumed synergies never paid off. Also, the Internet company clung to dial-up access even as the rest of the world embraced high-speed broadband connectivity. AOL still earns 43 percent of its revenue from its 5.4 million die-hard dial-up customers, according to the BBC, a far cry from the 26 million dial-up customers AOL had in 2002.
Under the leadership of former Google executive Tim Armstrong, AOL plans to focus on offering premium content (including news and local information), communications (such as instant messaging) and online advertising, The New York Times reports.
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