Even with this, though, the Time Warner/AOL merger's promise of transforming the Internet has largely gone unfulfilled. No less than co-founder Steve Case, in December, 2005, admitted that he wanted to "undo" the merger. Case stayed with the company as CEO for a couple of years after the merger, but resigned in 2003, a year in which AOL Time Warner was $26 million in the red. He left the board of directors in 2005.
The Caretaker Syndrome
AOL's apparent loss of direction is symptomatic of what Frankel calls the caretaker syndrome. "The first generation makes or creates the product. That person understands the brand, loves it, and grows it. Eventually it becomes too big and it's handed off to the second generation," Frankel explains. "The second generation just spends the money the product generates. They are [managing] without the brand's vision. Finally, the third generation loses the company. They are doing everything just to preserve quarterly performance."
By 2006, it was obvious that AOL's old business model was no longer working. At its peak in 2002, AOL had 34 million members and was worth $200 billion. Today, it's worth one-tenth of that, and its membership rolls are shrinking faster than you can say "Yahoo!" In fact, in the second quarter of 2006, the company reported it had 17.7 million members, nearly one million fewer than in the first quarter of 2006.
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As a result, on August 2, 2006, AOL took a radical step: It announced that it would no longer charge its members for e-mail, storage, discussions, and security features. In a published statement, AOL chairman and chief executive officer Jonathan Miller said: "Providing [our members] with their familiar AOL software and e-mail for free, over any broadband connection, will be critical to our future success. For members who've left us over the past two years, we've kept your e-mail address. When this effort is fully operational in early September, you'll be able to come home again -- for free.... The AOL Network has over 100 million unique visitors per month, and we'll work hard to engage Internet users with new products that will be available for free on the Web."
Free At Last
AOL seems ready and willing to make a monumental shift in its approach. In a further effort to become more attractive to the entire range of Internet users, the company has opened up access to its APIs.
One way of doing that is through the alliance formed earlier this year with TopCoder.com, which runs online programming competitions. "AOL seems to realize that the first building block is to get a good relationship with the development community," says TopCoder CTO Mike Lydon. "You can then leverage that community, having it create features for the less technically savvy. For example, the technically savvy can create more easy-to-use features. So it's targeting the tech-savvy to ultimately target the less technically-savvy."
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