AOL to become independent once again

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AOL soon will be back on its own. Its parent company, Time Warner Inc., plans to spin off the Web services subsidiary once known as America Online as an independent, publicly traded company by the end of the year.

Time Warner and AOL’s much-hyped 2001 merger, a deal that was valued at $124 billion, never panned out as company officials hoped. Various analysts estimate the current value of AOL alone to be between $5.5 billion and $6.5 billion.

AOL was a pioneering Internet services company. It now offers free software and Web services, online advertising and subscription-based Internet access services. AOL was based in Dulles until moving its headquarters to New York last year. It still has a campus in Loudoun County.

At its peak, AOL had 30 million subscribers, but it has been in decline of late. Its revenues fell $261 million, or 23 percent, in the first quarter of 2009 to $867 million. In addition, 2.3 million dial-up customers cancelled their subscriptions last year. AOL saw a 6 percent drop in its online ad revenue in 2008 at a time when overall Internet ad spending increased 10.6 percent, according to the Interactive Advertising Bureau.

For AOL to survive, it needs to take care of its still massive collection of dial-up customers, says technology industry analyst Roger L. Kay, the president of Massachusetts-based Endpoint Technologies Associates Inc. Dial-up customers represent a trailing-edge business, but Kay believes they still can provide AOL with a lucrative short-term venture. At the same time, the analyst thinks AOL must leverage its powerful global brand to gain a more competitive foothold in the online advertising and Web 2.0 sphere.

“AOL’s strength has also been its weakness,” Kay says. “It served a particular market at a particular time, and that made it strong in that market and therefore not strong in whatever the next thing was.”
AOL is trying to gain ground on other Web 2.0 leaders such as Yahoo and Google. Last year it acquired Bebo, a social networking site. Tim Armstrong, AOL’s chairman and CEO, said in a news release that being a separate company will give AOL the freedom to innovate and deliver products that dovetail with the future direction of the Web.

Kay, however, is not optimistic that AOL can reverse its recent decline. The company has always been just behind the curve when it comes to popular Web services, he says. And he believes the growing availability of broadband Internet access also will slowly eat into its base dial-up business.

“There is a kind of ticker going on the time they have to transform the company into something different,” Kay says. “I don’t know how much time exactly, but it’s measured in single-digit years certainly.”

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