Bear Flag Republic Radio Weblog

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So far AOL Time Warner has written down its value by $99 billion dollars.

$99,000,000,000.00.

Billion. With a B. Impressive. Man, that's a lot of business not to have.

And that's probably not the whole thing. Consider the momentum here. $54 bil back in Q1 of last year, and now $35 bil for AOL and $10 for the cable division. We're a lousy $1 bil away from a twelve-figure loss.

The real kicker here, the the eleven-zero irony, is that this merged company was counting on AOL, of all things, to provide understanding of the very platform on which all this inter-divisional "synergy" was going to take place. They actually thought AOL understood the Net. Amazing.

What AOL understood was how to keep an online service alive for a few more years by leveraging the very platform that was sure to make the service obsolete. It worked for quite awhile because AOL saturated the known universe with free sign-up disks that temporarily locked customers into a system that was marginally easier to use than the alternatives. But that was when most ordinary folks thought the Net was about email, instant messaging and Web surfing in slo-mo. Those folks are wising up now.

A couple years ago, something like half the households using the Net had AOL email addresses. (I can't find the exact numbers here. Anybody have them?) Now customers are leaving in droves, because they don't want to dial up anymore. The masses want broadband and wi-fi, and AOL is what they're leaving to get it.

Worse, they don't want broadband so they can watch Warner Brothers pictures or listen to Warner Music recordings. Worse than that, they actually want broadband so they can share their own movies, records and pictures with each other. Freely. For no money.

Pretty soon, they'll want to serve their own stuff from their own machines, in their own homes. And why not? The Net was built for fat, symmetrical, end-to-end sharing of everything, with no value-adding intermediator in the middle. It wasn't built so big dumb companies could use it as a one-way sluice for their own "content." Yeah, the Net'll support that, but that's not what users want it for.

Sadly, AOL never came up with a broadband strategy worthy of the label, and that's what will finally do them in.

I'm not sure a strategy would have been possible anyway. As a Time-Warner Cable customer, are you going to let AOL intermediate your Net access? Are you going to pay one penny more for exclusive stuff that nobody outside AOL can see on the Net? Some will pay, sure. But for how long?

Time-Warner says it gives customers a choice of Roadrunner, AOL and Earthlink. I don't know what the cost difference is, but I'll bet customers are choosing whatever's cheapest, which I'm sure isn't AOL. Maybe that's how AOLTW is finding out what its first three letters are really worth.

AOL may not go away, but they're sure to matter less and less over a long period of time. Kind of like Novell.

What I have to wonder is, do they know that not understanding the Net is what's killing AOL's value? Will they get the lesson?

[Later...] Getting some pushback on my sweeping dismissal of AOL here. So: some credit to the stuff that will help keep AOL afloat.

One is legacy email. People hate to give up their old email addresses. And they hate to give up their familiar email clients. A lot of people also like AOL's email system. I haven't used it in years, so I don't know how much it has improved. I also don't know if archived email can be moved to something other clients can read. In any case, it's something of a de facto lock-in for a lot of folks.

Another is instant messaging. AOL has worked very hard to keep their IM system off-Net. This will help them keep customers, but it will also leave the company very exposed when a Net-native IM system starts getting ubiquitous (which could happen very quickly).

Another is AOL's dial-up network, which is truly world-wide. If dial-up is your only means of connecting to the Net (and in much of the world, that's all there is), AOL has a huge advantage.

But it's still not enough. The tide has turned. Worse, the only person in the world who can truly lead AOL, its founder and only credible visionary, is gone. Think Apple without Jobs. AOL without Case is the same thing.

Craig Burton years ago told me the story of the giant snake that circles the world. The big question is, how long will it take the tail to know the head is dead?

For AOL, probably quite awhile. But when Steve Case rolled, so did the snake's head. We're at the denial stage now.

Maybe something will be left for Steve to fix, if he ever comes back. Could be. It's a big snake.

More from Dave and Mitch. Also Michael Jardeen, John Robb,

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