- The Washington Times - Monday, October 14, 2002

America Online Inc.'s executives prided themselves on erecting multimillion-dollar advertising deals and mergers during the Internet love fest that crowned their company's heyday.
To make the deals happen, AOL played its members as an army of bargaining chips not an audience to be served.
Can you blame the company's former chieftains, asks Jimmy de Castro, AOL's new president of interactive services, for taking their eyes off subscribers to pluck low-hanging bundles of cash?
Mr. de Castro describes it figuratively as an addiction.
"They started taking heroin when they got three-, four- and five-hundred-million-dollar deals thrown at them," said Mr. de Castro, a boisterous former radio executive. "They sold out the service forsaking the member to deliver quarter-to-quarter [earnings]."
From one end of AOL's 220-acre campus to the other, top executives needed little prodding to acknowledge that the world's largest Internet provider lost its way.
Now, with the company's corporate reputation and stock price in the gutter, AOL has embarked on a new mission: rekindling the affections of its 35 million subscribers. The company says tomorrow's release of its new software, version 8.0, is the first step.
AOL executives say they also are clearing the underbrush of hated pop-up ads and spam e-mails, bringing clean simplicity back to the service's pages.
Other than its massive subscriber base, little is left to cheer at AOL, now beset by a federal investigation, an angry merger partner and the evaporation of advertising revenue.
Plastered around its headquarters a former arms warehouse are fliers declaring "Members Rule." Another poster blared, "Do it for our members," beseeching employees to test the new software.
The change in attitude owes itself to the company's short, mercurial history.
AOL reached its pinnacle in January 2000, when it announced one of the corporate coups of all time, the $106 billion merger with Time Warner's film, magazine and cable TV empire. At the time, the combined shares were worth $72.
Then AOL Time Warner took a spectacular nose dive. Shares of the world's largest media company now command around $12.
By any measure, the AOL division's new chief executive, Jonathan Miller, who replaced Bob Pittman in August, has a tough row to hoe. Analysts say Mr. Miller needs to extinguish legal and corporate brush fires while resuscitating the humbled entity's finances and the pride of its 18,000 workers.
Almost every facet of AOL is under review. The deal-spinning Business Affairs unit has been disbanded, its leader fired. New top managers have been hired or shifted from within.
Nothing is sacred but the members, says Mr. de Castro, not even advertising.
"I am suggesting we should lose all the ads, all pop-ups," Mr. de Castro said, bustling around his office and alternately scribbling on a white board, clicking on a Web TV remote and jabbing his index finger at a pyramid chart.
"Did you see our service on 9/11? We put out the most beautiful, fantastic service. No ads. It was awesome," he said.
Mr. Miller said it was unlikely AOL would dump ads and raise the $23.90 subscription fee, but similar drastic ideas are under review.
"We're having those debates and we're getting it out in the open and we're going to wrestle these strategies to the ground," he said.
Mr. Miller, an electronic-commerce veteran whose success at USA Interactive landed him at AOL's helm, has more immediate plans. The company is cobbling a "marketplace" platform like EBay's that allows vendors to sell directly to AOL members.
The release of 8.0, which Mr. Miller calls the company's most important to date, promises to be hyped hugely.
Aiming to boost its 4 million broadband subscribers, AOL has just persuaded cable providers AT&T; Broadband and Comcast to host its $54.95 high-speed subscription service. It is negotiating similar deals with others.
The company has found success with its instant-messaging tool, which is being grafted into cell phones and hand-held computers.
Mr. Miller said AOL is considering a cut-rate subscription for those who balk at the industry's highest monthly fee.
With its view from the gutter, it's tough to remember what went right at AOL. The company did, after all, almost single-handedly introduce Americans to the Internet, distilling the process to a few easy steps as it blanketed the nation with free compact discs.
About four years ago, though, AOL's regard for its members began to change, said Jakob Nielsen, an Internet usability specialist. Subscribers became cash cows to be milked. AOL's pages sprouted incessant ad pitches and pop-ups that herded subscribers toward big advertisers.
"They really betrayed their heritage," he said.
The move was good for Wall Street, for a while. But when dot-coms stopped advertising, AOL's business model and value collapsed.
"It's really absurd," said David Joyce, media analyst for Miami investment bank Guzman & Co. "Investors have sold the stock down to where it's getting no valuation for AOL. They're only valuing the Time Warner businesses."
AOL finally is understanding who butters its bread.
"We want to energize this place by refocusing on what is really the core serving the membership base," Mr. Miller said. "The rest will take care of itself."
A June Forrester study depicted AOL users as astonishingly loyal, with 79 percent of 2000 members still subscribing in 2001 a larger portion than any other provider, trouncing MSN's 43 percent.
Analysts suggest otherwise.
They say AOL needs to capitalize on unique offerings of Time Warner's movies, music and magazines. With its direct billing model, AOL could jump into pay-per-view sales, adding tiny charges to a customer's bill for, say, listening to a music clip.
AOL even may try simplifying an ever-more-complex Internet, helping members, say, monitor Web auctions via cell phone.
Much of AOL's future simply depends on an economic recovery that gives advertisers and consumers money to spend, Mr. Joyce said.
Some see a fork in the road ahead. Either AOL morphs into a cablelike subscription company or, conversely, a utilitylike Internet access firm.
Mr. Miller is shooting for the first option. But the growth of public online chat and the ease of connecting via cheaper providers means AOL has to compete with the entire Internet not just other access companies.
"There's no law that says that if you were the premier provider you have to stay that way," Mr. Nielsen said.
"We're going to need them less and less."


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