Monday, January 11, 2010

AOL and Time Warner: Revisionism

In the fall of 1996 I was a Visiting Professor at Columbia Business School teaching the Telecommunications Policy Course. It was the Executive MBA program.

In the course I taught a sector of the emerging telecom business each week, and one week was on AOL and the Internet sector. My point was that in late 1996 any person could see that AOL had no value. Why, well, because all it did was provide a front end to dial up and the value was all behind the dial up, the content, not the facilitation. In fact I demonstrated that there was a a model for the business and that transport was only a small element. The owner of the customer, the point where real value resided, was the content provider.

What was my logic? Well in 1980 I was at Warner Cable and I was tasked with the job of creating interactive two way business on cable and spent five years actually doing that with a joint venture I created with Bank of America, GTE, Bell Atlantic, DEC, and Warner. We actually built and tested systems but alas due to problems at Warner it went off to GTE.

I remember presenting this material to the likes of Lou Gerstner, at the time not a believer of any interactive media, yes the same one who headed up IBM, but well that is the fate of being right but early.

You see the slide presented above was the strategy I had developed as President of Warner Electronic Home Services. It was presented originally in 1981 and then last in late 1983. It states that the central figure is the customer and that the strategy is to develop and own as best as possible an electronic marketing and distribution channel between supplier and customer. The channel would connect any supplier to any customer. One element was transport and the key part of that was cable, not telephone. Remember this was first 1981! Not 2001! Thus the key was cable and not dial up. What ever got into the mid of Time Warner to believe in AOL one will never know. Like so many larger corporations perhaps that had people like those in my Columbia classes, simple, get along types, who when it came to details knew nothing.

The above analysis was compelling in many aspects. It did show us what the economics clearly were. Simple, content is king. Transport is nothing. AOL was in effect transport. Yes they had a clumsy front end but it was transport. No one left at Time Warner knew that. Our work from more than a decade earlier had been lost to at most footnotes of history. In fact no one ever seemed to ask what could go wrong. Then splat.

The NY Times today carries a lot of looking back. Pity they never really looked back far enough.