AOL and Time Warner

In the Fall of 1996 I taught a Telecommunications Economics and Policy course at Columbia University Business School where I was a visiting Professor. What I did was to take a company in each of the business sectors, prepare a business plan for the company and address the policy risks and economic opportunities and risks.

For the ISP world at the time I took AOL as the example. I went through the detailed analysis, namely a simple back of the envelope calculation, to show that the company had no sustainable competitive advantage, it was a Potemkin Village of a business. The class generally disagreed, and most went into investment banking. I ran my businesses and the students went and created the mess we are in now. I was right, albeit a few years too early.

Now we see that Time Warner is finally disgorging the distraction which they could never monetize. As the Financial Times states:

"The deal, which valued Time Warner at $164bn, was followed by a series of huge write-downs, including a $100bn charge as quickly as 2002, as it became clear that the synergies it promised were illusory.

Steve Case, the former AOL chief executive and one of the architects of the deal, used the Twitter messaging service on Thursday to say he was glad the separation was happening.

Thomas Edison’s quote that vision without execution is hallucination “pretty much sums up AOL/TW” he said, saying a “failure of leadership (myself included)” scuppered the early hopes for the combination.

The bitterness left behind was summed up by one irate shareholder at Time Warner’s annual meeting on Thursday, who said that January 11, 2001, the day the AOL Time Warner deal completed, “is a date I believe will live in corporate and economic infamy.”"

However I argued this thirteen years ago. It was obvious to anyone who had an envelope, a pencil and a wit of wisdom. They had nothing, just an access front end for a dial up network. By the time Time Warner made the purchase there already was DSL infusion and soon cable modems. The key question was and still is what value did they bring to the table, customers were fungible, there was no barrier to exit and in fact it could be facilitated. The arrangement was consistently weak and the internecine warfare between the parent and AOL was endless. This should be an example to everyone because it was so obvious before the fact!