by CIO Staff

AOL Mum on Microsoft Merger

Oct 10, 20054 mins
Mergers and Acquisitions

America Online Inc. Chairman and Chief Executive Officer Jonathan Miller remained mum, in an appearance at the Web 2.0 Conference, when asked to comment on recent rumors that Microsoft Corp. may be talking to AOL about buying it or at least about striking up a partnership with it to boost its MSN Internet division.

“I’ll try to say something but avoid the question,” Miller said smiling during a session in which he chatted with conference chair John Battelle and with audience members.

Battelle suggested that Microsoft’s MSN unit might be aggressively seeking to sign AOL up for MSN’s new sponsored search ad network. Miller acknowledged that AOL is a “swing voter” in the market for sponsored search ads, because of its traffic volume. AOL currently serves up Google Inc. ads with its general Web searches, which are also powered by Google.

Miller was more forthcoming on the topic of AOL’s recent abandonment of its traditional walled-garden philosophy of providing most of its content and services to paying subscribers. It is shifting to an open Web portal approach, such as Yahoo Inc.’s, in which most of the offerings are free and the revenue comes from advertising sales. “We’re in that transition. It’s a business model transition,” he said.

It was hard to change the company’s mentality, but “that’s done,” he said. His goal when he joined AOL in 2002 was to “get the company in sync with the market” and the walled-garden approach had to be ditched in order to accomplish that, he said.

Contrary to what many assume, the decision to switch to an open Web portal approach wasn’t prompted by the steady decrease in subscriptions, he said. As of March 31, 2005, AOL had 21.7 million [m] U.S. subscribers in its fee-based service, down 2.3 million [m] from the same period in 2004 and down 4.5 million [m] from the first quarter of 2003.

Even if the subscriptions instead had been rising to say, 40 million [m] in the U.S. today, that figure would still be unacceptably low and limiting, compared with a potential Web audience of hundreds of millions [m], he said. AOL is one of only a few Internet companies with a big, global brand, a status that is hard to accomplish and which has been attained by a select group that includes Google and Yahoo Inc., he said. “The worst you can do is limit” that type of broad brand, he said.

Miller made it clear that the shift away from the walled-garden approach doesn’t mean AOL is abandoning its ISP business. He said the number of subscribers has stabilized in Europe and is likely to grow next year.

And AOL will look for increased international expansion, and for that reason it will change its official name from America Online Inc. to AOL Inc., he said, dodging teasing jabs from Battelle that the move could be seen as unpatriotic. “AOL is a brand name that can travel the world,” Miller said. The international expansion will be sought as a Web business, not an Internet access business, and it will include China, he said.

Another area on which Miller focused after joining the company was to repair AOL’s brand perception with customers by launching a campaign that stressed to users that AOL can keep them safe online. That effort has worked, as internal studies have shown that AOL has restored its “fundamental trust” with customers, he said. “Trust underlies everything else you’re trying to do vis-a-vis consumers,” Miller said.

Asked why AOL didn’t buy Ask Jeeves Inc., which instead was acquired by IAC/InterActiveCorp this year, Miller said that “the math didn’t make any sense to me,” plus AOL has made a decision not to compete in general algorithmic search, a field dominated by Google Inc. Instead, it is investing in vertical-search technology, such as its Singingfish multimedia search engine, he said.

On the topic of video content, he said the market is at the “cusp of video consumption on the Web” and that he considers AOL is and will continue to be a leader in that space. That includes providing both commercial video content as well as user-generated amateur video content. The latter type of video content will be boosted by AOL’s proposed acquisition of Weblogs Inc., announced Thursday, which Miller expects will yield not only user-generated text and photos but also increasingly video. Weblogs Inc. is a network of 85 blogging sites about a variety of topics. The acquisition, whose terms weren’t disclosed, is expected to close next week.

By Juan Carlos Perez, IDG News Service