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America Online and Apple Computer have loads in common.
Both earned fortunes by creating simple-to-use interfaces for the masses. AOL did it by attracting legions of technophobes to the internet, while Apple succeeded with an elegant operating system that was so intuitive even those who wouldn't know a GUI from a geoduck could use a computer.
Media Hack
The companies attract almost cultlike followings. Apple evangelists are famously devoted and greet every new product with the fervor of dancers in a mosh pit. And AOL remains the last refuge for people afraid to venture out on the web without a virtual bodyguard.
Each has perfected the art of Hollywood product placement. AOL's catch phrase, "You've got mail," spawned a popular movie with Tom Hanks and Meg Ryan; Jeff Goldblum used an Apple PowerBook to launch a computer virus against aliens intent on destroying the Earth in Independence Day.
Their histories are also characterized by missteps. For Apple, it was the Newton, a PDA before there were PDAs; Lisa, a pricey desktop computer for the corporate market; and the abject embarrassment of being propped up by its mortal enemy, Microsoft, which bailed out the company in 1997 by investing $150 million to settle a long-running patent dispute.
For AOL, stumbles include its merger with Time Warner, sluggishness in adopting broadband, and an inability to prop up its deteriorating subscriber base -- from about 25 million in 2002 to 21.7 million today, equal to 2000 levels -- as consumers switch to high-speed and cheaper dialup services.
There is, however, a significant difference between the two companies.
Whenever Apple is down, it bounces back with a product that is so imaginative and innovative it redefines an entire industry. For example, after experiencing stagnating sales and staggering losses, the company in 1998 released the translucent-backed iMac, which sold a million units in its first year on the market. Then, of course, there are the iPod and the iTunes online music store, which have revolutionized digital music (and generate almost 40 percent of the company's revenue).
The same can't be said for AOL, a company that continues to market itself by mailing out millions of free CD-ROMs with net-access come-ons. It is, in short, a technology company that eschews technology. So it's not surprising that Apple is hot and AOL is not, even though in AOL's latest quarterly report it had $2.133 billion in revenue (20 percent of Time Warner's overall revenues).
For AOL to succeed, it has to change. Not only must it take a page out of Google's playbook, but it has to attack Google.
Here's why: AOL knows it can tread water only so long. Its future is in paid search advertising. But, as Joe Holcomb, a search-engine expert formerly with second-tier meta-engine BlowSearch, puts it, "What AOL does not control is a complete advertising platform with search as its key component" -- and that's where the money is.
Remember, AOL still has 20 million subscribers, and perhaps as many as 50 million AOL instant-messaging users. Yet whenever any of them conducts a search, they use Google, because Google is the engine that powers AOL's search. But think of the revenue AOL could generate if it got rid of Google and created its own search engine.
I'm not talking from scratch, like Microsoft has been trying to do for MSN. AOL users don't need state-of-the-art search capabilities. In fact, the company could buy an existing meta-search engine, which combines results from several search engines, and retrofit it to its own network. Then AOL would be able to compete with the other portals -- Google, Yahoo and MSN.
Take this AOL-branded search capability for keywords, news and video, and fold it into the new AOL homepage, which is in beta, and "AOL in conjunction with Time Warner could become the cornerstone of Time's media business," Holcomb said.
Not only would this benefit AOL, but it would also hurt Google, which would go from friend to foe, something Google is well aware of. In its latest quarterly report, Google pointed out that AOL accounts for almost 12 percent of the search giant's revenues. Twelve percent of $5 billion is $600 million -- and all of it could be flowing into AOL's coffers.
AOL "would be crazy if they were not bound and determined internally to have their own platform for both pay-per-click and contextual advertising," Holcomb said. By combining AOL properties like MapQuest, Moviefone, Winamp and the Netscape browser, plus the multimedia search engine SingingFish.com, "AOL is putting together a complete offering to give Yahoo, MSN and Google a run for their money."
Of course, not everyone agrees. Danny Sullivan, editor of Search Engine Watch, views a gambit like this as a long shot at best, and questions just how much it would harm Google.
And Charlene Li, a senior analyst at Forrester Research, said, "AOL is sitting in a very nice position -- rather than spend lots of cycles having to deal with search algorithms, they can play Google, Yahoo and MSN off of each other in the future. So for at least the next few years, I don't think AOL will do anything." Instead, the company will focus on the overall user experience and "just make sure that search hums along."
But AOL executives should ask themselves: What would Steve Jobs do? He sure wouldn't let a golden opportunity slip away to make a splash, would he?
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Adam L. Penenberg is an assistant professor at New York University and the assistant director of the business and economic reporting program in the school's department of journalism.
