What is AOL Trying to Be?

Is AOL, the company that helped popularize the Internet, preparing
for a facelift?

As parent company Time Warner readies an
announcement on the company’s future, analysts expect a break with
the past. AOL and Time Warner had no comment on speculation heading into
an Aug. 2 announcement.

But several reports suggest the Internet
company is seeking to break from its reliance on subscribers and
adopt the business model of Yahoo or Google.

“We don’t have anything to add to either report,” AOL spokesperson
Nicholas Graham told internetnews.com. Time Warner also said
it would not comment.

Any changes could be radical, say analysts.

“The only way they can continue to survive is by adopting a Yahoo-like model,” Vamsi Sistla of ABI Research said.

AOL is guilty of what Sistla called “navel-gazing,” adding that the company
missed the boat on social networking and other trends.

Sistla believes there is “a very good possibility” Google will buy
AOL after leaving Time Warner.

In late 2005, Google paid $1 billion for a 5 percent stake in
AOL.

If not Google, he said, Yahoo, eBay or another
suitor. “AOL has to be bought out by someone.”

Current AOL management is not nimble enough to accomplish more than
incremental growth, according to Sistla.

With so many services
already offered elsewhere for free, there is no reason for anyone to go
to AOL.com unless they are an AOL subscriber, he said.

AOL must adopt “something more like a Yahoo-like business model,”
said David Card, of JupiterResearch, who added that such a move is inevitable.

Earlier this year, AOL began shifting to more free services,
including In2TV, a joint offering with Time Warner providing
classic television shows over the Internet.

AOL has seen its dial-up users shrink, according to Card. In March,
AOL reported 18.6 million subscribers, a drop from 26.7 million in
2002.

The decline caused the Internet company to shutter some of its
call centers and partner with Clearwire in an attempt to hold onto users.

But despite the slacking subscribers, another JupiterResearch analyst doesn’t think AOL will exit the ISP business overnight.

“I don’t think AOL will pull the plug on their ISP business,” Joe Laszlo
said.

Don’t expect next week’s announcement to include plans for the
company to overnight drop that side of their business.

Rather, Laszlo
believes any transition could take up to two years.

Indeed, the analyst foresees AOL using profits from its ISP units to
fund its future plans.

But in a post-ISP business, following the Yahoo model will provide
AOL with a much wider audience, Laszlo said.

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