The competition's conundrum
For AOL's competitors, the way to success appeared obvious at the time. Web portals such as Yahoo attract millions of people every month and earn their dollars through advertising and e-commerce. But the portal market imploded, leaving AOL, Yahoo and Microsoft's MSN to share the bulk of advertising dollars.
Of all the leading online companies, Microsoft has probably experimented the most with the portal and ISP strategies. It has fervently tried to take out AOL since 1995, when it launched MSN as a proprietary online service. That effort failed to attract enough consumers, and the company soon split its access and Web content businesses.
Microsoft has since refashioned MSN into a portal and branded its other Web properties under the MSN moniker. The company shifted again last year, launching MSN Explorer, a software product that links many of the company's Web efforts into one service: MSN.com, its Internet Explorer browser, MSN Hotmail and its Windows Media Player. Consumers using MSN Explorer can also get Internet access.
Microsoft is opening an attack on the pricing front as well, trying to lure AOL subscribers irked by the service's recent rate increase. But MSN, which is believed to be hemorrhaging red ink, plans to increase revenues in other ways, such as charging fees for multiplayer games, music services, video on demand and Internet phone calls.
"It's hard to raise the price from free to a paid price. That is a difficult transition to make," said Bob Visse, MSN group product manager. "We want to add additional services beyond what people expect they can get for free."
Yet all of this may be too little and too late to topple AOL, which has littered the portal landscape with its conquests.
When @Home acquired Excite.com in 1999, the company envisioned a service that would combine high-speed access over cable with a popular Web portal as its start page. Consumers, however, did not flood Excite@Home with requests for cable modem service.
Terra Lycos has had difficulties pursuing this route as well, through services with standard household speeds. The company earlier this month slashed its 2001 revenue forecast to $624 million to $650 million after initially expecting $900 million.
Of the portals, Yahoo remains the one to watch as the ultimate bellwether for the free-Web industry. Some believe it's not too late for the company to fight AOL on its own turf, with Internet access.
"If anyone wants to compete with AOL--and I'm looking at it more from the access standpoint--then they're going to have to buy EarthLink," Frank Gristina, an analyst at Robinson-Humphreys, said of the leading consumer ISP. Yahoo is "clearly trying to generate premium services, and access is the ultimate premium service for the Internet."
Experimenting in portal land
None of this is to say that AOL has always been immune to the lure of the free Web. Only a few years ago, Yahoo, Lycos, Excite.com and Infoseek put tremendous pressure on AOL to compete against them for traffic at a time when Wall Street was rewarding those numbers with skyrocketing stock prices.
In 1998, AOL told Wall Street it would use the recently acquired ICQ instant messaging service as one element in the company's multi-brand portal strategy, along with AOL.com and its CompuServe subsidiary. AOL then acquired Netscape Communications later that year, adding that company's Netcenter portal to the list.
"Much like the strategy of Yahoo and its ilk, AOL used those types of free services as a way to lure people into its Web sites," said Mark Mooradian, an analyst at Jupiter Media Metrix.
For the most part, however, those portal initiatives appear to have been largely defensive moves to prevent coveted members from leaving the online service for the competition.
AOL.com, which has largely remained an offshoot of the subscription service, has since been renamed "AOL Anywhere." Instead of highlighting Web searches and other portal functions, the site's primary mission is to offer AOL members a way to use their email or chat services on the Web.
AOL "didn't create a huge portal brand, but I don't think that's what they set out to do," said Abhishek Gami, an equity analyst at William Blair. "They referred to any non-AOL brand as a 'flanker' brand. They fight on the periphery of the battle and very selectively pick off elements of the enemy."
In the end, much of AOL's success can be attributed to values that are distinctly Old Economy, lessons learned from established media such as newspapers, magazines and cable television.
No one knows this more than Bob Pittman, the co-chief operating officer of AOL Time Warner and former MTV executive whom many believe is the heir-apparent to lead the media conglomerate.
As he put it in a recent speech: "The good news is once you have a subscriber, it's hard to lose him."
