The Business Pursuit

aol

patriciahandschiegel:

AOL is apparently not doing well.

It shouldn’t be a surprise. Many companies on the internet are not.

It’s not talked about because there’s a perception of tons of money and success and big valuations.

In reality, a lot of it is investor money, not revenue. Valuations are estimates. You can estimate a lot of things but it doesn’t change that estimations are not really real or accurate. A lot of the big user numbers aren’t really users. Businesses ultimately only succeed with revenue and customers, period.

It is not to put down anybody. Business is hard. But this is the reality.

A lot of internet companies are struggling. Many are barely getting by. Many are trying to reposition, struggling to raise additional capital, bridging, not making revenue or enough revenue. A lot are trying to sell and are finding they have little or less value. This includes a lot of star companies that are or have been otherwise celebrated by the media, etc.

You don’t hear about it in the media, but you hear about it in the industry. The industry only talks to the media and tells it what the industry wants it to hear when it wants to manipulate what the media thinks.

Getting back to AOL. AOL’s problem is also not just limited to AOL but to the overall industry. A large part of the struggle in the market is because a lot of the market doesn’t understand the internet, information delivery and communications platforms, and how to do business over them. This is understandable. The internet is a disruptive platform, forcing whole industries to have to take what had always been in place for them and apply it somewhere else. Some haven’t had to really look at their business models before because it’s been in operation and running for decades. A lot have no experience in platform business, all kinds of things. In addition, it is a lowered barrier market, which means more people who potentially know less.

Disruptive markets and adapting to innovation isn’t easy for anybody. Imagine now being a company like AOL, which has been on the internet since the consumer internet started. The same need to adapt and evolve will be something today’s hot companies also will face. It’s not likely everybody today will nail it later either.

Where AOL made mistakes is where most of the market has. You can’t build a business on ‘traffic,’ because traffic aren’t users. It can potentially create some users, but it can’t replace them all together. It also tends not to be very sticky, meaning those who do come don’t come back. SEO and referral links became the go-to strategy because people were keeping their eye on the wrong metrics — the page view is no different than someone driving past a billboard or a sign. It can convert to some customer activity, but it shouldn’t be seen overall as a customer any more than you driving by the McDonald’s sign means you’ve eaten there. McDonald’s only succeeds when you eat. This can then affect display ads, because display ads only work when there are people there to see them. A visitor that spends less than a minute on a site, doesn’t look around and doesn’t return is not likely going to notice a display ad on a page.

This is an industry-wide mistake many companies are hurting from today.

Another thing AOL hasn’t gotten right is the information delivery position, which is another widespread mistake in the overall industry. AOL’s core business is access, so it’s technically already in the service provider role. Going into information delivery could work, but AOL took the role of being a media company itself versus the distribution network. That’s a mistake unless it can operate like a media company, which won’t give it the kind of scale its shareholders might expect and want to see. Information business and information delivery are two different markets with two different models and two different overhead costs, scalability, etc. The software business approach, model and scalability doesn’t really work the same way information business works. They’re two different markets, two different types of business, etc. You can’t apply the rules and things that apply to creating and running Microsoft to creating and running the Wall Street Journal.

It just won’t work. AOL has also made the common mistake of thinking that more means scale, which is a mistake a lot of companies also make on the internet. AOL has so many different things going on, you can’t really tell what AOL does. Is it a media company? A distribution network? A service provider? It’s fine to do a lot of things, but to make it work you have to establish and grow each of those channels before you add more of them. Just because the internet allows the ability to expand directions doesn’t mean everybody should, or everybody should right away.

There’s also been an issue with how AOL is losing talent. Which has a lot of people wondering if the company had so many great people, why is it such a mess? Is it too big to fix? Not willing to listen to the executives it hires to run the company? It’s not clear. But I remember a lot of surprise that its head of its content business at one point had no formal content business experience, which is another common industry mistake. A lot of companies assume that just because somebody worked at X big name internet company that they will automatically understand all aspects of business on the internet. But because the internet is a multi-platform business environment doesn’t mean it works that way.

So really, AOL isn’t making mistakes unique to the market. It’s making a lot of the same mistakes everybody else is making.

Note: I changed ‘most’ to ‘many’ in the first sentence above, see comments below on why. Fair point, Andy!

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