How AOL Dropped The Ball
It’s the 90s. A time when one of the biggest cultural moments of the 20th century played out on the big screen. Americans watched with bated breath as Meg Ryan and Tom Hanks fell in love in the innocent and unlikely romcom You’ve Got Mail. A movie that taught us as much about love as it did the power of email. After all, this movie is a love letter to … email. Or, more specifically, AOL.
From instant messaging and online news to email, AOL ruled the 1990s and much of the early 2000s. For many, AOL was their introduction to the internet, and it’s not hard to understand why. Within a few years, the company was a giant that dominated the email and online news space. At its peak in December 1999, AOL is estimated to have had a market valuation of about $200 billion. But the glory days didn’t last.
A combination of missed opportunities, balls being dropped and bad leadership decisions meant that AOL couldn’t maintain its position as an industry leader. AOL’s fall was as spectacular as its rise, and in that sense, it serves as a case study on what companies shouldn’t do and just how disastrous dropping the ball can be.
The Rise of AOL
AOL helped define the internet and brought the world online. Its humble beginnings were a result of a failed company called Control Video, which sold Atari games. Out of these ashes, Steve Case created Quantum Computer Services, which was meant to be an online bulletin board for Commodore 64 computer owners. It grew from a few thousand members to 100,000.
In 1991, the company was renamed American Online or AOL, and by 1993, it had introduced its own email addresses. The aim was to make the internet accessible to everyone at a time when only academics and diehard techies ventured online. In 1993, AOL launched an aggressive campaign to gain new users by mailing floppy disks and, later, CDs with the company’s software and a few hours of free service. The campaign was a huge success.
By 2000, users had grown from less than 200,000 in 1992 to over 24,000,000 in 2000. During its peak, AOL is estimated to have gained a new user every 6 seconds. AOL’s growth continued with its merger with Time Warner later that year — one of the largest mergers in history. AOL’s merger with Time Warner was a turning point for the company. But not in a good way. Despite expectations that AOL Time Warner would grow 33% in the next year, it didn’t. It soon became clear that this was unrealistic, and the company couldn’t live up to the inflated financial expectations.
Winds of Change: The Evolving Internet Landscape
Two shifts in the internet landscape greatly impacted AOL and contributed to its demise. First, the burst of the dot-com bubble reshaped the online advertising landscape. During this time, many advertisers went bankrupt and could no longer afford to invest in ads. This was a huge blow for companies like AOL, which heavily relied on advertising revenue to sustain their operations.
Then there’s the emergence of broadband, which meant that households didn’t need to sign up for dial-up, something that had been AOL’s bread and butter. AOL’s business model was heavily reliant on dial-up internet subscriptions. Users wanted a faster and more reliable internet experience and started to leave AOL. This almost brought the company to its knees. By 2003 the company reported a record $99 billion loss — the largest in corporate history.
By the late 2000s, AOL couldn’t keep up. It was losing to the cooler kids on the block: social media platforms like Facebook and Twitter. Despite many attempts to keep users engaged and reinvent the platform, AOL was hemorrhaging subscribers. Add to this the fact that AOL was suffering from outages, which often saw users cut off for hours at a time, and things weren’t looking good for this once internet behemoth.
Dropping the Ball: Missed Opportunities and Leadership Failures
While many factors contributed to AOL’s downfall, the biggest stumbling block was its failure to anticipate and adapt to technological shifts. They dropped the ball because they’d become complacent. And so, when all other internet service providers zigged, they stayed put.
Under Steve Chase’s leadership, the CEO during much of the 2000s, the company failed to evolve as technology advanced. AOL missed the moment and stayed stuck in the dial-up days when most people wanted broadband. While competitors swiftly embraced broadband, AOL remained tethered to the dial-up era, failing to pivot its infrastructure and services accordingly. There was a lack of vision and strategic foresight at the leadership level, as well as resistance to exploring new avenues and diversifying revenue streams.
But this was only part of it. AOL’s business model wasn’t profitable, and its partnership with Tim Warner didn’t serve it well. Instead of leveraging this partnership, the conglomerate struggled to deliver what customers really wanted. This lack of cohesion further hampered AOL’s ability to innovate and compete in an evolving landscape.
Lessons Learned
AOL is a cautionary tale about how fleeting success can be. A company can be on top one day and have nothing the next. When you stop and think about it, AOL could have been bigger than Google or Meta. It was on a growth trajectory, and in the early 1990s, no one would have guessed that its demise was around the corner.
But it’s not all depressing. There are some empowering takeaways from this story. AOL’s rise and dramatic fall remind CEOs that they can never afford to drop the ball or become complacent, especially when you think you’ve made it. AOL is a reminder of the importance of staying agile and adapting to change and innovation. CEOs should leave room to innovate because that’s the only way to outsmart the competition.
Final Thoughts
AOL’s journey from trailblazing internet pioneer to its eventual demise is a story about the relentlessness of technology. As one of the early pioneers of internet services, AOL was a dummies guide to the internet: it brought us online. But AOL’s success was not meant to be.
All this has implications for the broader business landscape. It is a stark reminder of the importance of agility, innovation, and adaptability. Companies must evolve to stay ahead of the curve and remain relevant. But it’s more than that. AOL shows us just how dangerous complacency can be and how that we’ve-made-it feeling is a business blindspot.
AOL’s story isn’t just one for the books. It’s a chilling wake-up call for all of us. Especially now that AI is here. And while many of our fears seem as fantastical as an Asimov novel, there’s no denying AI is forcing companies to step up and innovate. Here’s looking at you, AOL.
Stay tuned for our next article and for the latest on Jigso!
Thanks,
Oren Langberg
Head of Marketing & Community @ Jigso
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