— Eric Auchard is a Reuters columnist. The opinions expressed are his own —
By Eric Auchard
LONDON (Reuters) - AOL’s mega-merger with Time Warner — which is finally being unwound — made the headlines both as the defining deal of the dot-com bubble and as a textbook case of a failed integration.
The debacle has kept a lot of media writers employed this decade, kicking Time Warner Inc for its missteps. But the planned spinoff of the one-time Internet leader could finally free AOL to pursue its destiny as a far smaller but potentially disruptive Web company.
It won’t be an easy road: Ask many Internet users when they last used AOL, and they’ll tell you it was “years ago.” The company is better known for its messy, protracted divorce more than what it actually does for business. But AOL is not the same company it was when the Time Warner merger was consummated.
Far from the online portal business it once was, AOL now operates a highly distributed collection of Web media sites and online advertising networks.
Instead of trying to bring users to a central site and keep them there as long as possible, AOL is creating a network of websites aimed at target audiences, including movie-lovers, gadget freaks, women, men, celebrities, in many different languages or cultures.
These sites are funded by advertising which AOL targets those audiences using clever search technology.
Carried to its logical extent, AOL could create millions of personalized web sites on the fly by pulling together relevant tidbits of content based on a user’s prior web usage habits and expressed interests.
The hope is that by getting the most relevant content in front of web users, AOL will attract their interest and thus eyeballs to their niche advertising.
AOL’s remaining dial-up business loses a quarter of its customers every year. But the remaining 6 million access customers give it cash to fund its focus on advertising markets.
What crippled AOL Time Warner was the mixing of oil with vinegar, a fast-growing hot-stock with a debt-laden media giant. This made it impossible for AOL to bite the bullet on a business strategy that might have saved it, namely to hop on the broadband bandwagon that has more or less devoured its aging dial-up Internet access business.
To maintain appearances, Time Warner perpetuated the idea that AOL remained far more valuable than it was. In late 2005, it struck a partnership deal with Google that valued AOL laughably at $20 billion.
Facebook played the same game when it signed a partner deal in 2007 with Microsoft where the software giant took a small stake in the social networking firm at the obviously inflated valuation of $15 billion.
Google’s subsequent write-down on the AOL deal has reduced AOL’s implied value to about $5 billion. Investors will need more information to value the disparate collection of online advertising, media and stub Internet access business to define what AOL is actually worth.
Humbled, stripped even, of notions of its former greatness, AOL has as much chance as any mid-sized firm in a Web world defined by new giants — Google, Facebook, Twitter, perhaps Amazon, Microsoft or Yahoo.
AOL's problem has been delivering on past promises. Former AOL leader Steve Case quoted Thomas Edison to describe what wrong: "'Vision without execution is hallucination,' - pretty much sums up AOL/TW - failure of leadership (myself included)," he summed up on Twitter on Thursday (twitter.com/stevecase).
AOL’s new chief executive, Tim Armstrong, looks up to the task. As Google’s former U.S. advertising sales chief, he knows as much as any one in the industry about the intersection of web search, content and advertising.
— Eric Auchard does not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. — (Editing by David Evans)