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AOL Disbands Its Subscription Division

The ISP continues moving toward an advertising-supported network with the breakout of its subscription business unit.
September 25, 2006

America Online announced its second major content shake-up in three years, effectively rolling back all of its decisions from 2004, reducing the role of its dial-up subscription service, and giving managers more control over monetizing the company’s different consumer offerings, according to this Associated Press article:

To ensure that lower-level managers can more quickly and effectively develop new services to draw more visitors, they will be given more control over a product’s technology, testing, business plans and rollout “and then be held responsible for the results,” (Chief Executive Jonathan) Miller wrote (in a memo to employees).

The move comes as broadband penetration crawled past the 50 percent barrier for U.S. households. With people regularly accessing rich-media content and the growth on ad-supported sites, AOL’s recipe for success–creating content “walled gardens” that could be accessed only by AOL subscribers–was going bad.

Miller’s plan, according to his memo, is to completely redesign the look of AOL’s operations, according to this MarketWatch article:

AOL plans to eliminate its four major business units, called Access, Audience, Digital Services and AOL Europe. Each was created two years ago during the last big AOL organizational shake-up.

In their place will be “smaller, nimbler product groups with more authority” and much more autonomy than before, AOL Chief Executive Jon Miller wrote to employees Wednesday.

The end-result, Miller hopes, will be managers who can capitalize–and grow–the reach and scope of their audience, which has been artificially capped because of the “walled garden” approach.

How important is this for Time Warner/AOL? For the parent company, it’s not. Time Warner sites already rank third in overall usage each month, according to the latest figures from Nielsen/NetRatings, reaching roughly 58 percent of all households–although AOL holds a substantial lead in the “time spent” category, leading its competitors by nearly double.

For AOL, this could be a make-or-break experiment. When I worked at Lycos in 2000, that company went through a similar shake-up, with decisions pushed down to the director levels, with each business unit made responsible for its own profitability. Within two years, struggling units had been shut down–and moderately successful units that didn’t fit into the overall Lycos scheme were sold, leaving only a handful of core businesses.

While AOL and Lycos are different enough companies, it’s hard not to view the current restructuring as one in which AOL ends up completely consumed–and dispersed–through the Time Warner network.

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