Breaking Up AOL is Hard To Do

all things tech. And in our last episode, I traced how A o L became a dominant player in the dial up online service provider business, leading to the incredibly ambitious merger with Time Warner to form a o L. Time Warner and I talked about how the dot com crash and the rise of broadband dealt a double whammy of a blow to the brand new company, making the merger look like it was premature and wildly too expensive of a move for both companies, and I ended mentioning

that Steve Case, the last remaining founder of A o L, stepped down from the board of directors in two thousand five. But not every ing was dark and dismal for A o L. In two thousand five, the company was being eyed with interest by some other big names in the text sphere. There were stories that both Microsoft and Google were looking at A o L as a possible acquisition if they could convince the merged company to break up. Again, A O L had repositioned itself with a bit of

a renaissance. At the end of two thousand four, many people were still using lots of A O L's services, including A O L Instant Messenger and map Quest, which the company owned. The A O L dot Com website offered up the content that previously only A O L subscribers had been able to access, and it was all free. Well, I mean, it was his ads supported, but you get

what I mean. However, al L was still making some really big business moves while things were looking uncertain, and that just made people kind of wonder what was going on.

In two thousand four, the company had agreed to acquire a startup called Advertising dot Com, Inc. And I'm pretty sure you can guess what business that company was in the division We get a rebranding in two thousand thirteen as A O L Networks, partly to send the message that services could span across different types of screens, not

just computers, but televisions and phones and other devices. But executives over at the time Warner side of this company weren't really head over heels in love with A O L. Before the merger, A O l's value was estimated to be somewhere in the two billion dollar range. Yikes. After the dot com crash, however, that value dropped to five billion according to some accounts, although honestly most accounts say

the value was closer to twenty billion. But whether it's five or twenty, both of which are enormous numbers, get don't get me wrong. Billion is a lot. That's such a huge drop from two hundred billion. By two thousand five, the number, according to some sources, had climbed a little bit. It was moving in the right direction, but still a fraction of what A O L had been prior to the merger. At the time of the merger, AOL had the higher market capitalization between the two companies, but Time

Warner was making way more revenue. So you can look at this as indicative of the whole dot com problem. In the first place, you had these internet based companies that were valued much, much greater than what they could actually pay off in the They their value was greater than their worth, and that was really the issue that led to the dot com bubble bursting in the first place. The culture clash never settled down between the two companies.

They weren't able to find a good equilibrium. The AOL executives felt their traditional media counterparts just didn't get how business on the inner that worked. They were probably right, but the Time Warner executives saw A O L as wasteful and filled to the brim with hubris. A company just was convinced that the way it did things was the right way, and that it was building a business on a product that was clearly on the way out, that being dial up service, and the Time Warner executives

were kind of right. No one was wholly in the wrong here, other than the fact that this partnership was wholly in the wrong. In fact, by two thousand three, just a few years after this merger, A O L. Time Warner began to drop the A O L part from its name came to just call itself Time Warner again. Keep in mind, all L was the company that technically made the acquisition. It's technically the company that bought Time Warner, but now the collective entity was casually ignoring the online

part of its identity. In two thousand five, A O L and tell A Pictures Productions, a division from Warner Brothers, would create TMZ and If you're not aware of what that is, consider yourself fortunate. It's a tabloid news website that's mainly focused on following celebrities around and publishing everything it can about those celebrities. It has been one of the more successful properties to come out of the A O L and Time Warner days. So I'm pretty snarky

about the whole thing. I don't really like TMZ and the way they do business. However, I cannot deny that it's been a money maker. It has been very successful, whether I like it or not. So I mean, you know, they they're the ones who became really rich on it,

So what do I know. In two thousand and six, America Online officially changed its name to A O L. CEO John Miller said that the reason for this change was that getting America Online would That had been the old mission of the company, to get America online, so that's why it called itself America Online. But he said, the company did that. We've done that already. We achieved our goal. So this new name indicates the quote expanded mission to make everyone's online experience better end quote. A

O L had also changed in another way. It changed from A corporation into a limited liability company. Now they get into the differences between an LLC and a corporation in the United States is more than a little beyond the scope of tech stuff, but it mostly has to do with how profits and losses are handled, and it also has to do a lot with how a company is taxed. So we're not gonna dive into all that. I'm sure most of you don't really care, and honestly,

it gets pretty dull pretty fast. But the following year, AOL made another big change. It moved its headquarters, which had been in Dulles, Virginia ever since the founding of the company. Now it was going to move to New York City. It also laid off about two thousand employees, or about of its entire workforce. This move was largely to refocus a o L on its advertising business as the dial up side continued to dwindle, though it was

still generating revenue at that point. This was two thousand seven, and and just for reference, two thousand seven was also when Apple introduced the iPhone. So the iPhone comes out, people are still using dial up modems enough for a o L's division to be profitable that's not the last time we'll talk about dial up though. Anyway. A o l's new headquarters were closer to Time Warner's HQ, and it was also much closer to the advertising world in general.

The advertising world in the United States is almost entirely based out of New York City, so this was putting a o L close to where the advertising businesses thrived. AOL also would change CEO s Jonathan Miller, who had been leading the company up to that point, was replaced by a guy named Randy Falco. A o L made some acquisitions, many of which did not turn out so well. So. For example, in two thousand eight, a o L acquired

a social networking site called Bibo. It's not that well known in the United States, but it was the second largest social network in the UK after Facebook. Back in two thousand and eight. Bibo could boast twenty two million unique visitors and they spent an average time of forty minutes a day on the service, which sounds like a

pretty attractive bargain. You can go to an advertiser and say, I can guarantee you that millions of people are going to look at this for forty minutes every day, and you're gonna be able to sell a lot of ads. So A O L would spend eight hundred fifty million dollars in cash on this acquisition. So how did it turn out? Not great at all? Now, you could argue that Bibo was on the same path of decline that A O L was as a As broadband was becoming

more popular, A Well's dial up was dwindling. Well, Bibo was seeing its number of users dwindle. A lot of them were going to other social networking sites like Facebook. A O L was not able to capitalize on Bibo like executives had hoped, So just two years after buying the company, A o L would sell it to a digital media investor group called Criterion Capital Partners, and the price was much lower than the eight hundred fifty million dollars that A o L had paid for it. They

sold it for ten million. Three years after that, the original founders of Bibo were able to buy back their company from this investor group for just one million dollars. So they sold it for a D fifty million and then they bought it back for one million. Now that's all a bit outside the scope of A O L. But I thought it was an interesting little tidbit, so I decided to include. Plus it's another way to illustrate how A o L was still making some pretty questionable choices.

That the merger with Time Warner wasn't an outlier. I mean it was an outlier in the sense of how big it was. A hundred sixty billion dollars is an enormous outlier, but not an outlier in the sense of making some rash decisions that ultimately didn't pay off. Now that's also not to say that every purchase A o L made was inherently bad. A o L bought lots of companies, dozens of them. In fact, companies like Weblogs Inc. That owns popular sites like Engadget and the former Joystick.

There was Game Daily that A o L purchased True Vio. All of those made products or services that faced the public. A well also bought companies like e Voice, Info Interactive, and ad Tech. Those were more business oriented ventures, so not necessarily things that you and I would encounter, but

other enterprises would. And A o L was never afraid of buying other companies in an effort to remain relevant or regain relevance, depending upon your point of view, but things between A O L and Time Warner would get less stable by the year. The cultures of the two companies still had not found a good meeting point. In March two thousand nine, the company replaced CEO Randy Falco. The new leader for the A O L branch would

be Tim Armstrong. Armstrong was coming from Google, where he had helped build the company's advertising division into a juggernaut. At the time, various industry journals reported that Armstrong had had aspirations of being a CEO of a company, He just hadn't quite settled on which company he wanted to go for. According to add Age, his name was one of the ones that Yahoo was considering when it was searching for a replacement for their CEO and founder Jerry Yang.

But A O L would end up being his destination. And that was just the beginning for the big events of two thousand nine. I'll explain more in just a second, but first let's take a quick break to thank our sponsor. In May two thousand nine, just two months after Tim Armstrong took the helm of A O L. The tumultuous pairing of A O L and Time Warner began the slow march to divorce. Time Warner said it would spin off A O L as an independent company later that year.

In December of two thousand nine, A O L shares would begin trading on the floor of the New York Stock Exchange. Time Warner executives said the reason for the split was that A O L was more likely to grow as a separate company than as part of Time Warner, and that A O L attracted different investors than Time Warner did. Time Warner would become a more lean and straightforward company as well, according to the wisdom of the time,

and this was largely true. Time Warner, by the way, and I'll again have to do a full episode about this whole thing at some point. They would later spend off Time Incorporated in two thousand fourteen, and in two thousand eighteen, A T and T would move to acquire Time Warner, which is now called Warner Media LLC. By the time this episode airs, that should be finalized. But as I'm recording this, there's currently an appeal out on

an earlier court ruling that permitted the mergers. So you had one court say yeah, that mergers fine, and A T. And T and Time Warner were ready to make it a real deal, but then you had an appeal go out, and that appeal is still being decided as of the time I'm recording this episode. Between the announcement and the actual spinoff date, A O L would acquire another company called Patch Media, and Patch Media oversaw community news websites

so reach local community news. It was also a company that was co founded by Tim Armstrong, the leader of A O L. A L would end up investing another fifty million dollars in Patch in but in the company announced it would be reducing the number of Patch sites from nine hundred to six hundred, and also the company would be laying off staff at all levels of the organization. Armstrong also famously publicly fired Patches creative director over a

conference call on which all Patch employees were participating. Armstrong would later apologize for this breach in etiquette. A O L would spend off Patch and sell off its ownership. In two thousand fourteen, in A O L purchased tech Crunch, a tech news site that was founded back in two thousand five. Tech Crunch is still part of the overall company that we'll get into how that company has changed

in just a little bit. Also in a o L bought a young web hosting service called about dot me, which had launched in October two thousand nine, so it wasn't even a full year old when a o L bought it. About dot Me is meant as a sort of centralized personal web page, and it's meant to coordinate all the various online points of contact a person might have in one place. So there are various social media accounts,

email addresses, websites, all that kind of stuff. And that way, if you went to about dot me and you searched for me, presumably you would find links to all the different ways that I have an online presence, and I can cultivate that, I can decide which ones they share and which ones they don't, and like Bibo, this acquisition

ended up not being a great fit. Tony Conrad, who was one of the co founders of about dot me, was able to buy back majority ownership of the site from A o L in two thousand thirteen, and it had been two years and a month since a o

L had bought the company. The detail else of the two business transactions how much A o L paid for it and how much Conrad had to pay to get it back were never made public, but Conrad did tell The New York Times that he paid a fraction of what A O L had paid for the company back in. So once again, a O L buys a company and then sells it off at a fraction of what it paid for it once it realizes this wasn't a good fit after all. It seems to be a pretty common theme.

In two thousand eleven, A O L made another big media acquisition when it bought The Huffington Post for about three hundred fifteen million dollars. Arianna Huffington's, the founder of the Huffington's Post, was named a O L Content Chief, and she held that position until two thousand sixteen, when she would step down from A O L to concentrate on a new startup called Thrive Global. The Huffington's Post

acquisition was in February two thousand eleven. In April two thousand eleven, A O L would cut nine hundred staff from The Huffington's Post. Now that included two hundred jobs in the United States and seven hundred jobs in India. Tim Armstrong told reporters that the company's goal was to move toward having s of a o L staff working in editorial or other content divisions like tech Crunch. The

Huffington Post is still part of the overall company. Armstrong was guiding a o L to focus more on creating content and then advertising against that content, and it was working as recently as Internet subscriptions made up of a o L's revenue, but with Armstrong's changes, that was shifting more toward revenue from advertising, which is good because again the dial up service was not going to increase year

over year. In two thousand thirteen, the company posted its first revenue gains year over year since two thousand five, them in the company was finally growing again from revenue. The company continued its course by acquiring a video ad company called adapt dot tv for four hundred five million dollars. It actually was able to pull market share away from Google this way, and in a o L would post

a one six million dollar profit. Also in al began to face pressure from investors to make another really big move. The pressure came from an American hedge fund called Starboard Value. The organization owns shares and numerous companies, including A two point four percent ownership of a O L. And it was using its stake to influence how those companies are run,

which is something shareholders do all the time. You can vote because of your shares, although the amount of influence you can exert is based on how many shares you hold. If you hold one share and a company has millions of shares out in the market, your vote probably isn't going to make a whole lot of difference. Starboard is sometimes called an activist investor because it takes such an active role in steering the course of the companies that

it invests. In The specific direction that the investors wanted to push A O L toward was in a merger with Yahoo. Starboard was similarly putting pressure on Yahoo because it had steak in Yahoo as well. Spoiler alert, by the way, those two companies AOL and Yahoo would eventually be brought together, but not through this method. At the time. Armstrong would refer to the proposed merger as quote a dead notion end quote. And then we get to and another really big change for A O L. Armstrong had

been leading the company since two thousand nine. His leadership was marked by both success in the form of guiding a o L too year over year revenue gains and some failures like the mess with Patch, but overall a O L was in much better shape as a standalone company adapting to the realities of a broadband connected Internet than it had been when it was under the umbrella of Time Warner. In two thousand fifteen, another company would step up to change things, and that company was Verizon.

Verizon is a telecommunications conglomerate that traces its history back to A T and T. In the eighties, the United States Justice Department ordered A T and T to break up the system of companies that had been under the Bell system. It's named after the Bell Telephone Company, and

ultimately it's named after Alexander Graham Bell. A T and T was originally one of the companies under the American Bell Telephone Company, but then A T and T would go on to acquire the assets of its parent company and become the new parent company back in eight By the nineteen eighties, the U. S Government had determined that the Bell system was a monopoly and ordered A T and T to break up the system so that there would be multiple competing companies operating the telephone service Bell

Atlantic was one of the is that was broken up in this process. Bell Atlantic itself consists of four smaller telephone companies, or it did at the time, and eventually Bell Atlantic would become Verizon in two thousand. That was when Bell Atlantic merged with another telecommunications company called GTE Corporation,

and thus Verizon was born. Verizon acquired A o L for four point four billion dollars in cash, a huge amount of money, but a pittance compared to the hundred sixty billion dollar deal that had taken place between A O L and Time Warner. Analysts said that Verizon's motivation was likely fueled by a slowing mobile market. At the time of the acquisition, Verizon was sitting at number fifteen on the Fortune five D list. Today it's down to sixteen.

Still still not bad, but success depended heavily on growing the mobile market, and as more people by mobile phones, the demand was was decreasing, right there fewer people who don't have a mobile phone. Grabbing a O L, which was making real progress in online advertising must have looked like a pretty sweet deal. But we've seen that before

in this series, haven't we. Where companies have thought, oh, we'll just get this other company that's already got its hand in in this industry, and then we can just profit. So what actually happened, Well, I'll tell you, but first let's take another quick break to thank our sponsor. Tim Armstrong stayed in the driver's seat at A O L. Upon the Verizon acquisition. The company continued to focus on ad revenues, and it also launched a news service called One.

One represented a unification of a O L's various ad products, including the ones the company had acquired by buying other companies, kind of making a central, one stop shop for advertisers. According to a tech Crunch p on the product, the idea was that advertisers could use that tool to optimize campaigns across all of a O L's capabilities, which would include television, video, web based ads. So you would come up to A O L and say, I want to

run an advertising campaign about this product. Here's my budget. How can we make the best use of this so that we reached the most people. While searching for stories about A O l that were centered around this particular time of its history, one thing that jumped out at me was how many media outlets posted surprise takes on the fact that in two thousand fifteen, a o L still had two point one million customers using dial up service. You know, i'd said back in two thousand seven that

was still having you know, millions of people. Two thousand fifteen, still two point one million people using dial up. Now, the surprise that the media reacted with strikes me as a little elitist. Actually, it strikes me as a lot elitist, because it can be very easy for people like me, someone who lives in a large city, or at least a decent sized city, to forget that broadband penetration isn't uniform throughout the United States. There's still some areas that

have very limited broadband support. And then not everyone is using the internet to watch episodes of Stranger Things or download the latest Red Dead Redemption game. Some people, uh, maybe they're older, and maybe they have less experience with technology. A o L represents something they're comfortable using, they know how it works. They're not ready to move over to

something else. So it's no surprise that there's still customers there. Uh, that there are two million, Maybe that's surprising, but that was the case at least in two thousand fifteen. The last time I saw a report on this was dated two thousand seventeen and the number had not changed. It's still it's still said two point one million subscribers. So I don't know if that those two thousand seventeen reports were based on the exact same information that just hadn't

been updated. In two thousand sixteen, Verizon announced that it intended to acquire Yahoo, more specifically Yahoo's Internet assets, because the company is another big, big company, and some of Yahoo was tied up in investments with Ali Baba. That part of Yahoo would be renamed out Baba, so that part would not be picked up by Verizon. Verizon would just pick up the Internet part of Yah Who's business. So now that desire to bring a O L and

Yahoo together could finally come true. It wasn't through a merger directly between AOL and Yahoo. It was from a third company buying both of those properties. Now, the deal was for four point four eight billion dollars to buy Yahoo. It was not a smooth process. Yeah Who was a

troubled company. It had been struggling to remain relevant over the past several years, and just months after Verizon and Yahoo had announced this upcoming deal, this this planned acquisition, Yahoo revealed that it had been the target of hackers and that a serious data breach, I'm talking one of the biggest data breaches of all time had taken place, affecting potentially five hundred million people half a billion people. The deal somehow stayed in place even in the wake

of that announcement. It did get marked down because originally the deal was for four point eight billion dollars. They marked off about three fifty million dollars off of it upon the completion of the deal. A year later, Marissa Meyer, who was the CEO of Yahoo she had come over from Google, resigned. Tim Armstrong would head up this combined company of A O L and Yahoo. Tim Armstrong would head up the combined company of A O L and Yahoo,

and that combined company got a new name. It was called and still is both O A T. H, a name that a lot of people met with Ye Anyway. The deal would also mean layoffs, frequently that does happen

with mergers. The Washington Post reported that two thousand former Yahoo or A O L employees would lose their jobs as these two businesses merged, and the various departments were reorganized, and while the Yahoo acquisition was slowly developing, before it had become finalized, a o L was still buying stuff in the company purchased a content company called Riot r y O T. That's a company that makes specialty films and documentaries for formats like VR or three D sixty

degree film, and Tim Armstrong would hire a guy named k Guru gol Roppin as the chief operating officer of OATH He had been a global managing director with Ali Baba, and while Armstrong didn't know it, he had also just hired his own replacement. According to various news stories, Armstrong had wanted to convince Verizon to spin off OATH as its own independent company, sort of the same way that Time Warner had spun off A o L a decade earlier.

Then Armstrong would be heading up a really big content and advertising company with powerful assets, free to pursue its own businesses, not tied down to Verizon. But Verizon's leadership never really saw eye to eye on that vision. Lowell McAdams, who was the CEO of Verizon, announced in June of that he was going to step down. He led the company precisely for seven years. He stepped down on his seventh anniversary of taking the CEO position over at Verizon,

so he steps down. His replacement was the guy who had been the ct O of Verizon, Hans Vestberg. Hans Vestberg had previously been the CEO of Ericsson. Well after the transition, Vestberg decides to reorganize Oath, and Armstrong saw much of his responsibilities stripped away and handed over to Go Roppin. And so in September two eighteen, Armstrong announces he's resigning from Oath and Go Robin then took the helm of Oath. He becomes the new CEO of the company.

Thus Armstrong had hired his own replacement. Now the day that I record this, which is in December two eighteen, Oath is in the news again. Verizon filed papers with the Security Exchange Commission the SEC. Two. This is something that all publicly traded companies have to do. They have to file paperwork with the SEC to let them know about things like how much money they make. It's a

transparency thing. So in this filing, the Verizon has written off four point six billion dollars pre tax, and that right off is the result of Verizon buying Yahoo and A A O L. And then realizing that apparently these companies are actually worth less than what Verizon had paid for them. Essentially, they overpaid for those companies and they need to write off four point six billion dollars because of the the shortfall here. So once again we get

this very familiar story. One it seems like history really is repeating itself. Vesperg doesn't seem terribly interested in the media side of Verizon's business, and by that I mean Oath, So right now it looks a little grim in the short term for people who work at Oath. Verizon is offering up a voluntary separation pro Graham. That's a nice way of saying, we need we need some of you guys to leave. We need a lot of you guys

to leave, and we're offering up a package. If you take this package, you're gonna get some compensation, You're gonna get some severance pay uh, And we don't have to have the pain of going through a list and deciding who we're going to lay off. So this is to try and take as many of those people out of the decision making process of who do lay off as possible. But if they don't meet the goal for the number of people who depart, they will start laying off employees.

The estimate right now is that the company expects to shed ten thousand, four hundred employees total. This is all a Verizon, not necessarily just from Oath. By June two thousand nineteen. As for OATH specifically and that filing, Verizon said that the company quote has experienced increased competitive and market pressures throughout two thousand eighteen that have resulted in

lower than expected revenues and earnings. These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business end quote. So in other words, what it's sort of saying is, Hey, those guys who are in charge earlier, you know, not us, but those other guys who used to lead the company. They thought we were going to do way better than

what we actually are doing right now. But they weren't able to anticipate the market conditions or how well our competitors were going to do. But we, you know, the new guys who are in charge now we have to deal with the mess that they left, and we also understand it's going to be really tough over the next few years. That's essentially what their filing says. And it's a warning this that says, don't expect us to turn

this around overnight. So what is going to happen next for oaths, or specifically to a o L. That's something of an open question as I record this episode, and maybe by the time you hear it it will have been answered it. Maybe that Verizon will decide to spin off the company after all, because Vestberg doesn't really seem all that interested in developing a media company. It's not likely to go away because the company still does generate revenue.

It's not like it's hemorrhaging money left and right. It's just not the transformative property that Verizon was hoping it would be when it made the acquisition, which again, I think you could argue convincingly would be the full history of a o L. Baron's, by the way, has an article that cites Wells Fargo analyst Jennifer Fritzscha and she wrote that quote, the hype of OATH has been over

for some time. While we believed in the white board concept of OATH offering a new digital advertiser of choice, beyond Google and Facebook. We think this has been an uphell fight for Verizon without a significant amount of gale

and content ownership end quote. And that's the story of a o L so far, from a startup in the nineteen eighties that provided a bulletin board like service to Commodore sixty four users all the way up to a cog in an enormous multibillion dollar global corporate machine that's giving off a little smoke at the moment. The upcoming departures and layoffs will likely mean things will continue to change for folks over at a o L. But hopefully those who are working in the content side will continue

to have gainful employment. As someone who creates stuff for the internet, podcasts, the occasional article. I feel a lot of empathy for people who work at other companies that go through these big changes. I've gone through changes like that multiple times myself. I've been very fortunate so far, but you can't take that for granted. Those things can really shake things up, and it's it's a huge impact on the lives of old people. So I hope it

turns out for the best for everybody concern. That is the conclusion of the a o L story so far, America Online probably has several years left in its history. I sure hope it does. I hope it doesn't just go away, so I'll probably have to do an update a follow up episode at some point in the future. But this was a really fascinating story to look into, very complicated from a business perspective, but interesting and and connected to so many other companies, whether directly through mergers

and acquisitions or through competition. If you guys have any suggestions for future episodes of tech Stuff, maybe it's a technology, maybe it's another company story you would like to hear about. Maybe there's someone I should interview. Why not let me know send me an email. The email address for the show is tech Stuff at how stuff works dot com or head on over to tech Stuff podcast dot com. That's our website. You got to find other ways to

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