AOL struggles to reinvent itself

Once an online colossus, AOL is trying to become a modern media company

Alex Ballingall
You've got trouble

REUTERS/Brendan McDermi

You've got trouble
Reuters/Brendan McDermi

A decade ago, AOL was one of the most promising firms in the online world. Tens of millions of North American users relied on its dial-up Internet access services and came to know its trademark greeting, “You’ve got mail!” Today, its future appears murky as the former giant tries to claw back into the fold as a major Internet presence.

The company took a walloping on the stock market last week when its shares fell almost 26 per cent, hitting their lowest point since AOL ended its disastrous merger with Time Warner in December 2009. The sell-off occurred after it released second-quarter earnings, which showed total revenues were down eight per cent over last year. In response to the hit in share value, the company approved a scheme to buy up US$250 million of its own shares.

The market shellacking was a major blow for a company that’s been fighting for the past year to reinvent itself as a new media firm. It bought the news website the Huffington Post for US$315 million in February and the tech website TechCrunch last year. After installing Arianna Huffington as the head of its new Huffington Post Media Group, AOL opened several new websites—17 during the last quarter alone. AOL now boasts nearly 10 million unique visitors to its websites every month. That’s more than the New York Times, according to the company’s CEO, Tim Armstrong.

But what it really needs are advertisers. Many analysts blame AOL’s recent failures on its decision to try and rake in revenue through subscription fees rather than through ad revenue attached to its content, the way Yahoo! and Google have done. In September 2009, J.P. Morgan valued the company at just US$4 billion, a long shot from the US$161 billion it was valued at when it acquired Time Warner in 2001 (with the aim of supplying the media giant’s content to its network of users).

Armstrong has said AOL remains focused on becoming the “next great media company for the digital age.” But he may be running short of time to convince investors that that’s possible.