A Day At AOL

By Roy D. Follendore III

July 18, 2002

Reports that AOL is fading away because their stock is going down the tubes is kind of misleading. AOL actually faded away some time ago. AOL's concept of market share is misleading. Are we talking about all of the "mom and pops" who purchase $9 per month ISP access?

Maybe for me it all comes down to the caravel hype philosophy of their business plan. It became obvious some time ago that AOL has been trying to treat the Internet like a cross between a cable network and a cell phone contract. Throw a bunch of "channels" together and you have a valued market opportunity. Give away "free-access" hours and charge high rates above the limit. Someone must have forgot to tell AOL that you don't need to have AOL to have just about every feature they offer. You get that for free when you get 24-7 local ISP access to the Internet.

Maybe someone should have gone over to their new zillion dollar corporate offices and told them. Knock. Knock. "Hello AOL." "You have a giant hole in your business plan." "You are welcome."

I can assure you that it does not work like that.

It goes more like this...

"Hello AOL"

"Who the *%#4# are you?"

"I am just a nice guy trying to tell you why you have a giant hole in your business plan."

"We make billions here piss ant, you are wasting our time...buzz off."

"You are welcome."

OK, maybe I don't know what I was thinking, but I really don't know what they were thinking.

Maybe AOL thought that Time-Warner would prop them up when they merged. After all, Time-Warner had news, and entertainment that could be jammed into the Internet entertainment matrix. For the life of me I can't understand why Time-Warner would have wanted to attach itself to a company like AOL. At least they had a product and they could have easily created their own Internet division. They could have purchased a company and gave it financial incentive to grow and provide support. Time-Warner did not need AOL. AOL needed Time-Warner. What Time-Warner needed was a Board of Directors with guts and foresight to let someone like Ted Turner throw out the rest of AOL senior management and reinvent the company operational plan.

Well, that was then and here we are. AOL is sinking in the liquid green waves for that all too familiar reason. They appear to have been caught in yet another embarrassing corporate accounting scheme, this time under reporting losses by putting a few creatively redefined advertising numbers into the asset columns. It appears that AOL's sophisticated high rolling executives could not meet their stock market objectives so they propped them up. So Mr. Pittman is out and someone else is in. Who would have guessed?

The lessons to be learned is that mergers do not in and of themselves create value.

Let me put on my less skeptical face for a moment. Maybe this is a good thing for AOL. Maybe AOL will be able to clear out their stagnate management. Maybe they can now get creative technical people in that have a true technical vision of the future. I am not talking about the fool scoundrel opportunists of the Internet boom years that visualized the impossible and ask for twenty million dollars to make things happen yesterday. I am not talking about people who feel that they can "turn things around" by changing the rules. I am talking about people who will say what they do, and do what they say while staying in the lines and principles of reality, morality and legality.

Think that will happen? Do pigs fly?

Even so, I hope so. I happen to know that there are still some good technical people who work there. There is real opportunity there. It just needs better leadership. It needs management that will tell the truth, even if it hurts. As an optimist I think that reason will prevail.

When true AOL change happens then the AOL business plan will be turned around and we will all know it. They will announce it. And if that plan makes good fashioned "horse sense" then AOL may for the first time be a truly worth while blue chip investment opportunity.

Until then folks, my suggestion is to just keep your money in your pocket. Just because stock is dropping from the resignation of the great Pittman in the sky to dirt cheap does not mean that it will have any value. On the other hand, if you have a ton of AOL stock, I suggest you keep that in your pocket too. It probably isn't worth anywhere near what you paid for it but if you sell out at the bottom you will lose more than you would have otherwise.

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