America Online, at one-time the largest ISP in the world, looks like it may be in its death throes. Once famous for mailing out millions upon millions of AOL subscription CDs*, the company recently reported some grim figures for profits that show AOL going from from a $90M net profit last year to a $1B net loss this year. But that's not the worst thing on AOL's plate.
You'd think a loss of a billion dollars would be about the worst thing that a company could face, but not in this case. The worst thing on AOL's plate may be its own management and corporate structure.
In an almost unbelievable reality-denying statement, Tim Armstrong, Chairman and Chief Executive Officer had this to say: "Although we have much more significant goals for the future of AOL, we are pleased with this quarter's internal and external trends."
Wait a minute, Tim. Your company went from making a net profit of 90 million dollars last year to a net loss of a billion dollars this year, and you're "pleased" with that trend? Are you insane? If I was an AOL investor I'd be on the phone screaming, "SELL!! SELL!!". (I'd also probably be taking the trigger lock off of my deer rifle while searching for your home address on Google, but that's another story.)
The fact is that AOL has lost 86% of the 30 million subscribers it reported in 2001 (meaning it's down to just 4.3 million subscribers), and more drop off every day. And yet the CEO doesn't appear to mind (or even notice). That, to put it mildly, is not good, and it says a lot about the mindset of the AOL corporate culture, which seems to be "Ignore the reality of your situation and think happy thoughts."
To make it worse, AOL has lost a great deal of its advertising business, which is now its primary source of income. That trend has "bad ending" written all over it in ALL CAPS (the way many AOL users communicate by default). From Q1 of 2008 to Q2 of 2010, AOL went from $540 million in ad revenue to $297 million- a drop of almost 50%.
Part of the problem is that AOL doesn't seem to offer anything that you can't get elsewhere, often for less (if you pay anything at all). It's unclear what, if anything, you get by using AOL as your Internet Service Provider.They have a search engine, but most of the search results come from Google. Why not just use Google?
AOL offers a certain amount of "AOL only" content, but in fact almost all of it is available elsewhere on the web. The few things that aren't don't exactly appear to be setting the world on fire. There is no compelling reason to become a new subscriber to AOL, or to continue to use them. (Honestly- when was the last time you went to AOL for something?)
So, lets recap: we have a company that's burning cash like crazy to support an inefficient infrastructure, a corporate structure that appears to be competely oblivious to its own death-spiral, a subscriber base that's down to about 15% of what it was (and shrinking daily), coupled with a steep decrease in its main source of revenue.
I'm no business analyst, but that doesn't sound like a recipe for success to me.
* Enough to completely cover North America, according to some.