AOL's Web 2.0 Aspirations

Time Warner's (NYSE: TWX  ) America Online (AOL) has been in the midst of a high-profile change in direction in 2006, tearing down its subscriber-only walls and letting Internet users access its content and features free of charge with an advertising-based model. The company's chief operating officer made some interesting comments about the service's new direction at an investor conference last week, although some of them seemed to echo old news.

According to the Associated Press, COO Jeff Bewkes said Time Warner isn't considering spinning off its AOL unit; the company's keeping its options open, with an eye toward what's best for the long term. Although that statement seems to imply that the company might consider selling AOL at some point, Bewkes also said that the service has "too much upside" to do so now, according to the article.

One strategy doesn't seem to have changed since I covered an AOL analyst conference last September: AOL's interest in capitalizing on current social-networking and other Web 2.0 trends. True, AOL once ruled the Net, but times have changed. With powerful rivals such as News Corp.'s (NYSE: NWS  ) MySpace and Google's (Nasdaq: GOOG  ) YouTube, and fellow Internet giants Yahoo! (Nasdaq: YHOO  ) and Microsoft's (Nasdaq: MSFT  ) MSN angling for dominance in similar spaces, AOL's got its work cut out for it.

At this point, savvy acquisitions of strategic innovators might have a bigger effect on AOL's destiny. Bewkes didn't mention any imminent plans to buy smaller firms, but did affirm that the company will set aside funds for such a possibility.

Time Warner management seems greatly optimistic about AOL's new strategy to retain and regain users while generating cash through advertising. The company's got plenty of well-known branded content that translates well to the Internet, but AOL's certainly not the dominant online gateway of its glory years. If any remnant of that happier time does remain, it's probably the stigma AOL developed in the Web's early years as a haven for ignorant, unsophisticated newbies.

Maybe it's easier for investors to beat up on Yahoo! for pursuing similar strategies -- chasing hot trends already dominated by others, even as shares slump and Wall Street sours on the company. Time Warner's stock has gained 24% in the last three months, and investors are much more forgiving when a stock's going up. However, if AOL's going to recover its geek cred and lure users in for social networking, it's going to need some serious innovation -- not just a rehash of everyone else's ideas.

Here's some more recent information on AOL:

Time Warner and Yahoo! areMotley Fool Stock Advisorrecommendations.Microsoft is aMotley Fool Inside Valuepick. Follow the preceding links to try either newsletter free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy is in your base killing your d00ds.


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