The latest batch of ads for Time Warner's (NYSE: TWX ) America Online service has the company pitching its consumer-friendly ways. In one televised spot, a line of subscribers forms at the door of a feedback-welcoming AOL executive. With the line stretching to a crowd outside -- all of the online service's subscribers are apparently there -- he comes to the conclusion that they're going to need some more chairs.
Well, if last quarter's report provides any solace to the company's heavy lifters, it's that the company will need 646,000 fewer chairs; that's the number of net domestic subscribers that the company lost over the past three months. Unfortunately, those 646,000 seats would also have nestled 646,000 pocketbooks -- guided by, give or take, 1,292,000 eyeballs. Over the past year the net number of ex-subscribers who can say, "You lost me at goodbye," is a hearty two million. No, AOL, you don't need more chairs. You just need more Crazy Glue.
I realize that AOL is gnawing its way through a legal tangle right now. I realize that if layoff rumors prove true, it's not just the subscriber count that is dwindling at AOL. However, the problems begin with the customer defections.
When AOL acquired Time Warner, it was AOL that possessed the larger market cap and greater promise. So far this year it has kicked in just 18% of the conglomerate's operating profits. Growing its user base and maximizing the earnings potential of said base is the key to turning the beleaguered service around. That's obvious. Yet to realize why the company is capable of mattering in the future, one is served well by remembering why the company was so relevant in the past.
A Rule Breaker is born
I have been a satisfied AOL user for a dozen years. Yes, that's right. I'm that guy. I'm the veteran cyclist who still clings to the training wheels. I'm the one who favors AOL's mailbox over the customized ways of Microsoft's (Nasdaq: MSFT ) Outlook. I'm the one who walks from a session satisfied between "You've Got Mail" and "Goodbye."
But let me briefly color in my self-portrait. I was online before being online was cool. In other words, I was a geek. I remember a time before AOL when online services were owned by fuddy-duddy corporate behemoths such as General Electric (NYSE: GE ) , Sears (NYSE: S ) , and H&R Block (NYSE: HRB ) . I know this because I was the proud Co-SysOp of the fledgling Investors' RoundTable at GE's GEnie service in the early 1990s.
Right from the start I knew that AOL was special. It was a stylistic break from the text-based services with limited graphics. I signed up shortly after the service became available outside of the Apple (Nasdaq: AAPL ) world. I lurked in jealous shadows, powerless to paint my vision of a superior interactive financial community given GE's limited palate. I had a monthly newsletter. I was able to champion a Money Inn theme that gave the forum some edge and personality. Yet it was worse that simply rearranging the deck chairs on the Titanic, because at least in that cliché there was some hope that those deck chairs could float. I knew that GEnie was sinking.
When Tom Gardner approached me about running an industry area for restaurant stocks for The Motley Fool in 1995 it was an easy decision. TMF -- like AOL -- knew exactly where it was going.
So while our latest newsletter seeks out the Rule Breakers of today and especially tomorrow, AOL was whacking away at the conventional wisdom of yesterday. Growing virally and decisively, even its mistakes came out smelling like roses.
In August 1996 a 19-hour service outage made national headlines. Problem? No, it only showed how addicted we had become to the service. When busy signals ruled the day several months later after the company switched to an all-you-can-eat monthly plan over an hourly one, it simply cemented AOL's popularity.
A Rule Breaker is torn
I will always have a soft spot for AOL. It's the box of crayons that I always wanted. It's the company that helped usher the Fool into the mainstream. Today it feels awkward, but let me go ahead and say it: AOL is not a joke. It simply grew to become a misunderstood giant. Then, its one fatal mistake was that it started to believe the shots.
When Usenet regulars would mock someone posting to a thread just because of the @aol.com at the end of their name, AOL bowed its head. Someone who couldn't properly contract the words "you" and "are" was hypocritically blasting away on the merits of netiquette, and AOL swallowed hard and looked away.
As a financial writer you can't help but hit a nerve now and then. I know I've connected when someone writes back with little more than to blast me for being on AOL -- as if that prejudicial remark were enough to make my argument baseless. But that's the perception out there. As the Internet's version of a learner's permit, AOL accepted its role as an online service you grow out of at some point. That was a critical mistake.
Well, I never grew up. I am not going to sugarcoat the service's shortcomings. They do exist. However, before the company jumped the shark -- and I would peg that somewhere around the release of the You've Got Mail movie or the end of Steve Case's warm monthly letters to the AOL community -- it was brilliant.
You see, unlike most people I don't think AOL's demise came the moment it knocked up Time Warner. In fact, I think that Time Warner holds the antidote to some of AOL's ills. I say just some because the rejuvenation of AOL goes beyond content. Next Thursday, in my Saving America Online article, I will flesh out a four-part plan to kick the service back into prominence. Content. Services. Image. Value.
Until then I invite you to go for a free trial offer of our new Rule Breakers newsletter, so you can rediscover the merit of tapping greatness early in its growth cycle. It's what AOL once had. It's what AOL may eventually find again. I'll have some more thoughts on that next week, and I'm glad to hear that AOL is so agreeable to customer feedback.
Don't worry, AOL. I'll bring my own chair.
Longtime Fool contributor RickMunarriz remembers the early days of AOL and when screen names like DonShula and AristotleM were there for the picking. He does not own shares in any of the companies mentioned in this story.