America Online is once again the center of Time Warner's growth strategy, and this go around there are a number of potential partners -- ranging from Microsoft and Google to Yahoo and Comcast -- reportedly interested in buying a minority stake. Yet to be determined is how the latest AOL business model, which includes both dial-up Internet access and advertising, will evolve.
So why is Time Warner looking to sell a stake in AOL? Time Warner CEO Richard Parsons stated in remarks on September 21 that the company wants to get more credit for AOL's advertising business, which is growing quickly but is dwarfed in revenue by its waning dial-up Internet access business. If AOL can become primarily advertising supported -- and move away from its identify as an Internet access provider -- then it has the potential to be seen as "high growth, just like Yahoo, just like Google," said Parsons.
To back up Parson's contention that AOL is valuable, Time Warner is soliciting bids to put a dollar figure on the online service's value, currently estimated to be anywhere from $10 billion to $15 billion, according to Wall Street analysts. Meanwhile, soliciting a partner could allow Time Warner to decouple AOL's Internet access and advertising businesses to create a more nimble joint venture similar to Yahoo.
The interest in AOL is quite a turnabout. Since the AOL and Time Warner merger closed on January 11, 2001, AOL has gone from the alleged growth engine of a media empire to a property of such low value that its name was dropped from the corporate moniker. Today, AOL is once again the focus of its parent's affections amid a rebirth in Internet advertising. Yet while AOL's standing has improved, its future remains uncertain as it tries to find a business model that will stick, say experts at Wharton, who also note that it's not too late to fix AOL, especially when you consider its 20 million subscribers and $1 billion in annual online advertising revenues.
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