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4 Reasons behind America Online(AOL) downfall

America online

With the world constantly evolving, new technologies being introduced, digitalization etc. a lot of companies were left behind. One of them is America Online(AOL)

We have seen the downfall of Hummer, the Bankruptcy of Palm Inc, and Towers’ record’s failure due to various reasons.

In this article, we will explore what happened to AOL.

The History of AOL (America Online)

America Online (AOL) was founded in 1985, headquartered in New York, United States. The company was the first to offer dial-up and later broadband access, email, and more.

It was one of the early pioneers of the Internet in the early-1990s.

By the time AOL went public in 1992, the company had built a strong membership of more than 150,000.

During its peak period, America Online gained a new member every six seconds.

Additionally, the typical lifespan of these subscribers was 25 months, resulting in a $350 profit per user.

A decade afterwards, the number of subscribers increased from 200 to 25 million.

Despite being such a top player in the market, America Online made some mistakes that ultimately led to the failure of the company.

The Downfall of the America Online:

1. Refusing to evolve to changing markets

It often happens. When you’ve achieved significant growth, putting in more effort may seem unimportant.

People stop upgrading, thinking that they have achieved perfection.

But, the market keeps changing and so do the preferences of the customers.

One of the primary reasons for the company’s decline is that America Online (AOL) declined to evolve.

America Online developed too slowly.

While the rest of the world switched to broadband, it concentrated on dial-up internet.

America Online attempted to change, but it was unsuccessful. Perhaps the business was overconfident in its product.

In America, 50% of homes had access to the Internet in 2000, but only 3% had broadband. But the consumer’s preferences from dial-up internet to high-speed broadband changed rapidly over time.

AOL could not see it and adapt sooner to the market.

2. Falling behind the competition

Even if you’re innovative, if you’re not innovating faster than your competitors; you might be left behind.

Even today consumers prefer high internet speed due to their growing reliance on technology for work, communication, entertainment, and education.

Therefore, companies have heavily relied on providing high-speed internet in the technological market.

However, America Online (AOL) failed to realize it sooner.

While its competitor, EarthLink embraced the shift to high-speed broadband in the early 2000s.

This allowed EarthLink to offer a faster and more reliable internet experience, which was increasingly in demand as the internet became more integrated into daily life.

AOL’s failure to adopt broadband put it at a disadvantage, as users began to lose interest in the slow speeds and limited capabilities of dial-up internet.

EarthLink’s early adoption of broadband helped it establish a strong position in the market, which it has since maintained.

As a result, AOL’s market share has declined, and it struggled to remain relevant in a rapidly changing technological market.

AOL failed to remain competitive and meet the changing needs of its customers, which led to its decline.

3. Their business model was unprofitable

With all these happening, AOL decided to act fast instead of smart.

In December 1996, the company shifted from an hourly fee to a monthly fee, which implied a permanent connection.

The servers collapsed as a result of the high number of users who signed in.

Ironically, many subscribers were unable to use the internet due to the saturation point, and they stopped using it entirely.

4. America Online and Time Warner failure

Another factor in the demise of AOL was the merging of the two media behemoths, America Online and Time Warner, in 2000.

Even though businesses choose to merge, a business disaster occurred in the early twenty-first century.

Due to a lack of due diligence on company culture, a lack of knowledge of the media landscape, and a failure to anticipate the future of the internet.

Combining the two businesses seemed like a logical move toward expansion because both businesses were the leading players in the interactive service and entertainment industries, respectively.

But there were many errors in the implementation.

This deal, the AOL-Time Warner merger failure was guaranteed because the two businesses’ supposed synergy never materialized.

AOL received 55% of the new company’s ownership and Time Warner received 45% as part of the mega-deal between the two enormous media businesses.

The deal, which appeared to be an ideal fit, ultimately failed due to a misreading of the dot-com bubble and a failure to develop a synergy between the two businesses.

One year following this merger, a $99 billion loss was reported. Furthermore, by the end of December 2002, the stock prices of both businesses had fallen by 90%.

According to Steve Case, AOL’s founding CEO,

“Vision without execution is hallucination.” He also stated, “Having a good idea is important, but being able to execute the idea is even more important, and that comes down to people and priorities, and we were unable with the combined AOL Time Warner company to get that side of it right.”

Fall of AOL in a nutshell:

America Online was set on the road of failure by not evolving with time, failing to innovate, having an unprofitable business model, and having a partnership that didn’t serve well.

On 23 June 2015, AOL was acquired by Verizon Communications for $4.4 billion.

On May 3, 2021, Verizon announced it would sell Yahoo and AOL to private equity firm Apollo Global Management for $5 billion.

AOL became part of the new Yahoo! Inc. On September 1, 2021.

Such a demise could be easily avoided if the company had understood the importance of innovation management and implemented a tool to manage innovative ideas.

Get innovation flowing in your company with InspireIP idea management software. Sign up for free.

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