All Things Digital

Time Warner (TWX) CEO Jeff Bewkes says he’ll have a decision on the future of AOL “soon.” That can’t come fast enough for AOL boss Randy Falco, who we’re told is now fuming about the limbo state his company has entered: “When is New York going to sell us?” we’re told he muttered in earshot of his lieutenants recently.

Meanwhile, Matt Marshall at Venturebeat doesn’t have a timeline, but he does have a theory about who’s going to buy the company: Both Yahoo and Microsoft. Matt’s scenario, which he says Microsoft is “quietly readying” (according to “sources close to AOL”): Yahoo snaps up AOL, then Microsoft buys both companies.

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In honor of a redesign of AOL’s home page, we asked Bits readers earlier this week, “Who Uses AOL and Why?” So far, we’ve heard from more than 380 of you.

The sheer range of opinions about AOL, built up over a complex two-decade history, shows how difficult the challenge is for Bill Wilson, the company’s executive vice president for programming.

By far the most common answer to my question was succinctly put by a user who calls himself DonO: “Inertia Rocks.” He and many others have email addresses at AOL.com that they don’t want to change.

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Former AOL boss Steve Case virtually fled to his Hawaiian pineapple farm after the AOL-Time Warner merger he engineered in 2000 vaporized much of the group’s combined market value. Now that Liberty Media chairman John Malone is open to swapping his 2.8 percent stake in Time Warner for AOL’s dial-up business, the extent of Case’s heroics on behalf of AOL shareholders has become clearer.

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Liberty Media (LCAPA) is “open” to swapping its stake in Time Warner (TWX) for AOL’s dial-up Internet access business, Liberty Chairman John Malone said Monday, Reuters reported.

Malone said there have not been any discussions on the concept so far, however.

“Clearly, an exit from the Time Warner equity stake into a cash-generating asset would be attractive, but at the current time, none have been proposed that we could take action on,” Malone said on a conference call with analysts.

Liberty owns about 103 million shares, or 2.8 percent of Time Warner.

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At a meeting with about a dozen senior members of AOL’s staff Monday, Jeff Bewkes left at least one member of management with the impression that the company is for sale, a source close to the company says. Another person who attended the same meeting says Jeff did not say specifically that the company is for sale but merely said that “everyone is talking to everyone” and that AOL might someday be sold.

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When it comes to the widget ecosystem, lavishly funded companies like Slide, Clearspring and RockYou hog the limelight. But it is Userplane, now a subsidiary of AOL, that seems to be revving up the money engine without much fanfare. The company that started out offering a Web-based chat system has now morphed into a many-faceted business, including owning what might just be one of the largest widget ad networks out there.

At the D6 Conference this week in Carlsbad, Calif., I ran into Userplane founder Mike Jones, who sold his company to AOL in 2006 and now works for AOL. During our conversation, I marveled at the amount of money being pumped into the widget ecosystem while at the same time fretting about the paucity of revenue opportunities. My skepticism about the sector was outlined in an earlier post that focused on Clearspring’s latest round of funding.

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One thing’s for certain: The collapse of the Yahoo-Microsoft deal could be the best thing to happen to Time Warner’s Jeff Bewkes for a good long time.

Yahoo reportedly has a deal teed up to buy AOL for about $10 billion. We suspect that the newly dumped Microsoft may have something to say about that.

AOL wouldn’t give Microsoft what Yahoo would have, but it would help the company strengthen its Web-based communication business (AIM, AOL Mail, etc.). MapQuest could be a nice fit with Microsoft’s mapping products.

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Despite the fact that Microsoft has withdrawn its offer to buy Yahoo, the M&A machinery on all sides is still in full gear, and expect tons of activity in the next couple of months. The $50 billion or so that Microsoft was willing to spend is the money that’s still around, at least on paper. So who will Microsoft buy to make that leap it so hoped for?

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Ning founder Marc Andreessen is already on the record about Microsoft’s proposed takeover of Yahoo: He thinks it will likely go through, and turn out to be a good deal. It’s a remarkably sanguine take for someone who saw Netscape bought and destroyed by AOL. In a thorough analysis for which he dragooned two corporate lawyers, Andreessen elaborates: Yahoo has few defenses, aside from a poison pill, and Microsoft will likely succeed. For all its thoroughness, the analysis is less interesting for what it says about Microsoft-Yahoo than for what it says about Andreessen.

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When Twitter suffered a brownout last weekend, the “twitterati” had a collective conniption. I suppose the good news for co-founders Evan Williams and Biz Stone is that the bad news kicked up such a storm.

Lots of people are so addicted to Twitter that the intermittent problems wreaked havoc with their daily routine.

Lead architect Blaine Cook and VP of engineering and operations Lee Mighdoll are now gone. And it’s up to management to come up with a plan. But this isn’t the first time a popular online communication service found itself a target of criticism. In August 1996, America Online got in even bigger trouble after going dark for 19 hours.

How big a deal was it? Consider this: AOL’s outage was the lead news item on the evening news programs for ABC, NBC and CBS. If you thought the grumbling about Twitter was bad, remember that AOL back then had more than 5 million subscribers and they were not a happy lot.

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In the mid-1990s, America Online was enjoying exponential growth when it almost came a cropper. AOL’s infrastructure wasn’t able to support the increasing crush of new customers, and the online company soon developed an annoying habit of being offline too often. I remember a senior company exec at the time describing how the top brass was caught off guard by the seemingly sudden avalanche of complaints and negative coverage in the press. It was as if someone flipped a switch, and AOL went from darlings to dolts.

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I think Facebook is about to reach a very critical point in its development. It needs to answer a very basic question: Does it want to be needed or loved as a brand and as a service? I always pondered this question back in the good old days of AOL’s development. Is it a fun, community-based service that is free and aside of one’s life focused on one-to-one communications and chat? Or is it a utility that becomes a front page and starting point for its customers who pay with time and click streams and live their life on the Net? Is it consumer based or more of a B-to-B platform for others to reach consumers? Very few franchises get to be BOTH needed and loved.

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As the role of the Internet has grown, there have been persistent fears that the less wealthy in society would be left out, due to lack of access to hardware, the Internet or broadband. Although these concerns have lessened as dropping prices and public access programs have increased Internet use across the socioeconomic spectrum, a study in the Journal of Applied Developmental Psychology suggests that a new divide is becoming apparent: The wealthier and better-educated are better equipped to find and evaluate material on the Internet.

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Before Google gets too excited about open wireless access, it should look a little more closely at what did in AOL. The analogy is hardly perfect, but the new rules, promoted by Google, that will force Verizon to allow competitors to use its wireless network are in some way similar to those that forced phone companies to let rival Internet providers use their high-speed data services.
As their customers moved to broadband, AOL, EarthLink and the other companies that were leaders in the dial-up Internet business tried to soldier on by arranging to buy high-speed DSL service from telephone companies at wholesale rates to resell under their own names. This strategy completely failed. Today, only five percent of the users of phone company broadband buy their service from anyone other than the phone company, according to David Burstein, the editor of DSL Prime.

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Long-suffering AOL may be worth more than some investors think. Last fall, UBS analyst Mark Morris pegged the value of Time Warner’s AOL unit at $13 billion, a mere 2.5 times revenue. That pessimistic view reflects AOL’s declining revenue, which fell 33% last year to $5.2 billion.

A lot has changed during the last few months. Oh, AOL’s revenue still is on the decline. But Microsoft’s offer to buy Yahoo for $42 billion has pressured its rivals. That bid, currently worth about six times Yahoo revenue, shows that even mature Internet companies have plenty of appeal to the right strategic buyer. And the pressure on Time Warner to sell AOL never has been greater. Its shares are trading at $14, down from $22 last year.

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