An examination of the strengths, weaknesses, opportunities and threats of AOL Time Warner, with rapid growth and brand recognition being discussed as two of the company’s greatest strengths.
Introduction
AOL Time Warner is a media conglomerate made up of the Internet service provider America Online and veteran film, television and publishing giant Time Warner. Since the two companies’ merger in 2001, the new organization has morphed into a “behemoth…[that is] blasting into the 21st century like no other” (Hoovers, PG).
AOL Time Warner owns a number of subsidiaries, each covering a different media, and including America Online, Inc., AOL Time Warner Interactive Video, Columbia House Company, Time Inc., Time Warner Entertainment Company L.P., Time Warner Telecom Inc., Turner Broadcasting System Inc., and Warner Music Group.
Strengths
AOL Time Warner’s very existence is a testament to its executives’ penchant for risk and opportunity. Surely, two major strengths must be persistence and ambition. It appears as though AOL Time Warner is attempting to control the media in the same way Microsoft Corporation has controlled the software industry for years.
Today the company’s contributions include electronic mail, conferencing, software, interactive magazines and newspapers, print magazines and newspapers, online classes, web hosting services, movies, music and a number of other types of media and media services.
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In January 2000, AOL and Time Warner announced a record setting $166 Billion Dollar merger. Referred to as "the Deal of the Century" the talk immediately centered on the potential synergies the new company would realize. Steve Case, announced as Chairman, championed the idea of AOL/Time Warner as the "Wal-Mart" of the media and entertainment industry - a one-stop shop marketplace for advertisers ...
AOL actually acquired Time Warner; AOL’s rapid growth over the last 10 years have made it a powerful contender in the market for Internet-related services. One of the company’s strengths is customer care, as AOL offers customers a complete package including online features, privacy and security, parental controls, and unrivaled customer service.
Certainly, the AOL brand name recognition is quite high; AOL is a household word, which means a lot in terms of customer acceptance and retention for any product or service with the AOL name on it.
Finally, another strength must be the combined business savvy of the company’s executives. With years of success and rapid growth already under their belts, AOL Time Warner’s leadership team already has an advantage over many of its competitors.
Weaknesses
According to marketing expert and consultant Jack Trout, the merger between AOL and Time Warner is based on the mistaken belief held by many corporate leaders today that business categories are combining, not dividing. The current buzzwords in corporate America, says Trout, are “synergy” and “alliance;” but the convergence of different forms of media (computer, television and print) created by the AOL-Time Warner merger will not necessarily enable the new company to reach and maintain dominance, as company executives undoubtedly hope.
If Trout is correct in his analysis, the only way to attain market dominance is “to address each emerging category with a different brand name,” just as General Motors did with its Saturn division (Trout, p. 118).
In light of the opinion of this and like-minded experts, the merger itself is a weakness because it fails to distinctly divide the different categories of media provided by the company.
Another problem with the merger involves stockholder premiums. Following the merger, AOL issued a premium to all Time Warner stockholders, which resulted in one-and-a-half shares per each share owned. This premium could prove expensive for AOL in the future depending on whether and how many shareholders decide to sell, as AOL is obligated to make payments on the company’s combined debt.
Previously in this analysis, AOL Time Warner was compared with Microsoft Corporation; to carry that comparison a step further, consider the challenges Microsoft has faced in recent years with regard to the threat of government regulation and a lawsuit filed by the U.S. Department of Justice. AOL Time Warner is currently experiencing similar troubles with inquiries into the company’s online division and its accounting practices by the Securities and Exchange Commission and the Department of Justice.
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... by the company and their resolution steps taken by the management of AOL-Time Warner. One of the most asked questions about the merger at ... the largest and most powerful mergers of the past century took place. The consolidation of America Online and Time Warner ($183 billion dollar deal) ...
At the heart of the matter, however, is an internal weakness resulting from “irregular accounting that boosted advertising and e-commerce revenues by $190 million” (Grimes, PG).
It wasn’t the first time for such an occurrence, as AOL was forced to take a $54 billion write-off earlier this year as well. When an organization grows as large as AOL Time Warner has, with so many divisions and subsidiaries, there are bound to be differences in accounting and financial management practices and systems that make it difficult to keep proper control of profit and loss issues.
Opportunities
While a deal with Time Warner might not be the obvious choice for creating and sustaining growth, partnerships with e-commerce endeavors certainly are. AOL has consummated strategic deals with JC Penney, Brooks Brothers, Virgin Music, Health & Vitamin Express, the Futon Shop, and Access Cameras to create an online mall.
It’s a win-win situation, because AOL receives a percentage of the sales, while the retailers are afforded the ability to reach wider audiences. AOL even has a partnership with online book retailing powerhouse Amazon.com.
AOL Time Warner has the potential to evolve its position into that of a powerful intermediary that can “control and influence where consumers go shopping” and what choices they make (De Kare-Silver, p. 240).
E-commerce has existed just long enough to prove to retailers that they need a high profile on the Internet in order to succeed there.
A partnership with a key player such as AOL-Time Warner is a good way to accomplish this goal, which puts the media giant in an excellent position to drive revenue growth by establishing relationships with selected retailers.
There are plenty of other opportunities that could open up for the new conglomerate, as AOL’s online marketing and e-commerce capabilities are combined with Time Warner’s assets, including its roster of established music stars and its cable networks and movies. Indeed, AOL Time Warner is poised to invent altogether new forms of online entertainment and e-commerce that expand existing services. Surely, the company’s ability to offer innovative content will expand the already growing number of consumers seeking to utilize the Internet and its associated technologies.
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... and initially offered limited online services ... AOL Time Warner Merger INDUSTRY & COMPANY BUSINESS AOL Time Warner is the world's leader in Internet technologies, e-commerce services, interactive services, and web brands. AOL started up in 1985 ...
Threats
At the top of the list of external concerns for AOL Time Warner is the threat of being declared a monopoly. On the other hand, the company is involved in a highly competitive market with specific regard to its online division, which means that innovation is discouraged because formidable competitors are attempting to dominate market share.
Yahoo! is actually the “top spot among Internet portals,” with approximately 220 million visitors each month (Hoovers, PG).
Yahoo! offers its services in 13 different languages and provides users with a broad range of media products including financial information, streaming media and personalized Web pages.
Another potential threat for AOL Time Warner is the introduction of free dial-up services such as NetZero. Free service is quite obviously a greater deal, by far, than AOL’s $20 to $24 per month for its service. Still, even with a recent merger with Juno, NetZero hasn’t been able to even come close to AOL’s market share. AOL has about 29 million subscribers to NetZero and Juno’s combined 9 million monthly users.
Bibliography
AOL Time Warner website. Available at www.aoltimewarner.com.
De Kare-Silver, Michael. E-Shock: The New Rules. American Management Association, 2001.
Grimes, Christopher. “AOL Inquiries Set to Continue,” Financial Times. 15 November 2002. Available online at www.ft.com.
Hoovers. “AOL Time Warner.” Available online at www.hoovers.com.
Joyce, Erin. “NetZero, Juno to Merge into 2nd Largest ISP,” 7 June 2001. Available online at www.atnewyork.com.
Trout, Jack. Big Brands, Big Trouble. Wiley & Sons, 2001.
