AOL Is Still the Weirdest Successful Tech Company in America

http://www.theatlantic.com/business/archive/2013/05/aol-is-still-the-weidest-successful-tech-company-in-america/275673/

by awwstn • 13 years ago

107 60 13 years ago

>> [dialup subscriptions] plus revenue associated with services like AIM, accounts for more than 100 percent of the company's profit

More than 100 percent of its profits? Can someone explain that to me?

GotAnyMegadeth• 13 years ago

I guess if it made losses in other areas, then added together, the total profit would be less than the revenue in "services like AIM"...

criley• 13 years ago

Maybe the amount of profit from those two equals say a number that is 120% of their total net profit, but losses in other divisions bring their total net profit down.

Therefore, the profits of those two divisions is greater than the profit of the company?

Waiting4Hellban• 13 years ago

Effectively, their customers are paying to be advertised to.

mikegreco• 13 years ago

What this is saying is that subscriptions are making more money for AOL overall than the other ventures are losing, so they are making profit above and beyond other losses (as opposed to breaking them even.)

It's a shorthand way for the writer to say that subscriptions are such a cash cow, it really doesn't matter what the other divisions are doing.

joshdick• 13 years ago

It's because the other part of their business, media and advertising, loses money, as the article states.

If you make $168M from subscriptions and lose $5M from media, then subscriptions account for about 103% of your profits (168/(168-5)).

berberous• 13 years ago

The rest of the company has a negative profit (loss). For example, with made up numbers: $100mm profit from subscription division + $50mm net loss from advertising business = $50mm total profit, but 200% of that total profit comes from the subscriptions.

dsr_• 13 years ago

profits = revenue - expenses

So, the revenue from their subscriptions/AIM customers is not merely the only thing which is profitable for them, but the other lines of business are all run at a loss.

Fictional example:

Line Revenue - Expenses = Profit dialup 1000 - 100 = 900 everything else 200 - 500 = (-300) Totals: 1200 - 600 = 600

melvinmt• 13 years ago

Well, any revenue usually accounts for more than 100% of profit.

untog• 13 years ago

This is what makes stuff like closing AOL Music even sadder- AOL is in a really weird position where they're making a ton of money where they shouldn't be- they are in a prime position to do some really interesting things on the net. But they don't.

ryguytilidie• 13 years ago

It's actually pretty much the main problem with capitalism. Innovation often drives prices down, and prices going down means less profit, so at a point, there is an absolute disincentive to innovate. Obviously in theory people would leave the inferior product, but that is clearly not the case in situations like this.

dx4100• 13 years ago

It happens in any type of economic system, except in capitalism, it happens much slower. I'd prefer eventual stagnation with the possibility of reviving innovation to a forced stagnation by a particular economic system.

kcorbitt• 13 years ago

Actually, the more free a market is the less of a problem this becomes. For every Blockbuster Inc. out there perfectly happy with the way things are now, the free market tends to produce three or four Nexflixes who are more than happy to cut margins, innovate and broaden the market.

Of course, with monopolies you get the kind of perverse incentives you're describing. Phone technology and prices stagnated for a decade or two when Bell had a de facto monopoly. I would still argue that a free market tends to produce fewer monopolies than any other practical regulatory scheme, but that's a topic for another post.

aneth4• 13 years ago

This doesn't make sense. Innovation CAN drive prices down lowering costs. Lower prices lead to increased sales and market share. When prices reach near zero there is certainly a disincentive to innovate, and that is not a "problem". The fact that some consumers don't take advantage if innovation - broadband Internet for the same price as their old dial up - is the problem here. This has nothing to do with any fundamental flaw in capitalism.

nwzpaperman• 13 years ago

AOL has bet the future on Patch.com or at least that's how it looks with Armstrong riding nine figure losses and hanging on to the shiny sheriff's badge over there for another platform pivot!

You should have an asterix next to "making a ton of money."

*Past performance is not indicative of future results!

obituary_latte• 13 years ago

I'm pretty sure a good chunk of their profits are coming from people who have gone years without realizing they can cancel their "AOL" and still have access to the internet via the DSL/Cable they are paying the phone/cable company for.

I've seen this many, many times.

colkassad• 13 years ago

I don't know...this sounds apocryphal. I've seen the occasional AOL email address but I've haven't seen anyone claim they use AOL for internet in years.

cfaftw• 13 years ago

My mom. She was still paying for AOL until about a year ago, despite them having broadband since 2000. She thought it was her internet. I finally convinced her to start using gmail, but I think she still pays for AOL. Also, now she thinks google is her internet.

JoeKM• 13 years ago

My dad still pays despite having Comcast since forever. He thinks he'll lose his email he's had forever if he cancels. I've tried many times to convince him otherwise but.. some people just don't get technology and the Internet.

illuminate3• 13 years ago

They don't, but they're not the type to check their bills either. I did collections in college for AT&T Consumer Lease phones. These people have been paying to rent their phones (6-20 dollars a MONTH), still, 20-30 years after the breakup of their monopoly. Their kids had been paying the bills for them as their parents were incapacitated. It was pretty terrible.

vidarh4• 13 years ago

There are far more than "occasional" AOL email addresses...

I just checked mailing list stats for our largest UK customer - where AOL never reached penetration anywhere near the US - and while AOL is by no means huge, they're the fourth largest e-mail provider represented on their list, after Hotmail (which out-distances everyone by a wide margin in the UK) and Gmail / Yahoo (which one is in second depends on whether you count Yahoo's various partnerships - they provide e-mail and other content services for some major ISPs).

Techies in particular tends to get very surprised when they realize that the entire world don't use Gmail... (gmail accounts for about 9%-10% of the subscribers on that list, compared to about 35% for Hotmail...)

This is a restaurant chain that covers a pretty good cross section of the UK, with a list of near a million users.

notatoad• 13 years ago

did you read the article linked? in AOL's financial report over 100% of their revenue is coming from user subscriptions. that's hardly apocryphal.

kunai• 13 years ago

My parents up until 2010 did not switch to a high-speed ISP and continued to use AOL dialup until 2008, which is when they switched to NetZero which was marginally faster but far cheaper.

In some ways, perhaps dial-up is a better proposition than DSL or cable due to its slowness. It does discourage distraction and waste of time on the net, and since I don't browse YouTube and use

  links2 -g

to browse the web, perhaps it isn't such a bad idea. Although, I would have to go to Starbucks whenever I wanted to download a new Linux distro. ;)

As for email, I still do use an AOL email address. I use it for Facebook and AIM, but I use my Hotmail (now "Outlook") for personal email and inquiries.

But AIM. Can't live without it.

If AOL calls it quits on AIM, I will probably shed a few tears. There is nothing like AIM left. Facebook is locked-down and doesn't support buddy lists, MSN is dead, Skype is proprietary and forces you to use its own client, and nobody I know has a Google Talk account and my IM client doesn't support it, even though I've tried to set it up as a Jabber/XMPP account.

petercooper• 13 years ago

Some data for fun. I run programming related mailing lists, all formed since 2009. I have 113k-ish subscribers and just checked and have 105 @aol.com subscribers.. so a whole 0.09% in that highly technical demographic.

tankbot• 13 years ago

I'm guessing you're a smart person and have never done tech support for cable or dsl? Every other call is from some granny who can't check her AOL email because the cable is out.

Seriously, there are massive swaths of people out there who pay for high speed internet _and_ AOL because they just don't know any better.

No, I don't do that job anymore (yay!). And no, I never explained to any of those people they are being stupid.

badgar• 13 years ago

The last I've heard of this was 2 years ago, an article in the New Yorker: http://www.newyorker.com/reporting/2011/01/24/110124fa_fact_...

At that point, it was ~40% of revenue and ~80% of profits from subscribers. Apparently they've gone nowhere, fast.

pessimizer• 13 years ago

People are still leasing telephones from AT&T apparently: http://www.kirotv.com/news/news/thousands-racked-up-in-forgo...

adregan• 13 years ago

I just explained this to my aunt and uncle who have been paying for AOL for 18 months because they thought they'd have to have their AT&T service setup again.

igravious• 13 years ago

So basically technically illiterate people are subsidizing Engadget and Huffing Post and a bunch of others. I should send my résumé over while the gravy train is chugging along.

fluidcruft• 13 years ago

Revenue for that division/activity happens to be larger than overall company-wide profit. The author's use of "accounts for" implies some sort of causality, but I suspect literary flourish and innumeracy.

spoiledtechie• 13 years ago

I was just asked for an Interview by AOL for their Streaming Media business. The recruiter told me that the media business was totally profitable as I questioned AOLs future.

I guess now, in hindsight, im glad they were working with tech I didn't want to put my hands into or someday, I would be looking for another job.

arbuge• 13 years ago

I find it hard to believe those media properties like Huffpo are losing money. I didn't read their financial statements but I wonder if it's just a financial artifact caused by deprecation/amortization. They bought Huffpo for $315m a few years ago for example... if they're amortizing that over several years, they could really be printing money but ending up with an accounting loss.

illuminate3• 13 years ago

I'd like to think my friends realized that HuffPo was a vile pit of tabloid trash (independent of their pandery political positioning) and content farming. I WANT TO BELIEVE. Don't take this away from me!

jcampbell1• 13 years ago

Goodwill does not depreciate, thus your accounting explanation doesn't make sense. Huffpo cannot be that profitable because their ad inventory is total garbage. That site is probably worth less than $1 CPM. They probably make a mere million dollar per billion page views.

andrewthornton• 13 years ago

If they are getting $1 CPM it would be a miracle.

UVB-76• 13 years ago

I guess they just have enormous expenses — tons of people on the payroll, nice offices, etc. — and don't pull in enough advertising revenue to break even.

Losing money isn't hard.

vidarh4• 13 years ago

I don't find it hard to believe: If you had a massive revenue stream coming in from a product that you know is dying, you might be happy just to milk it and close up shop when it dries up, or you might decide to throw a large chunk of your earnings from that division into trying to grow your other businesses, at the expense of profitability, in the hope of being able to make solid profits from them when you scale back on the "growth at all cost" expenditure down the line. Whether or not they'll succeed at that is another matter.

MatthewPhillips• 13 years ago

Just goes to show how hard it is to monetize on ads. Any startup that tries to monetize on ads is basically betting on becoming Google or Facebook level big.

etrautmann• 13 years ago

This does not consider market cap. Yes, AOL's stock price has done better, but the total revenues are a tiny fraction of Apple...

wpietri• 13 years ago

Yes.

Stock A rising more than stock B only means that the market has been more pleasantly surprised about A than B.

So given that the point of the article is "AOL is doing surprisingly well thanks to low expectations", it'd be natural that the stock would gain more than companies that people expect more from.

Also, I'd have a hard time calling AOL successful (which the article does). They're net profitable, but on something that's doomed. And the thing that's supposed to save them, selling ads against content, is looking pretty sickly as well. Profit is correlated with success, but they're definitely different.

chourobin• 13 years ago

Also the chart only dates back 1 year... why not do a 5 year comparison? Oh right.. because Apple stock has outperformed AOL by a factor of 2 even with the recent 30% dive in market value.

WayneS• 13 years ago

So they profit from idiots? That is a pretty good strategy, they will never run out.

dgbsco• 13 years ago

MapQuest.

Demiurge• 13 years ago

AOL also own Winamp, my favorite music (and internet radio) app since the 90's :(

rokhayakebe• 13 years ago

I am wondering they don't run TV ads targeted towards this demographic.

AOL Is Still the Weirdest Successful Tech Company in America

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