Time Warner, AOL End Partnership

Published August 1, 2009

Time Warner announced this spring the end of its marriage to AOL, an inglorious end to a partnership that once raised grave antitrust concerns.

By year’s end AOL will return to the market as an independent company, left to fend for itself in a Web-based business world that has seen the likes of Google, Facebook, and now Twitter surge past the company.

“The merger failed because it never made any sense to begin with,” said Rob Atkinson, president of the Information Technology and Innovation Foundation in Washington, DC. “The idea of [creating] ‘synergies’ between content and an Internet service provider was just a poorly thought-out fad. The decline of AOL does say a lot about the turbulence and creative destruction in the tech industry.”

Monopoly Fears Unfounded

In 2001, when the companies merged after careful scrutiny from federal government antitrust lawyers, AOL was among the most dominant forces in the Internet industry, serving as the portal for millions of people’s access to and consumption of Web-based content.

The merger between Time Warner and AOL was quite controversial at the time, with opponents fearing the company would monopolize the market. AOL was then so powerful the young Internet company’s name was listed first after the merger. Yet almost from the start, AOL began to lose popularity and bleed customers.

In the past three years alone the company’s share of the search engine market in the United States plummeted from 9 percent to about 4 percent. AOL is currently valued at between $3 billion and $5 billion, whereas in 2005 it was estimated to be worth $20 billion.

Losing Relevance

Daniel Castro, a senior fellow at the Information Technology and Innovation Foundation, says AOL became an unsavory asset for Time Warner long before the May divorce because many of its chief services are steadily losing relevance in the market.

“At the time of the AOL/Time Warner merger, one of the core aspects of AOL’s business was dial-up Internet access, a service increasingly less relevant as consumers moved to broadband,” Castro said. “Now that it will again be an independent company, it will be able to focus on developing its strengths, which still include a great brand identity, a wide range of online services and content, and a large user population.

“The failure of the merger should remind us that to remain relevant, even today’s behemoth Internet companies must constantly innovate or perish,” Castro added.

The company’s newfound independence may end up making it ripe for a merger with Microsoft or Yahoo, a move Time Warner reportedly considered.

Aricka Flowers ([email protected]) writes from Chicago.