Class 17

An important issue for any company involved in Electronic Commerce is the role of portals and other information aggregators as a way to reach consumers. Their importance - and the amount they will be able to charge for access to the channel they represent - depends on how their own business models evolve. In the next two classes we study the role and impact of portals, which serve as entry points to the Internet. In this class we study America Online - the largest portal and ISP in the world, with 35 million paying subscribers. In our next class we examine NTT DoCoMo's i-mode data service, with 34 million paying subscribers in Japan.

As you prepare the discussion questions for the AOL case, please note that different questions place you in different time periods: Questions 1-4 focus on AOL and its business model before the merger with Time Warner, question 5 addresses the merger itself, and questions 6-7 address the post-merger period (i.e., today).  

1. AOL before the merger with Time Warner: 
   1. What was AOL’s revenue model prior to the merger with Time Warner? Break down AOL’s revenue into its main sources and break those sources down again so you have around half a dozen major underlying components of revenue. Think of a relation like: Revenue = a x b + c x d + …. (The reason for doing this is the following: We are interested in how important AOL is going to be as an intermediary in B2C Electronic Commerce. In order to understand that, we need to have some idea of how each of the drivers of its current revenue us going to grow/shrink).
   2. Historically, why has AOL been successful?
   3. Leaving the online world for a moment, think about the market structure for a particular class of retailer. Take bookstores as a concrete example. What determines the number and relative sizes of retail stores in a given area (think of any area you know well)?  Now assume that there are similar “stores” in the online world. What will be the likely number and relative sizes of online retail bookstores in, say, 2005?  Will there be more or fewer than in the physical world?  Why?  What will determine their number?  
   4. Going back to your analysis in question 1, and assuming that AOL extends its business model smoothly into the 21st century, what do you think will happen over time to AOL's revenue drivers? 
2. The merger: 
   5. From AOL's point of view as of January 7, 2000, do you think the merger with Time Warner was a good idea? Why or why not?
3. Following the merger:
   6. How successful does the merger look today? What is your opinion of the company's most recent restructuring (as described in the case)? 
   7. Given what you know today, should AOL be spun off Time Warner? Why or why not?