The AOL List: Whipping Boy

David Cassel (
Fri, 19 Sep 1997 18:34:48 -0700 (PDT)

			W h i p p i n g   B o y 


The editors of U.S. News and World Report had a message:  "Does anyone
really need AOL?"  

In a blistering commentary sub-titled "How to avoid spam, snail-paced
E-mail, and abrupt disconnections," the magazine belittles AOL's
offerings.  ( )  
"[A]ny customer at any time could defect to the quasi-public Internet and
World Wide Web to find much of what is provided by AOL, and more. A lot
more." The magazine adds that "the kind of 'exclusive' content offered on
AOL's private network is available all over the Internet" -- and, that
"AOL's future depends on masses of customers failing to figure this out." 

"AOL is utterly contemptuous of the intelligence of it's customers," one
AOL List reader agreed.  AOL's latest deal provoked a flurry of negative
press coverage, with Vanity Fair showing undisguised skepticism about the
service and its CEO Steve Case.  ("While the 39-year-old Case has
personally earned $33.5 million over the past three years, his company
posted a net loss of $154.8 million during the final quarter of 1996.") 
The magazine adds that AOL then "tried to claim a tiny total profit of
$2.6 million for the first quarter of 1997, but was slapped down -- once
again -- for sloppy accounting by the Securities and Exchange
Commission..." ( )

Barron's is even more critical.  They consulted finance professor Mark
Hirschey, who concludes AOL's stock should be valued at around $6.34 a
share.  "Be as liberal as you like, you still end up a long, long way from
$80 a share, which is roughly where AOL stock closed Friday." 
( ) 
By the end of the day Monday, that article had helped send AOL's stock
down nearly 6%.  Ironically, the same day Time magazine ran a
favorable article titled "Online Colossus". (
ewQAeQ57mQWT/time/magazine/1997/dom/970922/cover1.html )  

Case appears on Time's cover with pink tentacle-like tendrils.  (On
Newsweek's cover:  Mother Teresa.) 

But even in positive coverage, AOL remains haunted by a high subscriber
turnover.  The editor of the AOL List attended Steve Case's press
conference one year ago.  "This notion of training wheels is something
that, six months ago, because we frankly had mediocre web access...there
were some people that thought we were not quite what they needed," Case
told reporters.  But he added optomistically that AOL hoped to address
this through moves like licensing deals. "I think that issue really goes
away," Case claimed.  "We want to have a system that is simple, yet
sophisticated, so that we are not training wheels for newbies." 

AOL failed, according to Time.  "AOL, which has always had a high turnover
of subscribers, still serves for many as training wheels," the magazine
wrote Monday, "from which they eventually graduate by getting directly
onto the Internet." 

Ironically, the magazine reports that on his first computer, Case himself
was connecting to CompuServe.  Times have changed.  "Imagine that you're a
connoisseur of fine foods,"  the Baltimore Sun writes.  "One night you
walk into your favorite French restaurant and learn that it's been taken
over by McDonalds..."

Outrage mounts over AOL's acquisition of CompuServe's subscribers.  "The
people of Compuserve must feel like the Polish did in 1939," one Earthlink
subscriber told the AOL List.  Meanwhile, angry CompuServe subscribers
surfaced throughout the media.

* "AOL is childish fluff, not a tool for anyone serious about computers or
business. Come to think of it, AOL isn't even a tool for anyone serious
about childish fluff!" 

 The Washington Post

* "A lot of people don't like the glitz, fancy graphics and shallow
content on AOL.  They want meat and potatoes and a professional atmosphere
where they know they're talking to other adults and not to a 13-year-old

 USA Today

* "I use CompuServe because it's fast and purposeful, and AOL is just the
 The Wall Street Journal

"Their overpriced, over-hyped, under-powered services aren't what I want,
and I refuse to pay for them." 
 PC Week

AOL promised the deal would reduce overcrowding on their system -- but
improvements in connectivity may come at CompuServe's expense.  "AOL will
use some of CompuServe's network resources to satisfy its own services'
demands as soon as it can,"  writes a Newsbytes editorialist. "That will
lead to Compuserve going the way of AOL in the unreliability stakes in the
short term -- until CompuServe closes its doors eventually, once AOL has
drained away its content and network resources."
( )  AOL swapped their ANS
network to WorldCom in exchange for CompuServe's subscribers and a
five-year commitment for network access.  But does that guarantee
reliability?  The day AOL announced the deal, a glitch in one of
WorldCom's data-carriers knocked much of the U.K. -- including CompuServe
-- offline.  ( )

Currently the Net Insider's "Scorecard" rates the outcome for the parties
in the deal -- and CompuServe's members were the only ones who scored a
thumb pointing down, as culture shock is anticipated.  "Welcome to
Teen Chat, fellas."  ( )  AOL's Robert
Pittman concedes there's sign-on ads waiting for CompuServe's subscribers.
( )  But that may not be the
worst of it.  To the Newsbytes editorialist, the outlook is clear:  "In

Industry experts concur.  "Executives insist things won't change much for
CompuServe's 2.6 million subscribers," the New York Times wrote "for
now."  But "I don't think America Online will have long-term use for the
CompuServe brand," an analyst for Jupiter Communications told the paper. 
( )
Another Jupiter analyst agreed.  "Is AOL really going to keep CompuServe
as a standalone service?" Mark Mooradian asks C|Net.  "No." 
(,4,14023,00.html ) 

Ironically, AOL's "Full Disclosure" keyword still displays a transcript
titled "Launch of GNN."  Less than a year after AOL acquired the service,
GNN's subscribers received a message titled "Exciting News From GNN and
AOL," outlining new features on AOL.  "So what does this mean to you?" it
asked.  With AOL's new features, "we believe there is no reason for anyone
to turn to retain an ISP membership, including GNN....we intend to
transition your membership to AOL in the near future."
( ) 

Within months, GNN was closed--and members were "transitioned" to a
service clogged with busy signals.  The episode lends a poignant irony to
the message's next paragraph.  "We understand that you have expectations
about what your Internet experience should be," it read, "and we stand
behind meeting those expectations." 

"Warm Regards," the message ended -- "the GNN Team." 

CompuServe's members may wonder why a white knight failed to materialize. 
Microsoft had considered purchasing CompuServe, but decided against it,
C|Net reports. (,4,14133,00.html )
Instead, they raided CompuServe's personnel, hiring a senior vice
president (,4,14279,00.html ) who had
resigned a month earlier -- plus two of CompuServe's popular technology
forum managers.  CompuServe gave bonuses to employees who stayed onboard
(,4,14101,00.html ), and in a dubious
attempt to inspire confidence, Time reports, Steve Case personally told
CompuServe's employees he envisioned an on-line business that was just as
secure as the juice stand he ran as a six-year-old.  Then he took his
shirt off.  ("Now don't look," Case told the audience, fumbling for a
CompuServe polo shirt...)

AOL's three-way deal got mixed reviews.  The Washington Post found
some analysts unimpressed. "They suggested that the Dulles-based company,
driven by a need for cash and a zeal to boost its subscriber lists,
effectively sold a big part of its house, only to rent it back." 
AOL's Motley Fool saw it differently.  "Instead of buying CompuServe
outright," they wrote, "AOL has managed to purchase just the pieces that
fit into its scheme for world online domination." 
( )  But the most
serious critic is the Department of Justice, which is investigating the
three-way deal for anti-trust violations.  Newsbytes' editorialist saw
a clear problem.  "If ever there was an example of an anti-competitive
business transaction that reduced choices for the consumer, the purchase
of Compuserve by America Online is it." 
( )  If the Department of
Justice approves the deal, the consequences could be serious.  "If
antitrust laws don't block this deal,"  one analyst told C|Net, "then
maybe down the road you'll see AOL justifying more and more increases in
price."  (,4,14023,00.html ) 

But some things never changed.  "Answered Prayers for America Online," 
reads the headline on one article in Business Week.  Their AOL area
contained additional information. "Werd to the Shot Down Crew," Business
Week's welcome screen announced Wednesday, "Da Shot Down Crew is
definitely in the house.  West side owns you bitch." The explanation came
in the area's title bar.  "Sorry, Business Week is currently hacked." 

Business Week joins the New York Times and Spin magazine -- and a total of
at least fourteen content providers -- who've found that they've lost
control of their AOL content.  ( , )  Wednesday's attackers altered
virtually every word on the screen of "the world's best-selling business
magazine."  "Try a Transcript!" became "You've Been Hacked," and "BW
Online Daily Briefing" became "AOHell 4 Ever". 

"Satisfaction and security guaranteed," AOL's exit screen announced the
next night, "when you shop at AOL." 


Enter the AOL List's logo contest!

Readers are invited to submit artwork for the upcoming re-launch of the
AOL List's "AOL Watch" site.  The best entries will be displayed on the
site, along with coverage in the special one-year anniversary edition of
the AOL List!

E-mail GIFs, JPG's, or animated GIFs (preferably less than 20K!) to -- or display them on the web, and send the URL! 

   David Cassel
   More Information -


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