AOL Watch: Big Mistakes

David Cassel (
Thu, 9 May 2002 19:29:00 -0800

			 B i g   M i s t a k e s


The screen on AIM Today was supposed to display names of AIM users.  But
on April 27, it was displaying pornography.

A security hole in the list of names had turned it into a hacker bulletin
board, where profanity-laced sound files played automatically behind
X-rated pictures and animation with dozens of graffiti-like comments.

The security hole lasted for eight hours, and while it's difficult to say
how many AIM users spotted the gaffe, Instant Messaging Planet reports
that AIM has over 100 million subscribers.  And AIM Today launches
automatically whenever users log on to recent versions of AOL Instant

It's not the first time AOL inadvertently pointed its users towards
pornography. Newsbytes reported in November the "Just for Fun" section of
AOL's Kid's Only page linked to a site called 100% Girls -- but "Web
surfers who followed the link reached a pornography site advertising 'XXX'
images and other adult entertainment."

This time screen names were created containing HTML code that corresponded
to sound and image files elsewhere on the web. When a list of the names
was generated, AIM Today automatically pulled in whatever the pranksters
had specified. Ultimately the lists included everything from sound files
to links for an Aryan organization. Text was displayed including countless
shout-outs of screen names, plus at least one remembrance of
recently-deceased Alice in Chains front-man Layne Staley. One of the
attackers later identified himself as "Neon," a 16-year-old living in
Michigan.  Another perpetrator -- "Sirk" -- identified himself and
co-conspirators "Dime" and "Toast" as 17-year-olds living on the East

In an online interview Sirk argued that security holes became evident
"when teenagers can get the best of a multi-million user ISP." What
message was he trying to send with the April attack? "[T]hat they can't
just program everything like 7th graders." AIM users worried about
security "should do a little research," Sirk suggests, "and find out that
this is all part of the territory. If you're using a program that's got as
many loopholes and gaps as Swiss cheese, then prepare for the

Indeed, in January the Associated Press reported that AIM hackers had
discovered a way to seize control of any AIM user's computer and then
"delete files on the computer or take over the machine." Two years earlier
it was discovered any AIM account could be hijacked if the corresponding
AOL screen name hadn't also been created. And though AOL told MSNBC they
had fixed that hole -- a computer security consultant later discovered
that they hadn't. In fact, Sirk believes that "usually more exploits come
around the second time." Newsbytes even reported an earlier security hole
that allowed hackers to take over AIM accounts and "in some cases, access
AOL members' credit cards." One technology reporter ultimately concluded
that "[C]ompanies using AIM for business communication should be aware
that AOL -- unlike a telephone provider -- has no legal responsibility for
securing communication over its services."

Coincidentally, the X-rated attack occurred while AIM's home page was
boasting "Potential AIM Security Issue Resolved." But it may be only the
tip of the iceberg. Weeks ago a Wisconsin newspaper reported one
16-year-old had single-handedly conned almost 200 AOL users out of their
passwords. Posing as an AOL staffer, he'd pulled in at least 10 credit
card numbers each day -- which he then used to buy over $1600 worth of
computer equipment. He told the Milwaukee Journal Sentinel he'd been
committing similar crimes for four years.

But some subscribers are accusing AOL of doing nearly the same thing. In
February a class action lawsuit was filed citing dozens of consumers who
said AOL simply billed them for products they didn't order -- everything
from stereos to electric toothbrushes.

It's a problem that dates back several years. "They sent us a digital
camera in the mail just out of the blue," one subscriber remembers.
"They automatically took the money out of our checking account."  After
returning the camera and haggling for a year, she still couldn't get AOL
to return the money. As early as 1997, Mad magazine was joking that the
president of "America Onhold" would brush off questions about a famous
hacker by saying "My subscribers' card numbers are accessible to someone
far more dangerous than him...  ME!!"

Ironically, AOL now owns Mad magazine (as part of their acquisition of
Time-Warner). Some users may now be wondering where AOL's desire for
control ends. Two weeks ago it was discovered the AIM installation program
itself was also secretly disabling security settings on the installer's
PC. This created an unpublicized back door that granted an AOL-owned web
site special access to a user's hard drive -- while a security analyst
noted it also left users vulnerable to malicious hackers!,,10818_1014151,00.html

Business setbacks are also plaguing AOL.  Monday the stock price of AOL
Time-Warner dropped lower than it's been since 1998. "We've got -- a
record quarterly loss," read the Oakland Tribune headline just a few days
before, as AOL racked up a one-time charge of $54.2 billion dollars. It's
a pile of red ink larger than anything any corporation has ever reported,
the Los Angeles Times noted -- "more than the annual gross domestic
product of Ecuador, Croatia, Uruguay, Kenya or Bulgaria."

Last week MSNBC's Christopher Byron warned that "perhaps as much as $100
billion more could disappear before the carnage is complete." And while
two years ago the AOL and Time-Warner stock combined was worth $290
billion, a whopping $205 billion -- 70% of that amount -- has apparently
vanished, the Times noted, with AOL Time-Warner now worth just $85

AOL Time-Warner owes another $10 billion to AT&T, and $28 billion more to
Bertelsmann -- and their profit margins appear to be slipping. "Even
though AOL actually raised prices back in July by two bucks," New York
Magazine noted, "it's making less money per subscriber."  In February
C|Net also reported another disturbing statistic.  While AOL said their ad
and commerce revenue dropped only 7 percent in 2001, a footnote added that
a fifth of this money had come from other divisions of AOL Time-Warner --
and without it, the yearly drop was a staggering 27 percent!

One promotional campaign even went horribly wrong. "Dozens -- and possibly
hundreds -- of AOL users were mistakenly told they had won as much as
$10,000," the Associated Press reported.

The "winners" of the contest are now furious with AOL and contest sponsor
Coca-Cola.  "We are very serious about this and we have dedicated
ourselves to go the distance with it until we reach a fair resolution,"
read one e-mail to AOL Watch.  But it's not the first AOL sweepstakes
ending on a sour note.  In a 1997 contest, subscribers clicking an icon to
submit their entries were told "Location to send request is unknown."
AOL then displayed a message stating "Thanks for entering" -- and an ad.

Eight months ago AOL Time-Warner had already begun laying off 1,700
employees -- about 7 percent of their work force. This January MSNBC's
Christopher Byron wrote that AOL's quarterly results conference was "a
disappointing effort at spin control," criticizing the company's "obvious
gaming strategy: To wrap itself in the American flag and blame Osama bin
Laden for the company's deteriorating business outlook and finances." Last
week Byron went further, complaining that "The company's financials are so
fogged up with pro forma projections and 'trending schedules' that it is
impossible even for their own financial spokesmen to answer questions
about what's what.",2933,51388,00.html

In fact, as the accounting practices of entertainment companies become
more complex, one analyst told the Los Angeles Times that "It's become
like a sleight-of-hand routine at a carnival. 'Don't watch this hand --
watch my other hand.'" Earlier this month the New York Times stated that
"AOL has suffered because of comparisons to companies like Enron and
Adelphia, which had illusive balance sheets." Forbes pointed out last year
that historically, if AOL had been forced to pay its volunteer work force
from the beginning, "it would not have shown a profit until fiscal year
1999 -- seven years later than it actually did."

Amazingly, AOL's performance has been so abysmal that it's contributing
virtually nothing to the value of the stock, Reuters reported -- raising
the possibility that AOL could in effect be "un-merged" from Time-Warner.
"Size has been the only pay-off from its merger," MSNBC's Byron wrote in
January, "for in just about every other way that matters, the merger has
turned out to be a disappointment." Other analysts echo his concerns. "By
now, every investor recognizes that Time Warner made a very large mistake
by merging with AOL," one hedge-fund manager told MSNBC. New York Magazine
believes Time-Warner's CEO "made what is now universally regarded as the
worst deal ever made in corporate history: He mistook AOL for being worth
some $50 billion more than it was." And in the Washington Post an Atlanta
financial analyst calls the merger "an absolute mistake."

Reuters reported today that AOL's corporate bonds fall into the
third-lowest ratings category -- barely better than junk bonds.  And some
short-sellers, betting the stock will go down, are speculating about a
fierce culture clash between Time-Warner's media boosters and the computer
geeks who would expand AOL's technological capabilities. warned
that "without the geeks, the value of AOL Time Warner will diminish over
time. And the shorts won't just profit, they'll bring the company to its

Morale may already be low.  "Inside AOL Time Warner," wrote CBS
MarketWatch, "employees make gallows humor-type jokes about how they
wouldn't be surprised to see coin-operated locks on the company's
bathrooms to help it make a few extra bucks."

Yet despite the company's problems, last month it was discovered Steve
Case and AOL CEO Gerald Levin had each been awarded $76 million in stock
options. Unfortunately, while growth used to seem inevitable for
AOL, "it's running out of seducible Luddites," New York magazine notes.
"[M]ost people know what the Internet is and have already decided either
to use it or to ignore it."  The growth rate of AOL subscribers dropped
six percent last year, Smart Business reports.  And the previous year, it
had dropped another six percent...,3658,s=101&a=25133,00.asp

Maybe it's the end of an era.  An AnchorDesk correspondent warned that
AOL's price-hike last May "is like charging customers for one extra
month...every year," asking the question "Have you outgrown AOL?" Other
critics agrees. "AOL may have critical mass, but its moat is merely a
stream that can be easily jumped," they told AOL Watch.  "If only AOLians
would open their eyes to the expansive world outside their provider's

The price hike made AOL nearly 20 percent more expensive than competing
internet services. ("You've got a large bill," one headline pointed out.)
And then one million more AOL users were hit with a new price hike in
January.  In fact, SmartBusiness magazine reports that in the next ten
years, the monthly subscription rate could explode up to $159.  "In recent
months, AOL executives have said they hope to raise monthly subscription
fees by a factor of 600 percent or more over the coming decade.",3658,s=101&a=25133,00.asp

AOL subscribers received notice of this last price hike through a pop-up
window -- after an advertisement for a digital camera. Customers calling
to cancel their accounts waited on hold for several minutes, during which
AOL played more advertisements.  While it may be bad for customers, it's
good for AOL.  The latest hike should bring the company close to half a
billion dollars a year in extra revenue!

Steve Case apparently wanted to hide from federal regulators AOL's
monopoly-like power to raise prices for as long as possible. "It would be
unwise in days of getting merger closed to do anything on pricing," Case
had explained in January. "That wouldn't be smart."

Asked about the timing of previous price hikes, an analyst told CNN
Financial News it was made "because Steve Case thought he could get away
with it."

But some AOL users feel they're now paying more for less service. "Why
would I pay an extra $1.95," one subscriber complained bitterly to the
Washington Post, "when I can't use AOL 30 percent of the time?"  Recently
Wired News cited an August Consumer Reports survey in which 60 percent of
AOL users complained their connections had been interrupted that month --
the worst record of any service in the survey. "I like AOL for some
things," one tech industry worker commented, "but as an internet service
provider they suck."  One subscriber told AOL Watch problems with AOL's
browser had even prevented them from accessing -- a web
page for charitable donations!,1367,49965,00.html

The problems keep coming.  In February C|Net reported AOL web pages were
sporadically unavailable. Salon reported at least one subscriber to AOL's
cable internet service found their account disconnected due to an apparent
mistake about uploading of a copyrighted movie. An error in dial-up
listings also seems to have proven expensive for AOL subscribers in
California. "My sister was billed about $500 for long distance," writes
one AOL Watch reader, "as were hundreds of other persons in the Fortuna,
California area!"  In the past AOL has even mistakenly publicized the
toll-free numbers of other companies as their own. One New York
businessman discovered how much traffic this could generate when AT&T
published his toll-free phone number as America Online's by mistake. The
president of a Roller Hockey facility found himself talking distressed AOL
customers through the procedure for unfreezing their computer screens.

"We would answer the phone 'America In-Line'..." he told CNN, "And they'd
say 'Thank God we got a person on the phone'..."

Now even AOL is doubting its own software. A year ago they'd insisted all
AOL Time-Warner employees use AOL-produced software for email.  But in
March the Wall Street Journal reported that "management got months of
complaints from both senior and junior executives.  The email software
frequently crashed, staffers weren't able to send messages with large
attachments, they were often kicked offline without warning, and if they
tried to send messages to large groups of users they were labeled as
spammers and locked out of the system."

And sometimes, "e-mails were just plain lost in the AOL etherworld and
never found." The Journal cites an internal memo to Warner Brothers
executives warning that 2% of the company's email was simply disappearing.
Dissatisfied AOL Time-Warner employees switched to sending FAXes or
Federal Express, and at one point resorted to simply printing an important
email and then taking a taxi to deliver it!,,SB1016753151274202960,00.html,1902,24706,00.html

Last month AOL Time-Warner executives admitted defeat, and announced they
would no longer require their employees to use AOL's email products...

But it's not just AOL employees who are having problems with AOL's system.
Just three months ago AOL also deleted hundreds of thousands of emails
that Earthlink's customers had sent AOL's subscribers.  (And AOL also
failed to correct the problem for ten days!)  In December AOL deleted
emails from Harvard University telling students they'd been accepted to
the college. Even the last edition of this newsletter was blocked by AOL
from reaching approximately 10,000 of its subscribers. According to an AOL
mail official this was a mistake, attributed to malfunctioning spam
filters.  In fact, in an attempt to block unsolicited commercial email,
"AOL is blocking entire domains," one angry AOL Watch reader reports,
"including some mistakenly identified as sources of Spam.

"E-mail that is blocked in this way is 'black-holed'. That is, it is
destroyed and irretrievable."

In the past AOL has also stopped delivering email from the Microsoft
Network, as well as other internet services including FlexNet,,,, and

Yet some AOL subscribers still refuse to switch services. "Could this
blind loyalty be a result of subliminal messaging in AOL ads?" one AOL
Watch reader asks. "I'm 14, and my parents are extremely loyal to AOL, and
refuse to switch despite any reasoning!"

"P.S." they added.  "I lost my connection twice trying to write this."

Even users attempting to cancel their AOL accounts encounter problems. AOL
disabled the ability to cancel accounts online, AOL Vice President of
Member Services told the Wall Street Journal in 1997, because too many
members were actually using it to cancel their accounts! Two years ago
some subscribers attempting to cancel AOL by phone discovered that AOL
simply didn't have any phone operators to take their call. A recorded
message told them to call again later -- then hung up.

"I've had literally dozens of responses from consumers saying they
experienced similar problems," Boston Herald reporter Robin Washington
told AOL Watch.  Determined users ultimately discovered that they could
also cancel their accounts by mailing AOL at P.O. Box 1600 in Ogden, Utah
84401 or by FAX-ing 801-622-7969, if they specify that they're cancelling,
give their full name, phone number and address, and either their primary
billing contact's AOL screen name or the last four digits of their payment
method.  But one angry subscriber suggested AOL should simply re-write its

"You're so easy to use, it's no wonder we're number one."

Now pollsters are detecting currents of suspicion. In a Harris Interactive
poll last August, a whopping 37 percent of internet shoppers said they
were "highly distrustful" of AOL. Out of every 20 people interviewed, just
three said they had high levels of trust in AOL.

In a possible attempt to counter this suspicion, AOL purchased television
advertisements that began "America trusts America Online (to make getting
online easier)," repeating the word trust again in the 30-second ad.  But
important new questions are rising about the policies of AOL's
far-reaching empire. Last August AOL provoked concern with their approach
to the Chinese government. "Should the new AOL Time Warner ever offer any
content in China, it should be careful not to compromise journalistic
principles and values, and human rights, for the sake of profit," one
commentator warned. "Should it accept censorship, government-edited news
and intrusion into Chinese citizens' private lives, its credibility
worldwide would go down the drain."¬Found=true

The way AOL treats its customers is becoming increasingly important. Half
of all time spent online is already spent either on AOL's sites or sites
owned by just three competing media companies.

Even if you aren't using AOL's service, they may still be acquiring
information about you. Already users aren't allowed to install the latest
version of AIM without divulging their zip code -- or without being asked
if they'd like to switch their default home page to Netscape. Last summer
AOL told Upside that major web sites like eBay, FedEx, Travelocity, and
Office Depot would soon pool their membership databases with AOL. And in
September a study posted on The Privacy Foundation web site warned that
"if you are looking for a job on, information from your job
search activities may be sent to AOL whether you are a member of AOL or
not." Former employees told the researcher "AOL required that allow it to track any visitor as part of the
overall business arrangement." Even if you're not using an AOL account to
access the site, still "job seekers are telling AOL what jobs
they are looking at, when, and if they have applied for the jobs.",1367,46559,00.html

Ironically, some of those job seekers may be former AOL employees. More
than 400 CNN employees were laid off by AOL after the Time-Warner merger
was completed, the AP reported -- plus a total of 2,000 employees
throughout the Time-Warner empire.,1902,21721,00.html

Could AOL exert even more control?  They may be prohibiting their
competitors from advertising high-speed internet access on AOL
Time-Warner's cable TV channels. Last June a phone company executive
complained that "We've been forbidden, if you will, from being able to
advertise DSL on the cable networks as a competitive service to cable
modems." ISP Planet even procured a recording showing an AOL Time-Warner
representative refusing an AOL competitor's ads!

By owning the cable TV channels -- including CNN -- AOL may also affect
how programs get delivered on cable TV.  Last summer the Los Angeles Times
noted that CNN's Talkback Live was already promoting AOL Instant
Messenger. Then the paper spotted an even bigger AOL promotion...  When
CNN's Headline News channel launched in August, it included suspicious
on-screen tickers plugging TV shows appearing on other AOL-owned channels!
This questionable favoritism towards AOL's shows was a mistake, CNN
spokespeople claimed -- but in the same breath conceded that they'd never
show ads for programs appearing on rival networks like MSNBC or Fox News.
To increase distribution of its CNN financial news, AOL Time-Warner has
even considered paying "bounties" to buy their way onto additional cable

One internet activist sees danger when large cable companies like AOL
Time-Warner control the actual flow of online information. Cable companies
offering high-speed net connections "have a view of what the network
should be used for. And they're beginning to pick and choose what kinds of
content will flow quickly.... They, not the user, decide what the network
should be..." Today, entrepreneurs develop products to distribute over the
internet. "Soon, you will need the permission of network owners."

And AOL's world-view may surprise you.  Recently an AOL Time-Warner
executive said people who don't sit through commercials during a TV show
are thieves.

In fact, AOL favoritism already may be occurring online.  Users of AOL's
search engine get results that point to AOL's sites before non-AOL sites,
PC World suggests -- and other companies can apparently also purchase
higher placement in the search engine results -- for a price.,aid,86884,00.asp

AOL executive Barry Schuler once said -- proudly -- that he was "the guy
who turned the Internet into Happy meals." But AOL's pro-advertising
philosophy may ultimately spread back to its news channel. During CNN
Headline News broadcasts, advertisers have recently been allowed to
purchase placement of their logos. One day AOL's policies could even
affect other networks. Last May there were rumors that CNN would form a
merger or news alliance with CBS or ABC.

Where does AOL's influence end? A web site parodying CNN was targetted
with legal action. And AOL may even have exerted influence over whether or
not a book parody could be published. CNN's legal counsel had filed a
friend of the court brief arguing in favor of its publication. But the
book parodied "Gone With the Wind," whose movie rights belong to AOL's
Turner Entertainment. Ultimately CNN's name was removed from the brief,
and the legal counsel who'd signed it abruptly resigned. And AOL's own
book contracts, meanwhile, drew strong criticism from America's largest
professional writers organization last summer.,1283,41566,00.html

The AOL Time-Warner empire is even more vast. They own classic films like
Casablanca, plus major blockbusters like Harry Potter, Ocean's 11, and
Lord of the Rings.  AOL has taken possession of D.C. Comics' Batman and
Superman, and owns the production companies behind popular TV shows like
Friends, West Wing, and The Sopranos.  In fact, one out of three shows
nominated for an Emmy in 2000 was produced by one of AOL's companies.,1902,21480,00.html

AOL's influence also extends to a vast range of celebrities. Madonna,
Chris Rock, Jackie Chan, Sylvester the Cat, Sylvester Stallone, Rob Lowe
-- all were marched up to the microphone to record the phrase "You've Got
Mail," along with "Welcome," and "Goodbye" for an AOL promotion.  Even
Elmo interrupted a skit on Sesame Street for the phrase "You've Got Mail"
last summer. AOL has also struck a deal to include AOL applications in
Sony Playstations, and has already created an educational online service
targetted specifically at grade school students.

Dozens of political cartoonists warned about the dangers in a world where
AOL owns Time-Warner...

But as soon as the merger was approved, consumers found AOL exploiting
their leverage. Last summer fans seeking the tickets to a Madonna concert
discovered they were available to AOL members only. First new AOL
subscribers, then existing AOL subscribers, received exclusive
ticket-purchasing rights, with left-overs then made available to non-AOL
users. Unfortunately, using AOL to purchase tickets apparently presented
problems for one subscriber. "I was online trying non-stop attempts, and I
got nothing," they reported "but finally, was told that the tickets have
been sold out at 7 p.m."

In fact, in the year 2000, 20% of the money earned by all magazine ads in
the United States went to AOL Time-Warner properties. AOL also owns 64
magazines, including People and Sports Illustrated -- and they were able
to bring on 100,000 new subscribers each month by forcing AOL's
subscribers to view ads for the magazines when they signed on.,1902,21480,00.html,1902,22273,00.html

But not all their properties are happy. After AOL acquired Business 2.0,
they laid off most of its staff while retaining the publication's name.
And "TW Skateboarding" magazine -- now owned by AOL Time-Warner -- was
furious when its editors discovered all the magazine's subscribers had
received the latest issue bundled with AOL floppy disks. "We here at the
magazine didn't even find out about the atrocity until some of the
poly-bagged bulls--t made it into the office," they wrote in their
November issue. "We feel just as violated as you."

AOL has sent out so many free-trial disks, Forbes magazine was able to
uncover an amazing statistic. Last June while AOL had 23.5 million
customers in America, "an estimated 4.6 million, or 20%...weren't paying!"
Even subscribers calling to cancel their accounts are often enticed back
with offers of free months of service, with the end result apparently
being millions of AOL users who weren't paying for their service.

One web site has even begun scanning pictures of the different AOL CDs
they've collected. Another site has collected over 23,000 AOL CDs, and
promises when they receive one million "we will make our quest across
America to give them all back to their rightful owner, AOL and say 'stop
doing this'.",1284,45585,00.html

One man ultimately asked the question:  if you don't want to receive the
CDs, is there any way to get a company as large as AOL to respond? After
the 13th floppy disk, Thomas Kyle contacted AOL customer service -- three
times -- asking that they stop mailing him disks.  Each time AOL customer
service assured him they would.  When the disks kept coming, he filed
complaints with the Better Business Bureau.  But the disks kept coming.
His quest continued when he filed a U.S.  Postal Service "prohibitory
order"  form.  Less than a month later, he received another floppy disk.

And another disk two months later.  Then another a month after that. And
the next month....

But he fought back.  "I filed a small claims case," Kyle told AOL Watch
last week -- and a court date has been set for June 18.  "I discussed this
case with my attorney, and I have have plenty of evidence to support my
claim," Kyle says.  Since AOL's supervisor (twice) indicated the disks
would stop, Kyle says he's suing for invasion of privacy, mail harassment,
and private nuisance.

And he's seeking $1500 per disk.


On April 27, next to AIM Today's pornography-filled melange, the AIM
software obliviously continued serving its ads for TV shows on the
AOL-owned Warner Brothers network like Charmed or Felicity.

At one point an image depicting an X-rated scene appeared under a
MasterCard banner ad suggesting "Spoil Mom this mother's day."

        David Cassel
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