Rattle wrote:

Actually it made perfect sense and still does. AOL at it's heart was a content company. It was the same business as TW, selling adverts inside of content vehicles. The gem of AOL was that they had new and more capable channels than TW had organically. Had TW embraced AOL instead of feeling threatened by it, it would be a very different world. Instead of advertisers and content companies feeling threatened by things like Tivo, Google, and Napster - they would've embraced those channels and exploited their additional capabilities - like one-to-one marketing and personalized segmentation.

Instead what you got was TW business leaders, wounded because their stock wasn't valued as highly as AOL's, getting bitchy because AOL didn't have strong revenue streams yet. I emphasize 'yet', because as we all know, old media is fading away pretty quickly now. When was the last time you read a newspaper? Or better yet, when was the last time you looked at an ad or classified in the newspaper? Those revenue streams are irrevocably changed and AOL's model was the correct one. It's just that the management at TW wasn't ready to concede that.

To make matters worse, AOL still had a large faction that thought it was a technology company. When you have software development, large Internet infrastructure, and media development listed as a 'core competency' when you're really a content company, it's easy to see how the TW people were successful at proving that AOL didn't know what the hell they were doing. Those lines of business, if they even generated revenue at all, should've been discarded before the merger. Some of them were, but not all of them. I think that would've provided clarity in the ranks and made AOL more nimble.

The time wasn't right. Way too early. AOL was (and is) doing a crappy job of pushing from dial-up to broadband, and IP based television was nowhere near ready to go. The content channels that TW had the ability to really leverage into the puzzle were not ready to fit in that puzzle. Everything else should have just been licensed, as it was before the merger. They were not able to accomplish anything other than the complete obliteration of shareholder value. It was a really bad move, that only looked good on paper. They both would have done better if they stayed separate.

Maybe. You sound like an institutional investor or venture capitalist in 2000. Things take time. Anyone who had half a brain in their head knew that these things were going to happen. If your time horizon had suddenly shrunken to 18 months instead of the previously accepted 7 years to get a return on this kind of investment, then yes, what you say is all true. But if you looked around in late 1999/early 2000, you could definitely see that this was inevitable. You could do VoIP back then. You could do very basic video streaming over broadband networks - even better if you were within your own backbone. Sure, the valuations were frothy, but so were everyone else's valuations at the time. I don't see how if TW avoided the AOL merger, that shareholder value would've been preserved during those years. There's but a few companies that didn't lose market cap between 2000 and 2003. Halliburton is one.

I'm of the opinion that we'll spend the next 10 years going over business plans from 1999 and finding tremendous value in them. There might be one or two things to tweak (market, revenue estimations, etc) - but generally there's a TON of viable business models buried in landfills behind VC firms all over the world. I don't know if these things were 'too early' or just that everyone's expectation of making 600% IRR's was 12 months instead of something reasonable like 60 months. In some cases (telecom), you have to spend a billion dollars before you get one penny back. Most investors were neither educated enough or patient enough.

The even more sinister thing about all of that activity is if you read any of the projections from Jupiter or Gartner or most of the tech-savvy research firms on things like broadband penetration, VoIP penetration, even PC growth - they're all correct. It was hard to believe that we'd have 50% broadband penetration by 2004 when it was 1999, but guess what? It happened.

RE: AOL founder says he is 'sorry' for Time Warner merger - Jul. 24, 2006