If you grew up in the U.S during the 1990s, it's almost guaranteed that you recognize this sound You've Got Mail You would hear this every time you log into your AOL dashboard, which at the time was the only way tens of millions of people could access the internet. The booming internet industry caused American online or AOL to see skyrocketing popularity. The company's Revenue surged from just 50 million dollars in 1993 to almost 8 billion dollars in two thousand. Its operating income increased one thousand fold from 2 million dollars in 1993 to almost 2 billion dollars in the same time period.

AOL was standing at the center of the.com bubble, with investors pumping its market capitalization to 200 billion dollars in 2000, which represented 26 times their revenue and more than 100 times their operating income that year. AOL attempted to cement its dominance by acquiring Time Warner in an all-stock transaction. Time Warner was one of the largest traditional media companies in the world. Owning iconic assets including the Warner Brothers movie studio CNN HBO and Time Magazine by combining Time Warner's traditional media assets with Aol's tens of millions of Internet customers, the combine entity was positioned to become the communications and entertainment Juggernaut of the 21st century.

When the merger was announced, the combined entity would have a pro-form evaluation of 350 billion dollars, making it one of the most valuable companies in the world. Despite the hype, the deal was almost immediately a disaster. In 2002, the First full year after the deal closed, the combined company reported a jaw-dropping 97 billion dollar net loss the largest annual laws of any company ever. By 2003, both the CEO and Chairman had stepped down and the stock had declined by more than 90 percent.

Fast forward to 2015 and Verizon acquires AOL for 4.4 billion dollars about three percent of the company's Peak valuation. AOL Technically still exists today, but it is a sad shadow of the internet. Behemoth it was at the turn of the Millennia in this video. We'll tell the story of how AOL became America's most valuable internet company and how they lost everything before we dig into.

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Get 60 off on your subscription by clicking the link in the description below. It's risk-free with Babel's 20-day money-back guarantee. Thank you! Today Most of us take internet connectivity for granted, with the vast majority of households in developed countries having broadband connection. but in the 1990s, the internet, as we know it today, did not yet exist.

There were no broadband connections Wi-Fi hotspots or cellular data. Personal computers were already widespread, but with no way to access the internet. they were a little more than overpriced word processors. While Broadband connections were virtually non-existent what nearly every household had was a landline telephone.

As it turns out, these existing telephone cables could also be used to provide internet connectivity. Enter AOL or America online, as it was known back then, a company that would take these ubiquitous landline telephones and harness their potential to transmit internet signals. Their modus operandi was simple but incredibly effective. AOL would mail you a compact disc combining their proprietary software, which you could then install on your home computer by connecting your computer to the phone line and dialing into.

AOL Service: you could surf the digital wave right from your living room. a AOL success was driven not only by its innovative use of existing technology, but by its aggressive marketing campaigns. Compact discs with AOL software and offers for free trials flooded mailboxes across America. They also partnered with big box retailers like Target to give their CDs away for free in the stores.

The idea was to make the internet accessible to bring it to the masses and it worked. AOL managed to become synonymous with the internet for many Americans during this period. Initially, AOL charged for internet connectivity by the hour. While such a pricing model might sound absurd today at the time, most people use the internet infrequently and for specific tasks like looking up some facts.

There weren't very many websites, so there wasn't any reason to surf the web for hours at a time. Today, it doesn't matter who your internet service provider is, either way, you can access all the same websites on the world wide web. The AOL internet experience was very different. Instead of being able to access the entire world wide web, AOL Subscribers could only visit a curated selection of sites socasted on the AOL dashboard.

This approach known as a Walled Garden was a boon for AOL. While The Limited accessibility may seem restrictive by today's standards, it was a stroke of Genius From a business perspective, AOL not only charged an hourly fee for accessing their airnet service, but they also found ways to monetize the user experience within the Walled Garden. This was done through the Strategic placement of ads and sponsored content on the AOL dashboard, thereby creating an additional stream of Revenue AOL did face competition from other dial-up internet providers, and in 1996, they were forced to change their pricing structure to a much more reasonable 20 per month for unlimited access. With this pricing change, they were able to maintain and even grow their dominant market share with over 25 million paying subscribers by the year 2000.

They were also incredibly profitable, with their revenue surging to almost 8 billion dollars in their operating income reaching almost 2 billion During the.com bubble, the new internet economy was all the rage among investors, with AOL being at the heart of the booming industry history. It's perhaps unsurprising that their stock price surged, giving the company a peak valuation in excess of 200 billion dollars. Despite the company's surging share price, Aol's top Executives knew their business model was about to be disrupted and catastrophically so, the main threat was broadband internet connection, which offered Speed and Performance far superior to Aol's existing dial-up offering. Companies like at T Verizon and Global Crossing were building out Broadband offerings that offered far higher performance and dial-up internet.

As soon as a competing internet service provider entered a given neighborhood, Aol's market share would decrease substantially foreign in January of 2000, AOL and Time Warner jointly announced that they'd be merging in an all-stock deal AOL Shareholders would own 55 of the combined entity in Time Warner shareholders would own 45. Time Warner CEO Gerald Levin would be CEO of the new company. An AOL CEO Steve case would be the chairman. Despite the fact that Time Warner had almost three times the revenue as AOL Aols frothy stock price meant that it had doubled the market cap.

That's how AOL was able to own the majority of the combined entity, the Strategic rationale seemed compelling: Time Warner owned valuable content franchises including CNN and Time Magazine. They could place Time Warner's content into the AOL Walled Garden AOL already had other exclusive features such as AOL email and AOL Instant Messenger. Hopefully, with these existing features plus Time Warner's premium content, customers would continue paying for Aol's dial-up internet, even if Broadband was faster. Shortly after the merger was announced in 2000, the.com Bubble Burst the internet startups which had previously surged to eye-watering valuations had crashed back down to earth, with many of them going bankrupt.

By the end of 2001, nearly half of the 371 publicly traded internet companies in the U.S were either bankrupt or on the brink of bankruptcy. This was a big problem for AOL because they generated a substantial portion of their revenue by selling advertisement slots to these companies. This had the potential to be catastrophic if Aol's financial performance deteriorated significantly before the merger closed. Time Warner's shareholders might back out the deal, and even after the merger closed, they needed to post strong results to meet wall Street's high expectations.

to accomplish this. AOL Senior: Executives allegedly resorted to manipulation Home Store operated online real estate listing services on its website's Homestore.com, Realtor.com and a few others. They paid AOL to be the exclusive source for real estate listing on the AOL dashboard. when AOL customers logged onto their computers, they would see home listings from Home store.

Things got complicated when AOL became Home Store's advertising agent Home Store placed third-party ads on its own website AOL would sell advertising slots on Home stores website to third-party advertisers. So AOL was Home Store's customer and HomeStore was also Aol's customer. At the same time, By 2001, the ad Market was declining. so both Home Store and AOL were seeing their revenues fall.

They concocted a plan to increase revenue for both companies: Home Store paid a number of third-party companies for overpriced Goods These third-party companies would keep a portion of this money for themselves, but they agreed to spend the majority of it on AOL advertising as Home Store's agent AOL would place the ads on Homestore.com Thus, the money that they sent to third-party suppliers eventually came back to Home Store as Revenue AOL earned a sizable commission as the middleman. This scheme helped both AOL and Home Store artificially increased the reported revenues AOL had similar arrangements with a company called Purchasepro.com and Worldcom which would inflate the revenues of both companies involved. In total, AOL Time Warner inflated its Revenue by almost 700 million dollars between 2000 and 2001.. Additionally, they would inflate their number of subscribers by selling heavily discounted bulk subscription packages to corporate customers.

For example, let's say AOL cost 20 per month A company has 1 000 employees and wants to buy an AOL subscription for all of them, they might strike to deal with AOL to pay five thousand dollars per month, so only five dollars per person. Part of the reason the discounts were so big is because not all employees would end up using their AOL subscriptions. Some employees are not tech savvy, or the nature of their job simply doesn't require internet connectivity, so of the 1000 subscriptions, maybe half of them would never even be activated. this.

despite this, AOL reported all 1000 of them as active subscriptions in an effort to boost their subscriber numbers and meet analyst expectations. Foreign. Despite all the accounting gimmicks that AOL tried to pull, they couldn't solve the fundamental problem facing their business. The World Wide Web As cable companies steadily expanded their Broadband networks high-speed internet became a household staple.

With the widespread adoption of broadband internet came an influx of freely accessible websites. Sites like Facebook and YouTube Unbound to specific internet service providers were open to all. The Internet as we know it today was just starting to shape, and unfortunately for AOL, their dial-up service would have no place in this new world. In addition to Dial-up Internet's lackluster performance compared to broadband, Aol's wall Garden approach proved untenable.

Consumers found little incentive to use Aol's email Services when platforms like Gmail offered comparable services for free. Similarly, Aol's once iconic Instant Messenger faced disruption from competitors such as MSN Messenger, which is readily available on all PCS The World Wide Web had gotten so big that Aol's Wild Garden had no way to compete. Even the inclusion of Time Warner's premium content couldn't rescue the company from this predicament. The decline of AOL can be succinctly summed up with this one graph.

In 2001, 41 of American households had dial-up internet compared to just six percent with a broadband connection. By 2010, this had completely flipped. 66 of households had Broadband. While just five percent had dialogue in 2001, it become obvious that dial Up was a dying business model.

AOL Time Warner was faced to recognize a 97 billion dollar net loss for the year, mostly attributable to write Downs of Goodwill and other intangible assets. This is the largest annual net loss reported by any company ever. Aol's Revenue declined precipitously throughout the 2000s, as they lost dial-up internet subscribers in December of 2001. Less than a year after the merger was closed.

CEO Gerald Levin steps down. Levin Realized that he had made a colossal mistake. He thought that he was getting a good deal with the merger because AOL had a greater market cap than Time Warner at the time. but with AOL becoming worthless, he had essentially given away 55 percent of time owner shares for nothing in 2003.

Chairman Steve Kays who had previously been CEO of AOL also stepped down. The share price of the combined entity declined by almost 90 percent. The AOL Time Warner merger is widely regarded as one of the most disastrous mergers in history, particularly from Time Warner's perspective. However, it may be seen as a shrewd business decision by Aol's management team at the time, recognizing that AOL stock was significantly overvalued in its World Garden business model.

unsustainable. AOL took advantage of the.com bubble's inflated share prices to acquire Time Warner a company with stable revenue and cash flow. As Aol's business inevitably declined, AOL shareholders still retain 55 ownership of Time Warner, which, although substantially lower than Aol's Peak valuation, was preferable to ending up with nothing. In 2006, activist investor Carl Icahn acquired a stake in the company and pushed for a breakup.

He contended that the merger had been a conclusive failure and AOL was a drag on Time Warner's otherwise successful traditional media business icon got what he wanted in 2009, when Time Warner spun out AOL as an independent company. With the decline of the dial-up internet business becoming evident, AOL shifted its focus to digital media making strategic Acquisitions of online media Outlets such as the Huffington Post Ted, Crunch and Gadget and Patch Media, which owned numerous local news sites. In 2015, Verizon acquired AOL for 4.4 billion dollars The following year, the Telecommunications giant also purchased Yahoo for about 5 billion dollars, merging the two companies to form Verizon Media. Verizon intended to leverages large consumer base as a mobile carrier to push AOL and Yahoo digital content to its customers, aiming to recreate the Walled Garden business model.

However, this strategy failed as consumers already had access to an abundance of visual media through the world wide web and showed little interest in the content that Verizon tried to promote. It seems that everyone who touches AOL loses money in 2018. Just two years after the Acquisitions Verizon recognized the 4.6 billion write down on its media assets, both AOL and Yahoo significantly underperformed expectations. Verizon reassessed their value, realizing that they were worth only about half of their initial estimation.

Finally, in 2021, Verizon ended its ill-conceived Venture into digital media by selling its Yahoo and AOL assets to the private. Equity Firm Apollo for 5 billion dollars, a fraction of the original purchase price and less than one percent of the peak valuation attained during the.com bubble. AOL is often labeled as one of the greatest business failures in history, but this may be too harsh of a criticism. The disruptions brought about by technological advancements and shifting consumer preferences presented challenges that were difficult to overcome.

realistically. AOL had limited options to adapt and transform its business model. They could have invested in their own Broadband infrastructure, but this would have cost many billions of dollars in many years to accomplish on any meaningful scale. While AOL was still focused on his dial-up business, telecommunications and cable companies were already laying down their own Broadband networks, giving them a significant Head Start Despite their Loft evaluation, AOL didn't have much cash and they didn't have the money to build a Broadband network of their own.

The only thing they had was their overvalued stock which they ended up using to acquire. Time Warner All right guys, that wraps it up for this video. What do you think about? AOL Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.

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