There are a lot of stories this morning about AOL’s plan to offer most of its services for free. I have seen no mention in any of them of the connection to recent publicity about Vincent Ferrari. He recorded his phone call wherein he attempted to cancel his AOL subscription, which recording was subsequently distributed far and wide on the internets. It was distributed so far and wide that the guy wound up on a number of TV and radio shows, telling his story.
The result is that no one who pays the slightest bit of attention will ever sign up for AOL again. No amount of corporate apologies will help; AOL’s product was marginal to begin with, and now that the news is out about just how unbelievably bad AOL’s customer service is, very, very few people are going to trust them with their credit card numbers any more.
I have formerly been a defender of AOL, trying to point out that the doom-mongering articles that you could read in places like the Washington Post ignored, entirely, that this was a business that made billions of dollars a year while running on fumes, and that there was still a lot of potential there.
The Post — which is mainly owned by Berkshire Hathaway, a very large chunk of which is in turn owned by Bill Gates — was relentless in its attacks on AOL. They have even gone so far as to say that the 2000 AOL-Time Warner merger was a scam perpetrated by Steve Case to exchange AOL shares for shares in something ‘really’ valuable, like a company whose business is based on magazines with declining circulations, movies with declining ticket sales, TV with bad ratings, and music that’s being pirated by everyone and his dog.
The Post willfully ignored the fact that, in 2000, AOL was a company with a robust business operating an online walled garden and with considerable expertise in delivering custom-made client software to people (all those CDs), and Time Warner was a company with an enormous warehouse full of ‘content’ in almost every medium imaginable, but with no way to efficiently distribute it.
This should have been a match made in heaven. Assuming that, even in the best case, Time Warner would have held tight to its most valuable properties, an AOL subscription should have meant, by 2001, at least some level of access to most of Time Warner’s less readily salable properties. The company has thousands of bad or just obscure movies, TV shows, magazine articles, etc., etc. which to this day are not producing any revenue for them. Had they started digitizing this stuff, they could have started increasing the number of AOL subscribers paying them $25 a month, and without needing to threaten and harass people on the phone, either. They could instead have grabbed hold of the Long Tail and gone along for the ride.
This didn’t happen, though, obviously. A number of things ultimately scuttled that merger, in no particular order:
- The absence of Steve Case and Gerald Levin
- Time Warner turf wars
- Management-by-numbers
- Growing bureaucracy
In 2002, Steve Case largely disappeared after his brother was diagnosed with brain cancer. Gerald Levin, the former CEO of Time Warner, retired. The two architects of the merger were out of the picture, and the turf wars started. AOL was a small company without a whole lot of fat, relatively speaking. It never stood a chance against the more bureaucratically-minded Time Warner culture.
Everything became — and remains to this day — the subject of a turf war. One of AOL’s real problems is that it has no real consumer broadband strategy; a lot of the diminution of AOL’s subscriber ranks, we’re told, is because of people moving to broadband services.
Some of those people are moving to Road Runner cable modem service, which is owned by Time Warner and which is, in fact, headquartered in Herndon, VA, about a five-minutes away from AOL HQ. Was Road Runner folded into AOL? No. In fact, Road Runner subscribers had access to things like free video from CNN (back when CNN still charged for access to its video); AOL subscribers got no such deal.
AOL doesn’t offer VoIP service because Time Warner Cable does, and Time Warner didn’t want anything from AOL competing with it.
There are dozens of other examples, small and large. The company took advantage of almost none of the opportunities uniquely available to it, because each of those opportunities would have required changing something; and none of the Executive Vice Presidents who had been in charge of foozling around inefficiently thought much of that. The absence of Levin and Case meant that there was effectively no one around to order these children to Play Nice.
Then, inevitably, Management By Numbers set in, where people are put in charge of things about which they know nothing. The idea is that knowing about ‘management’, and not about what the company or division actually does, is what’s really important. Once in a while, this will not be a total disaster; but I cannot think of a single case where this has produced particularly good results.
What Management By Numbers does tend to produce is rampant bureaucracy. The Manager doesn’t really understand what’s going on, and so he thrashes around, trying to get a handle on things. Reports are generated. Committees are formed. Metrics are decided on and measured — usually badly. If the company doesn’t sink immediately under the weight of this and the resulting departure of key employees, Bad Decisions start being made, based on the bad metrics and imperfectly-understood reports.
The company continues to sink, so new Reports are written, new Committees formed, etc., etc.
Repeat until doom.
I always held out hope, though. AOL was in pretty bad shape, but it could have reversed itself. People forget about the walled-garden aspect of AOL, because most of their subscribers these days just use the service as a slightly expensive dial IP service. The walled garden is still there, though, and so is the giant pile of movies, TV shows, music, magazine archives, etc., etc., etc.: all that Time Warner had to do was combine the two and they’d have had a successful product.
They never could bring themselves to offer access to this stuff, though. You get access to the complete Time archive if you pay them $30 a year (and get a magazine mailed to your house every week); but if you pay them $25 a month, you don’t. For $12 a month — not all of which goes to Time Warner — you can subscribe to HBO and get all the latest episodes of The Sopranos, Deadwood, and Curb Your Enthusiasm; but for $25 a month you don’t even get access to any of Time Warner’s lesser cartoons from the 1930s.
Very, very recently, AOL has started to change some of this, offering certain heavily-DRMed TV shows to subscribers running certain software; and this gave me at least a bit of hope. They’ve still got the pieces of what could be a great service, of something that’s still not available anywhere online. If they’d only put them together, AOL would once again have something of value to offer people, and they could start gaining subscribers again.
All of this came crashing down in the last month, though, with the publicity that ensued when Vinny Ferrari posted the recording of that phone call. Now not only would Time Warner have to pull its head out of its ass long enough to remember that they need to offer something that people want, but they’d have to work to convince people that their service isn’t a roach motel. They appear to be responding to the latter problem essentially by offering the service for free; this is probably the best thing they could do in these circumstances.
But offering the service for free — essentially pulling down the wall around the walled garden — significantly diminishes their ability to do what they’re uniquely positioned to do, i.e. to make all those TV shows and movies available.
And so I think that’s effectively the end of AOL as anything worth watching. The Valuable AOL, as I like to call it, would have been a transitional product at best, but it’s a transition that could have taken ten or fifteen years. In that time, either the traditional Professional Media companies will have loosed their tight grip on their product, or they’ll largely be pushed aside all together. Time Warner has now, intentionally or not, opted for the iron grip on the rail of the sinking ship.
And the opportunity of this multi-billion-dollar company to shift its direction was destroyed, largely, by a single bad customer-service phone call. This call violated nearly every one of the Customer Service Rules, but it particularly broke #15, ‘Customer-profitability accounting is almost totally inaccurate’, and its meta-rule, ‘You don’t know who your customer is’. Vinny Ferrari was a nobody; but now, because he was treated badly, millions of people have an even lower opinion of AOL’s customer service.
So the customer service lessons to be drawn here?
- Offer something of value
- Do not coerce people into doing business with you
That those are the lessons really says something about how bad a pickle AOL is in.
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