Editor’s note: Russ McGuire is the online director of Business Reform Magazine. Each issue of Business Reform features practical advice on operating successfully in business while glorifying God.

This past week, the top management of America Online requested that parent AOL Time Warner drop the “AOL” from the corporate name. This is only one more sign of the once dominant online service’s fading star. Yahoo stands in stark contrast, riding a rocket of increasing users, revenues, and profits. Perhaps AOL should take a lesson from how Yahoo has bounced back from its own fall as the king of the search engine heap.

Today, AOL and Yahoo appear very similar. They both serve as the primary “portal” through which millions of Americans view online content. They both own vast portfolios of online content. They both have been on the advertising revenue roller-coaster for the past few years. They both serve as the brand that millions of consumers perceive as providing their physical connectivity to the Internet (AOL primarily for dialup access, and Yahoo primarily through its DSL partnership with SBC). In short, their businesses appear virtually identical.

That in itself is somewhat surprising. AOL’s core business today is not fundamentally different from what it was five years ago. Yahoo, on the other hand, has radically redefined itself over that timeframe.

Almost exactly five years ago, on September 7, 1998, Google became a company and many would soon think that Yahoo would become history. In mid-August of 1998, Yahoo ruled the Internet world. Yahoo’s “search engine” was the place to find what you were looking for on the ‘net. All that radically changed with Google’s entree. In less than 2 years, not only had Google become the world’s favorite Internet starting point, but even Yahoo had agreed to use the Google search engine within the Yahoo service.

But Yahoo did not sit still, waiting to be crushed by the competition; instead the company immediately began redefining itself. Instead of just being the starting point, the company decided to become a destination – a source of much of the information for which people were searching. This shift in strategy is most clearly seen in the company’s acquisitions. Using its inflated stock as currency, the company executed on a series of transactions that radically transformed Yahoo from Google-bait to AOL-killer:

  • In January of 1999, Yahoo acquired GeoCities for $4.6 billion. GeoCities was a leading provider of “hobbyist level” (free) web hosting.
  • In April of 1999, Yahoo acquired Broadcast.com for $4.7 billion. Broadcast.com was the leading provider of live audio and video programming over the Internet.
  • In March of 2000, the company acquired Net2Phone, a pioneer in placing telephone calls across the Internet.
  • In June of 2000, they bought Egroups, an online community-building service.
  • In December of 2001, Yahoo acquired HotJobs, making a strong push into the job listing market.
  • Just last month, the company announced it was acquiring Overture, a leading provider of search-based advertising.

Along with these deals, the company’s website lists a long string of new service launches, aggressively redefining the company, and largely built on the capabilities and technologies gained through these acquisitions. Although I’m sure Yahoo made some mistakes, by and large, the company has done a great job of carefully selecting strategic targets to move the company forward towards its vision and then following-up after the deal to translate the investment into delivered value for Yahoo’s customers and investors.

As I discussed in a recent article, AOL has fallen far short of that acquisition success, spending huge sums for poorly fitting pieces that are then left to struggle for survival as the new mama-AOL tries to compete its adopted babies into extinction.

However, that acquisition and integration difference only partially explains why AOL has stumbled while Yahoo has shined.

I believe the more important difference is one of culture and how that culture translates into customer experience and satisfaction.

Perhaps AOL has grown up too close to Washington and has gained that city’s penchant for attempting to regulate, control, and extort increasing amounts of money out of its constituents.

Whatever the cause, it is rare for me to meet a person who is an AOL user who is happy about it. The vast majority of AOL users feel trapped. They don’t want to give up the e-mail address they’ve had for years, and many of them lack the technical confidence to believe they could figure out how to use a “real” Internet service. (I never said AOL lacked skills in consumer marketing…)

Yahoo, on the other hand, is a totally different story. Sure, I occasionally encounter someone who says “I wish Yahoo Groups didn’t have so many ads” – which is almost always followed up with – “…but it’s free!” Or – “I wish I didn’t get so much spam in my Yahoo E-mail… but it’s free!”

In short – Yahoo has engendered customer loyalty by giving customers complete flexibility and control in choosing which services they use from Yahoo and which they get elsewhere and by consistently delivering value that exceeds the customer’s perceived costs.

AOL has nurtured growing customer hostility by locking customers in, offering virtually no options on purchased services, delivering consistently degrading service while increasing prices.

The bottom line result: Yahoo has a growing number of customers willing to pay for an increasing range of services. AOL has a shrinking number of customers with increasing dissatisfaction and frustration.

Perhaps America Online can turn the ship, but I don’t hold out much hope. Yahoo went through some rough times, but they saw the Google disaster coming and were able to plan and execute a strategy that has them back in a leadership position. AOL would have to be blind to not see this disaster coming, but instead of setting and delivering a clear and consistent strategy for survival, the company has waffled and failed to execute.

I fear that AOL just has too much of that Washington culture – a tendency to twist in the wind, to dogmatically hold to failed policies, and to find every way possible to screw its customers while smiling the used-car-salesman-smile, shaking the hands and kissing the babies.

I’m sorry AOL, but you’ve just been voted out of office.



Russ McGuire is Online Director for Business Reform. Prior to joining Business
Reform, Mr. McGuire spent over twenty years in technology industries, performing various roles from writing mission critical software for the nuclear power and defense industries to developing core business strategies in the telecom industry. Mr. McGuire is currently focused on helping businesspeople apply God’s eternal truths to their real-world business challenges through
Business Reform’s online services. He can be reached at [email protected].

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