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Scary times for AOL

When the dot-com bubble burst, nobody thought the nation’s largest ISP would get sucked into the resulting black hole.

The nation’s largest ISP is in serious trouble, as news on our site on Friday confirms. “AOL Time Warner’s shares have been pounded since the beginning of the year on persistent concerns about the lagging fortunes at America Online, management’s credibility with investors, accounting concerns and turnover in the executive suite.” Any one of these four problems would make me very afraid if my 401(k) were heavily invested in AOL Time Warner. Coming on the heels of a $54.24 billion write-off in the first quarter of 2002 and the largest quarterly loss in U.S. history, it makes me very afraid.

But the bad news does not stop at the financials. Time Warner has clearly won the battle for the executive suites that has been raging since the merger. By last count, only two out of the top 10 executives at AOL before the merger are anywhere to be seen in the new company. When former AOL CEO Robert Pittman left his post as COO of AOL Time Warner last week, he was ostensibly replaced by new President of AOL Interactive James de Castro, an old-time radio guy who has zero experience in Internet portals. Aside from the remaining two AOL execs, others who are left to manage the largest Internet portal have only the failed Time Warner PathFinder portal under their belts. Add to the turnover the fact that AOL is behind both MSN and Yahoo on broadband (it’s largest partner in the broadband space is UUNet, part of WorldCom), and the future looks grim.

It’s no exaggeration to say that more of our readers have an AOL account than any single ISP. They are loyal to AOL because, for all its faults, it is still the best portal out there with the highest instant-messaging subscription rate. Pittman built a company focussed on new users who were unfamiliar with computer technology. The company flourished because it was the easiest ISP to use, and it consistently provided more services than any other provider. I’ve had my problems with its proprietary Web client software and the lack of interoperability of its instant-messaging system. But I can’t argue with its model of serving ordinary Americans with Internet and subscription services.

Simply put, more than any other company, AOL has been responsible for the growth of the Internet in the United States. The second most influential company is UUnet, which is still its largest and fastest backbone provider years after taking over the original Internet from the National Science Foundation. Sprint, AT&T, Cable and Wireless, Level 3 Communications, and a bevy of now bankrupt backbone providers tried to recreate what UUNet pioneered: the interstate Internet backbone. Even in the midst of the WorldCom bankruptcy, it still holds nearly half the market. Perhaps UUNet’s resiliency will help to quell fears of AOL’s demise. After all is said and done, it’s the users of the technology that determine if the company that provides it will flourish. Users (ISPs, large enterprises) continue to support UUNet as the best Internet backbone. If AOL can somehow improve its broadband position and retain its portal dominance, its users will continue to support it.

James Mathewson is editor of ComputerUser magazine and ComputerUser.com

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