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Aol Case Study

4699 words - 19 pages

America Online (AOL)

In the early 1980s, Case felt there was a latent market for user friendly online services. The online services provided at that time were very complex and costly and provided poor quality content. Believing that the online service market would evolve into a big industry in future, Case, Jim Kimsey and Marc Seriff founded AOL in 1985. The company was initially incorporated as Quantum Computer Services (Quantum). Quantum provided online services to consumers via PC modems. Quantum's first product was 'Q-Link,' a proprietary online service that routed emails and chat through its communication network (via telephone cables). Q-Link became popular in the market, and ...view middle of the document...

He was at the receiving end of the shareholders' wrath since the merger of AOL and Time Warner had failed to deliver and the stock price had gone below US$ 20 per share. The credit agencies had also downgraded the company's ratings. In 2003, when e-business companies were performing well in the US, AOL's subscribers continued to leave to make use of other cheaper alternatives like low cost dial ups and broadband providers...
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Accounting Irregularities
In 1995, AOL and Bertelsmann, a German Company, formed a joint venture to run AOL Europe. In March 2000, they signed a contract which specified that Bertelsmann could demand AOL buy out Bertelsmann's 49.5% interest in AOL Europe for US$ 6.75 billion. AOL had the option of paying in stock or in cash in case it bought out the 49.5% stake. In March 2001, Bertelsmann exercised this right and persuaded AOL to pay in cash. AOL agreed to pay in cash provided Bertelsmann bought advertisements valued at US$ 400 million on AOL's website. Bertelsmann agreed and AOL booked US$ 400 million in ad revenues. SEC's objection was that the AOL should have booked US$ 400 million as the cost of sales, and not as advertising revenues... | |
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Declining Subscriber Base
AOL had attracted several advertisers prior to 2001, after which the company decided to limit the number of online ads, in order to improve its subscribers' experience. The sales force of AOL made the marketers sign up multi-year contracts. In order to place the ads, the marketers needed to use the proprietary software of AOL called Rainman (Remote automated information manager). Rainman did not support many types of web animation. Marketers had to recreate online ad programs especially for AOL in order to display their advertisements...
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Shareholders' WrathCarl Icahn (Icahn), a billionaire financer, took a stake in Time Warner in August 2005. Icahn with a few money management firms wrote an open letter to Time Warner shareholders, attacking the company's board members and management. In the letter, he criticized the company for not being able to migrate AOL users to broadband and being unable to compete with Google and Yahoo! effectively. He also complained that Time Warner had neglected AOL since 2000, and had started highlighting AOL as one of its key businesses only around 2005. In October 2005, Icahn accused Time Warner's managers of selling the company's assets at a low price... |
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The Revival Strategy
In spite of pressure from the investors to sell AOL, Parsons' stuck to his stand and held on to AOL. Parsons systematically cleaned and spruced up the company's businesses, resolved the accounting investigations issues of AOL and settled law suits. Parsons and Miller decided to improve AOL's businesses by providing a wide range of online...

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