The relentless march of open standards online continues, as AOL effectively abandons its paid, premium offerings in favor of a free, advertising-supported model:
Besides e-mail, AOL will give away its proprietary software for accessing the once-premium offerings, as well as safety and security features such as parental controls. Millions of subscribers are likely to drop their paid accounts, making the strategy risky for Time Warner and AOL. Subscriptions still account for about 80 percent of AOL’s revenues, contributing to 19 percent of Time Warner’s revenues in the first half of the year. But AOL has little choice. As of June 30, AOL had 17.7 million U.S. subscribers, a 34 percent drop from its peak of 26.7 million in September 2002. AOL lost 976,000 subscribers in the past quarter alone.
Jeremiads against “media-merger mania” are fundamentally misplaced and mistaken–and for reasons that range far beyond the AOL-Time Warner deal (not to mention Time Warner’s subsequent merger with EMI). Such concerns reflect a basic misunderstanding of how the economy actually functions. Forget about media monopolies or a market-based Ministry of Culture, whatever that might mean. Assuming the merger passes government regulators’ smell test (and by all accounts it will) we can look forward to a $350 billion megacorporation that grovels even more abjectly for customers than AOL and Time Warner do now as separate entities. Indeed, if AOL’s own corporate history is any guide, far from offering slimmer and slimmer pickings to an increasingly captive and dissatisfied audience, “AOL Time Warner” will be pathetically desperate to deliver more and more stuff at better and better prices to restless and demanding subscribers. Today’s “250 Hours Free!” on AOL and $40 “special discount” subscriptions to Time will seem positively stingy by comparison.
This is part of a long trend, of proprietary online services steadily giving way to the open Internet. Remember that in the 1980s and early 1990s, the online market was dominated by Compuserve, AOL, and Prodigy, companies that focused on services built on their own proprietary networking technologies. They only grudgingly began to offer ‘net access in the mid-1990s after the Web began its meteoric rise.
Fundamentally, centrally planned content and services couldn’t keep up with the dynamism of the decentralized Internet, where anyone could publish new content or launch a new service for very low cost.