how AOL makes money in 2005

I wonder to myself, quite a bit, how it is that AOL makes money these days. Certainly not through dialup accounts – or, at least not in any real volume. I think the only people who still have dialup these days are the same type who, in a previous generation, would have paid “rent” on rotary dial phones for thirty years longer than necessary.

There’s been talk of AOL’s new “portal”, but I also remember “portal” being a buzzword in 1999 – and it didn’t work then. If it had, Lycos wouldn’t be owned by a Korean company and selling ad space through 24/7 RealMedia, and Excite.com wouldn’t have come within a hair of bankruptcy only to be bought by AskJeeves (who were then bought by InterActiveCorp).

So how has AOL been making money?

Through Google.

According to MediaPost, “AOL already uses [Google’s] search engine and derives some 80 percent of its revenues from those searches.”

Somehow, I find it disturbing that such a huge cornerstone of Internet Industry As I’ve Known It, is making money off Google searches rather than directly from its own products. AOL is such a huge brand! Their IM product was the center of a movie recently (Cry Wolf), they bought Advertising.com for $400 MILLION in 2004, and they’ve still got advertising left, right and center on mainstream, traditional media.

Yet AOL’s fucked up so badly that they’re deriving a massive majority of their profits by piggybacking off Google. The questions are there – why didn’t AOL pursue better partnerships? Why didn’t AOL do a better job of transitioning to AOL branded highspeed with a high speed provider, two, three, five years ago? If AOL had slapped their brand onto a Cox or a Comcast or a Covad product in 2000, they could have made trucks of money leveraging the AOL brand into converting their dialup customers to broadband, and they still would have been following their original plan. Or what if AOL had bought profitable content providing sites, like its competitor and nemesis, UOL? UOL – United Online – owns Juno and Netzero, and is the biggest competitor for dialup profits. However, they also own Classmates.com, and that’s a profitable site.

Now. This should have nothing to do with me. I buy media advertising space from AOL on a regular basis, but I wouldn’t miss it too much if it wasn’t there. However, if AOL goes down, how much of the internet industry goes with it? A demise of AOL would have a mentally demoralizing as well as economically demoralizing effect for the online universe, because it is one of the Great Grandpappies of the Industry in which I work. It owns other legends of internet – Compuserve and Netscape are both owned by AOL. It oursurvived Prodigy, who was bought by SBC in 2000. It’s the Last ISP from ten years ago that’s still standing – but it doesn’t make enough money to stand on its own.

Watching the vultures circling AOL, even as the management attempts to pump in new blood (Weblogs for $20 MILLION? Are they kidding?), is really making me wonder again when the Crash is coming. We all know its on its way, and that’s one of the reasons I left the Agency for my new job. I’m way more direct-response oriented here, and therefore, will survive a Crash better than I would have with Tribal/DDB. But signs like this tell me – it won’t be long before an overhyped market falls in on itself again.