Depy-- this may make you feel even better about your AOL shares,,
SAN JOSE, Calif. _ The planned mega-acquisition of Time Warner by AOL
and the power shift at Microsoft were back-to-back blockbuster events
that rocked the business world.
But a question lingers: What will change in the long term as a result?
Some see the events as a watershed that will be chronicled in history
books as a turning point in the information age. The events seem to
signal the emergence of a new generation of business that could reshape
markets, regulations and products, and more broadly, hasten the arrival
of the Internet in more homes.
'There is no doubt in my mind that (the merger) is a transformational
event,' said Roger McNamee, a general partner at Integral Capital
Partners, a Menlo Park investment partnership. 'I compare it to the
week the IBM Personal Computer came out. No matter where you sit, this
changes your business.'
Granted, the AOL-Time Warner deal won't be finalized until later this
year. And there is no guarantee a marriage would be smooth. But the
planned $166 billion de facto takeover of Time Warner by AOL already
has made clear that power is shifting from the people who build the
tools for computers and the Internet to the people who combine
technology, content and distribution. And, in turn, those people are
likely to change the rules that governed previous business eras.
'The Web as a technology has taken a back seat to the Web as a medium,
' said Paul Saffo, director of Institute for the Future, a MenloPark
forecasting and research firm.
The other business bombshells of the recent week involved an entirely
different company _ Microsoft _ but the seemingly distant events are
part of the same power shift that is shaking up the technology world.
First word came that the Justice Department may seek to break apart
Microsoft, an action that would dissipate Microsoft's clout.
That news was followed by Bill Gates' handing over the day-to-day reins
to college chum Steve Ballmer, which means the monomaniacal software
giant co-founder will no longer manage the company as it refines its
Internet strategy.
With the Redmond shake-up coming on the heels of the AOL merger,
executives everywhere are being forced more than ever to ask themselves
how to better make their mark on the Net.
'How do I take my business and integrate it in a more relevant fashion
into people's lives?' said West Shell III, chief executive of
Netcentives Inc., a San Francisco direct marketing firm that rewards
consumers with frequent flyer miles. 'What alliances do you form?'
The answers they arrive at ultimately will change business. New
fiefdoms will emerge, business plans will change and consumers and
regulators will have to adjust their habits.
In the new era, the company that can create the smoothest path to the
most number of consumers will be the king of the Internet. By that
definition, AOL already is the dominant player. Microsoft Network has 2
million subscribers, compared to AOL's 20 million and Time Warner's
hundreds of millions of viewers and readers.
If the merger is successful, the much-touted synergies put AOL in an
enviable position to win the hearts and minds of consumers. When Buffy
the Vampire Slayer, the weekly news magazine, the glossy sports
publication, a favorite baseball team and the Saturday night movie are
all coming from the same company, the omnipresent media giant will be
nearly impossible for consumers to avoid.
'From previously challenging the status quo, AOL is now the status quo,
' said Paul Wiefels, managing director of the Chasm Group, a San Mateo
strategic consultancy for technology companies. 'Power in these kinds
of industries fosters more power.'
What AOL has is a deal that marries 'eyeballs' _ people who keep
coming back _ with content in the form of games, movies and news and
with a network of high-speed Internet lines.
It's impossible to know now how AOL Time Warner might harness that new
power, but some analysts say the merged company, driven by AOL's
obsession with adding customers, could be the catalyst to push the
Internet into more homes. 'You have to be in a business that wants to
own the customer. AOL wants to own the customer,' said Reed Hundt,
former chairman of the Federal Communications Commission. 'If it
sticks with its model...you are maxing out at last in terms of the
Internet dream.' Then the revolutions can begin in health care,
education and every aspect of life, he said.
As other companies join the lust for eyeballs, there could be a wave of
mergers. 'You will see an amalgam of distribution, content and
technology,' said Leo Hindery, formerly head of AT&T's broadband
business and now chairman and chief executive of GlobalCenter Inc., a
Sunnyvale Web hosting service. 'That was not foreseeable a (few weeks)
ago.'
As the game becomes one of adding subscribers rather than trying to
dominate an industry, regulators may find themselves rethinking their
priorities, too.
For example, the merger spotlights the debate about providing open
access for cable systems. Steve Case, the chief executive of AOL, has
long argued that cable companies should be like telephone companies and
agree to share their wires.
With Time Warner comes cable connections, but Case said his new company
would share the cables with others. Nevertheless, his reassurance
didn't allay all concerns that Case would suddenly close off his own
pipelines now that he has them.
If Case stays true to his word, could it prompt revolutionary changes
in the entire cable industry?
There will be changes for consumers _ although it's not clear what they
will be _ brought about by the marriage of content and conduit. In the
apocalyptic vision of the future, all media comes from one source,
which dictates tastes and ideas. The AOL-Time Warner merger raises that
question _ is it bad for consumers if their online service, cable
company and source of movies, news and books are all one and the same?
Some say yes.
Or, the merger may have the opposite effect of democratizing the
Internet and making it even more of a tool for democracy. 'The
Internet as e-commerce is passe,' Hindery said. 'It's not about
Amazon.com anymore. It's now going to be communications, information
and entertainment. I hope it's about giving information to kids of
lesser means.'
Or perhaps little will change at all in the long run. The Internet,
rather than bringing us a brave new world, could bring us the same old
world. Through mergers, Internet companies and traditional companies
will become one. There will be fewer astronomical stock valuations. And
less sexiness, too.
The wild mergers are 'a temporary phenomenon,' said Kathy Eisenhardt,
a Stanford professor of strategy and organization. 'The only reason
it's happening is because of market capitalization. Everyone is
guessing about the future and what might be.'
One thing that seems more certain is that Microsoft, long the company
with buzz, is relinquishing that coveted spot to AOL Time Warner.
Of course, Microsoft is no pipsqueak and is likely to be a formidable
competitor for AOL in the quest to influence Web technology and
content. It has a market capitalization of $560 billion , compared to
the combined AOL-Time Warner's $250 billion . Even if the Justice
Department divides Microsoft into two parts _ say the operating system
in one company and other products in another _ it will still be a force
to be reckoned with.
'Microsoft controls the desktop,' said Carl Shapiro, a professor at
UC Berkeley's Haas School of Business. 'That's real economic power.
It's not a close call. Time Warner AOL does not have a lock on any
market share.'
But the new AOL has something perhaps more valuable. While Microsoft
owns the technology, AOL owns the customer.
'AOL Time Warner touches people in an emotional way, which Microsoft
never did,' said George Zachary, general partner at Mohr Davidow
Ventures, a Menlo Park venture capital firm. 'This new AOL Time Warner
will be more powerful than Microsoft.'
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