AOL is a no-brainer for retirement funds...EMI coming onboard..............
Posted at 1:59 p.m. PST Saturday, January 22, 2000
AOL-Time merger would
mark new era
BY MICHELLE QUINN
Mercury News Staff Writer
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 king of the Internet will be the company that can
create the smoothest path to the most consumers. 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 a
top-rated TV show, 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.
AOL as status quo
''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.''
Will anything change?
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 about $550 billion,
compared to the combined AOL-Time Warner's $255 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 as Hundt pointed out. 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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