John McKinley (WG 79, Bio came to speak today as part of the Alumni Speaker Series, co sponsored by the Wharton Tech Club. Crowd was packed, which you are free to interpret as either a sign tech is back, or that free lunch draws great speaker attendance.
John made a great pitch for the new and improved AOL, including some impressive numbers indicating that things may be turning around for the folks in Dulles. Some tidbits of interest
* Europe has turned from a major sinkhole (-$600M) into a small profit in one year
* Premium Services (BYOA) is now the leader in premium Broadband services
* Huge Success in BYOA
* Huge media presence: 32 of top 40 internet radio stations, 250K paid on demand music, #2 video streamer
* Customer sat up 400 basis points
* New Products on horizon — abandonment of walled garden, modular design, more presence
Many of these indicate that AOL is alive and kicking. But, with a great amount of respect for John and his team, I have to question the future growth of AOL, especially in domestic markets. John was excited about triple play (Voice, Video, Data, one pipe) and how it may change the landscape for AOL, but beyond the small RoadRunner, pockets, I fail to see how AOL will make this work in the domestic market. Perhaps the key is the early success of BYOA.
First of all, John claims that access will commoditize, and the value will flow to content. Ordinarily we think this is true — the good is similar, so competition should drive prices down. However, this ignores the duopoly currently existing between DSL and cable — prices are much higher in US than in other competitive markets. Secondly it ignores the effort of most infrastructure players to vertically integrate and control the customer. While AOL may have a good pitch, those that send the bills have control. Yes, the ILECs are slow, but Yahoo-SBC is booming (at $2.50/mo for Yahoo), and plenty of internet users get by just fine without the AOL experience (at $14.95/mo for BYOA).
Secondly, just a thought or two on network services and the ISP integration. As internet services grow, if you want to offer anything that mainstream people will pay for, you must have great quality of service. I am ok watching grainy mountain biking videos online, but my mother freaks if the blacks are not deep enough on the Sopranos every Sunday. If you are going to offer these services, then the service provider will have to think about packet flow and quality of service end to end (e.g. video server to PC/Set-Top). This is something that and independent ISP cannot do without agreement from the infrastructure player, something they are likely not to give up without either a regulatory prod or the realization that they cannot do it alone. So ultimately we are back to regulation. The BYOA model will probably work in countries with healthly wholesale models (Japan, Italy, Israel, France, SK) but I am skeptical of it working out domestically.
Anyone have other thoughts?