I think they are a great Innovator's Dilemma example. Quarter to quarter and manager by manager they could always do better denying the coming reality.
I'd bet there were plenty of people within AOL who knew they were fucked in the long term, and I'm sure some of those actually tried to change things. But it's extremely hard to do anything that threatens existing revenue streams. Eventually the innovative people leave and you're left with the people who can't see the decline or are ok with trying to squeeze the last few drops of cash from the remains.
And really, in some ways they're only around now because they did manage to change a little. They've collected some decent content brands, which was basically an investment in the open internet.
I read a perfect parallel: real networks employees knew their product was shit. But making it not shit would wreck the company:
As employees, we weren’t proud of our business tactics, and we griped about
them frequently. The topic came up at company meetings, round table
conversations with executives, and through a lot of water cooler
conversation over email, during lunch, and across the foosball table.
One day my manager showed me a horrible graph. It was pretty simple: the
graph was steady, then it dropped straight down, then after a short period,
the line shot straight back up and stayed level again:
“That’s what happens when we do the right thing”, he said while pointing at
the drop, “and that’s how much money we lose. We tried it just to see how
bad it was for our bottom line. And this is what the data tells us.”
“Wow,” I said, taken aback. My employer clearly had two options: “do the
right thing” or “be profitable”. That was the position they had maneuvered
themselves into through a series of bad management decisions.
My manager then said, “More than half the company would have to lose their
job in order for us to stop these tactics ... so are you volunteering to be
one of them?”
Now they're worth maybe 10% of what they were when that guy left Real Networks.
The thing that kills me here is that they had more than two options. In the short term, sure, they're stuck. But in the long term, they could have either kept sucking or they could have worked to turn it around.
There's a similar story about the search engine game. Yahoo had a chance to buy better search engine technology, the only problem was it was too good.
If people quickly found what they wanted, they wouldn't spend any time on your page. Time-spent-on-page is how Yahoo measured engagement, and thus ad-revenue. Improving Yahoo's search engine would have threatened existing revenue streams, and Google would be a terrible investment for them, given the metrics in use at the time.
I doubt they had any trouble seeing the decline. The question is what should they have done?
Competing directly with cable companies in wiring up homes for broadband is a mug's game. This was before it was reasonable to do with fiber and they didn't have anything like Google's freighters full of cash.
So they rode it down. That was probably the right thing to do - their dial up business is still there and still profitable. They have some viable properties on the content side, which is about the best you could have expected without having them get into an entirely new business (like search).
I think getting into essentially new businesses is exactly what companies facing the Innovator's Dilemma should generally do. The ad-driven content properties are an example of that, and they're the reason for the merger.
I think companies should remain focused on their core product. If you find yourself in a buggy whip industry the best thing to do, IMO, is to reduce expenses as much as possible and return as much profit as possible to the shareholders. When it's not worth bothering with any more the company should be dissolved.
As an investor I'm perfectly capable of taking my dividend and investing in other businesses - I'd rather not have the officers of a company in which I've invested my money taking Hail Mary shots to preserve their jobs.
I think that only makes sense if you have a completely dead-end product. AOL, for example, had a fair bit of experience in content. They had a lot of strength in networking. They had a zillion users, giving them low marketing costs for new products. They had a strong marketing org and a well-known brand.
Reducing expenses to the minimum would basically value all of that at zero, which I think is rarely the right case. Look at the examples in Innovator's Dilemma, for example. The successful companies kept making technology/market transitions, one after the other.
As an investor you are capable of taking the cash and investing elsewhere. But you are also capable of selling the stock if you really think they have no hope of innovating.
I'd bet there were plenty of people within AOL who knew they were fucked in the long term, and I'm sure some of those actually tried to change things. But it's extremely hard to do anything that threatens existing revenue streams. Eventually the innovative people leave and you're left with the people who can't see the decline or are ok with trying to squeeze the last few drops of cash from the remains.
And really, in some ways they're only around now because they did manage to change a little. They've collected some decent content brands, which was basically an investment in the open internet.