Weekly Review: AOL Keeps IM to Itself

Partnership continues to be a strong theme among service providers, which is hardly a surprise considering the open, collaborative architecture of the Web. But one company in last week's news stood out from the crowd, stubbornly pursuing a strategy of imposing a single-source solution on its customers. That company is AOL Time Warner.

AOL-TW last Monday blocked access to its Instant Messenger service from Trillian, a popular freeware package by Cerulean Studios. Trillian provides a single interface to all the main IM networks, including not only AOL's but also ICQ, Microsoft Messenger, Yahoo! Messenger and IRC. The block — for which Cerulean quickly developed a workaround — affected its SecureIM feature, which allows users to add ultra-secure 128-bit encryption to messages sent over the AOL and ICQ networks.

Read and React

"If AOL-TW continues with its arrogant belief that third-party, business-oriented services that complement its own environment don't matter, it is going to start finding itself sidelined and could end up losing the dominant market position that is the source of its arrogance." Give us your feedback on AOL's business strategy in ASPnews Discussion Forum

Business users of instant messaging — of whom there are a fast-growing number — prefer to use IM clients such as Trillian, although those who dislike relying on freeware opt to pay for commercial alternatives such as Imici. There are two main advantages of using a third-party client.

The most telling advantage is that third-party clients are network neutral, which means they allow users to connect to all the main IM networks from a single interface. This is tremendously convenient, especially for someone who uses IM to collaborate with users outside their own organisation, where it's impossible to predict which network people will be using.

The second advantage is the option of encryption, a security feature that business users care about for obvious reasons.

Holding Web Users Captive
Given these factors, it's hard to see why AOL-TW has decided to make life difficult for the providers of third-party clients. But then AOL-TW has never really embraced the concept of working with third parties on what it regards as its own patch. Its management still believes in the old media and entertainment industry dream of captive Web users, penned into a private garden of Internet access where the only content and services made available are those the provider deems appropriate.

AOL-TW has managed to convince itself that this model works because there's still enough of a supply of relatively unsophisticated Web users who value the helping hand that they get from the AOL environment. That will probably always remain true for a subset of the consumer mass market; but what AOL-TW is forgetting by pursuing this logic is that that's not where the real opportunity lies on the Web.

Business users are where Web service providers are going to be making most of their revenues in the future, and what's good for certain consumers isn't attractive to business users. They're much more discriminating, with specialist demands that a generic service is unlikely to meet. What's more, the same people that learn these more sophisticated ways of using the Web then turn into consumers when they knock off work, and over time they will start to bring more stringent demands back into the consumer environment.

If AOL-TW continues with its arrogant belief that third-party, business-oriented services that complement its own environment don't matter, it is going to start finding itself sidelined and could end up losing the dominant market position that is the source of its arrogance.

Paper Tiger, Hidden Expenses
I have to admit I have been wrong about AOL-TW before. Back in 1996, I wrote off AOL as a basket-case. I felt its expensive landgrab to acquire mass-market presence among Internet users was bound to end in tears. It was the time when AOL CDs used to fall out of pretty much everything you picked up (come to think of it, they still do, don't they?).

Back then, AOL was using some interesting accounting that meant the cost of distributing those CDs was amortized over several years rather than showing up in its accounts as a one-time expense. Recall those pre-Enron days when creative accounting was viewed as a sign of management prowess? Back in the halcyon mid-90s, anything that made the share price go up was hailed as Enhancing Shareholder Value, even if the underlying mechanics were a little kooky.

Personally, I wasn't so sure. I thought the game was up when AOL then instituted a flat-rate monthly fee and found its modem banks overwhelmed as thousands of users dialled in and kept the lines open all day. But much to my surprise, AOL pulled it off. It built market share, it kept its stock price on an upward path, and with the proceeds it finally pulled off one of the greatest strokes of stock market timing in history, when it bought old-economy media giant Time Warner with its grossly inflated dot-com paper.

With a track record like that, it's hardly surprising that AOL-TW's management believe that luck and fate is on their side. Personally, I think too much good fortune can damage a person's judgement. Not for nothing did Intel founder Andy Grove title his biography Only the Paranoid Survive. But paranoia comes in many forms, and I don't think that refusing to co-operate with complementary providers was the kind of paranoia Grove had in mind. AOL Time Warner should give its business Web strategy a good shake-up before someone else steals its lunch.

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