Once-Mighty AOL Slipping Behind The Times

With rivals moving from dial-up to high-speed access, AOL remains king of a stagnant and increasingly low-tech empire of phone users.

"We have to ask, 'Can they go forward?' " said Jakob Nielsen, principal of Nielsen Norman Group, an Internet think tank. "They have to come up with something new."

Case co-founded AOL in 1985 and rode its skyrocketing fortunes to a mega-merger with Time Warner's media empire in 2001. But AOL Time Warner's stock has tumbled under Case, who announced his resignation as chairman on Sunday.

AOL's parent got another jolt Monday as CNN chief Walter Isaacson quit after losing a ratings battle with Fox News Channel. AOL Time Warner stock fell 15 cents to $15.03 on the New York Stock Exchange.

Analysts say AOL will begin to lose its 35 million global subscribers without ingenuity and a painful push that takes them away from profitable but increasingly outmoded dial-up subscriptions.

According to Jupiter Research, revenue from broadband Internet subscriptions will surpass those of dial-up by 2004. AOL currently owns about a third of U.S. dial-up accounts, but just one in 30 broadband subscriptions, Jupiter said.

"This is a classic case of someone being on top of the hill and not seeing the horizon," Forrester Research's Chris Charron said. "AOL developed a killer app for dial-up. They never developed a killer interface for the broadband environment."

As AOL fumbles, competitors are forging ahead with new technology.

Yahoo announced Sunday that it will let users of its online dating service submit video clips. Amazon.com is increasingly morphing into an online store for consumer electronics goodies.

And last week, There Inc. introduced an online universe in which participants will assume cartoon-like characters that many believe trumps the chat rooms and message boards at AOL.

Worse, perhaps, is the fact that AOL loses its last booster in the corporate office when Case steps down in May.

The division's fate then rests solely in the hands of old-line media executives from Time Warner. Some of those executives are thought to be stewing over a company that, from their perspective, was laid low by the merger with AOL.

"That doesn't bode well for AOL," Nielsen said.

Since Time Warner's Pathfinder Internet venture went south years ago, the New York media empire hasn't been credited with much online prowess.

With AOL expected to be tied for third place in 2003 revenues among Time Warner's six divisions, the corporation's moguls might not be in the mood to lavish it with funds and attention.

"From the corporate Time Warner perspective, that could become their decision--sit back and cash in your monthly subscriptions and not do much innovation for [AOL subscribers]," Nielsen said.

Were that to happen, AOL might become "an irrelevant corner of the Internet" like CompuServe, the once-strong service it overtook and later bought, Nielsen said.

Though the parent company has so far failed to find the formula for effectively distributing Time Warner content on AOL, there are less pessimistic scenarios.

They may yet succeed--with the right mix of cajoling and cooperation, said David Joyce, a financial analyst with Miami investment bank Guzman & Co.

A captive audience of 35 million is nothing to sniff at, Joyce said. "It's still a valuable asset, and it can help unite the other parts of the Time Warner empire."

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