AOLs Business and Success Factors - Case Study Example

AOL’s Business and Success Factors Starting out in 1989 with a vision to make online experience, fun, easy and inexpensive, America Online or AOL is now one of the most successful online communities in the world with over 20 million members (Tan 123). AOL is an Internet access provider whose strategy is building an online community and by the end of 2002, its community membership had risen to 35 million. The online community provided by AOL allows its members to surf the Web, send electronic mail, communicate in chat rooms and purchase products online (O’Neil 159). AOL is initially in the business of providing affordable Internet access while making profit in e-commerce and traditional media with Time Warner (Giddens & Griffiths 624). The key success factors that make AOL the largest Internet service provider are its ability to offer unique services that includes a variety of content not readily available elsewhere. Moreover, AOL also offers a variety of specific services that is attractive to its existing subscriber base. Thus, by positioning itself for a mass market of consumers who needed a great deal of help, AOL is successfully garnering initial consumers. The AOL strategy is to embark on a series of mergers, acquisitions and alliances to consolidate its position as the pre-eminent Internet service provider. For instance, Compuserve and Netscape were both purchased by AOL that lead to the creation of AOL Europe and the alliance with Sun Microsystems has allowed AOL to enter the realm of e-commerce. Another is the merger with Time Warner that brought 24 million AOL subscribers, 120 million magazine readers and the television channels CNN, HBO and Warner Brothers all under one corporate roof (Giddens & Griffiths 624). This massive merger furthers AOL’s strategic principle of enabling consumer connections ‘anytime, anywhere’ by adding TV and cable access to the Internet company’s dial-up access on the personal computer (Kaplan et al. 165). Obstacles in International Expansion and Competitive Advantage Currently, AOL has about 30 million subscribers around the globe and through a series of joint ventures; it is attempting to strategically focus future growth in international markets. For instance, it is the number two internet provider in Germany, France, and Canada (McPhail 306). However, AOL Europe encountered problems early on as they faced tough European competition and expensive European Internet connections (Pasiuk 33). Similarly, while the likelihood of future opportunities for global expansion will be created in developing countries and will target audiences there, the main obstacle perhaps would be the absence of consumer enthusiasm in the Internet and electronic commerce. It is therefore necessary for AOL or to any global Internet provider to first encourage the growth of the Internet and electronic commerce in the area. Moreover, these may also include human development and pervasive diffusion across individuals of different income and education levels (Mann et al. 19). They also have to build consumer confidence and recognition as commercial and social prominence is critical for the success of the major actors on the Internet as it is in any industry (Marsden 63). The service is not mobile with competitive advantage and it the market lead will only remain intact if the given business will incessantly innovate and launches new products and create market niches. This is because new business undertaking such as a merger or alliance in the competitive landscape can impact the competitive behavior of other players. In other words, one move by one or two major players influences the existing competition pattern in that industry. For instance, the merger of AOL and Time Warner has major reverberations for all online companies. This is because in general, according to Culpan, the reasons for mergers and acquisitions include achieving competitive advantages through market power, overcoming barriers to entry, increasing the speed of market entry, the significant cost involved in developing new products, avoiding the risk of new product development, achieving diversification, and ultimately avoiding competition (45). Evaluation of Market Opportunity for AOL Abroad Although it functions in a highly competitive environment, the market opportunity of AOL abroad is large as Internet and entertainment is a good product to sell. In fact, AOL has structurally maintained a distinct global lead as the major internet provider and by merging with Time Warner, AOL had acquired the ability to not only provide connectivity and e-commerce services but also to deliver around the globe a vast array of content through a mix of free and subscriber services (McPhail 67). In the international market, the demand is strong for Internet access since it has changed the rules of business (Goldsmith & Wu 25) and AOL is very strongly geared to electronic commerce and offers a good platform from which to contact end customers. Moreover, AOL’s international operation is distinguished by new generation of entrepreneurs as a good platform for their business because it offers basic services which make it easy for the user to orientate and find his way about (Rohner 126). The first mover advantage may help AOL since it can be a powerful ally particularly in those competing in the information business where scale economies is substantial. If AOL can manage to establish an installed base before the competition arrives, it could make it difficult for later entrants to achieve the scale economies necessary to compete (Jansen 156). Foreign Entry Modes for the Service Since services offered by AOL are for general consumption and the firm’s competitive advantage is not country-based, they may attempt to exploit an overseas market by exporting or through direct investment in a particular country. However, such mode is an unlikely priority since a technology-based company such as AOL with a business strategy of offering unique services like ‘anytime, anywhere’ Internet access, is commonly expected to exploit ‘innovation’ as its mode of entry by licensing their technology to local companies or offer their brands to local companies through trademark licensing. The use of such mode of entry however could affect their competitive advantage as the quality of services may be reduced as local companies may not be very efficient. As history of AOL business strategy dictates and by their actual experiences in Europe, AOL would likely to seek partnership or alliances with local firms, manage it and use its distribution facilities. The reason behind the typical cross-border alliances and joint ventures strategy of AOL was to access the market knowledge and distribution capabilities of the local partner. Similarly, because AOL has a superior reputation, the local partner also desires to access the technology, brands, and product development of AOL. However, the circumstances arising from such mode of entry may be different if AOL wants to access a certain country in Asia because it has no choice but to take on a local partner to comply with the host country’s policy (Grant 428). This kind of arrangement may not be advantageous to AOL since a local law supported partnership would likely to favor the local partner more. AOL in Hong Kong Since 1997, Hong Kong has returned to rule of China and doing business in this part of Asia as mentioned earlier, requires a foreign company to take on a local partner. AOL would probably select the most reputable company as partner and seek greater control. More importantly, AOL should choose partner with a strong reputation among Chinese consumers and who enjoys cordial relations with China’s regulators to help AOL offset the lack of operating experience in this part of China. Furthermore, it could help ease apprehension among the Chinese officials and consumers that the company will use its services to download the American culture to China. Lastly, AOL services should change slightly since they have to manage diversity and accommodate Chinese preferences. Works Cited List Culpan, Refik. Global business alliances: theory and practice, US: Greenwood Publishing Group, 2002 Giddens Anthony & Griffiths Simon. Sociology, Italy: Polity, 2006 Goldsmith, Jack & Wu Tim. Who controls the Internet?: illusions of a borderless world, US: Oxford University Press US, 2006 Jansen, Dennis. The new economy and beyond: past, present and future, UK: Edward Elgar Publishing, 2006 Kaplan, Robert et al. Harvard business review on advances in strategy, US: Harvard Business Press, 2002 Mann, Catherine et al. Global electronic commerce: a policy primer, US: Peterson Institute, 2000 Marsden, Christopher T. Regulating the global information society, UK: Routledge, 2000 McPhail, Thomas L. Global communication: theories, stakeholders, and trend, UK: Wiley-Blackwell, 2006 O'Neil, William J. Business leaders & success: 55 top business leaders & how they achieved greatness. US: McGraw-Hill Professional Pasiuk Laurie. Vault Guide to the Top Internet Industry Employers, US: Vault Inc., 2006 Rohner, Kurt. Marketing in The Cyber Age, UK: Firewall Media, 2002 Tan, Patrick. Success with Online Retailing: For Small Businesses, US: Universe, 2003 Read More