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"The Nerds Have Won"

Brian Hayes

Imminent Death of AOL Predicted!

If the Internet has come a long way in the past 10 years, so also has America Online. People who know the company only in its present imperial splendor may not realize just how modestly it began. AOL was launched in 1989 as a dial-up service directed exclusively to users of Apple Macintosh computers. (I was a charter subscriber.) The Macintosh community was an attractive niche at the time because other segments of the market were already occupied by better-established services such as CompuServe, The Source, Delphi, GEnie and Dialog.

America Online didn't stay in its niche for long. By carpet-bombing the country with free floppy disks (and later CD-ROMs) they signed up a million members by 1994 and added another million the next year. Their dominance of the dial-up market was unchallenged after 1998, when they acquired what was left of CompuServe, once the strongest of the rivals. The CompuServe name survives ignominiously as AOL's bargain brand.

Figure 2. Growth in the number ofClick to Enlarge Image

A bigger question than how AOL overtook its competitors is how it has managed to survive—and thrive—in the era of the Web. Five years ago, if anyone had asked me to predict the fate of America Online, I would have answered with total confidence: Doom and oblivion. (So much for my business acumen. Look elsewhere for your stock tips.) It seemed obvious that none of the proprietary services could hold out against the momentum of the Internet, which opened up a garden of collective riches that no single organization could ever duplicate. America Online offered its subscribers an encyclopedia, but the Internet plugged you into all the world's universities and laboratories.

What I overlooked, of course, was the possibility that AOL could become the Internet. By simply linking its own private servers to the wider network, it offered subscribers both a familiar, protected environment and an opportunity to explore more widely—the encyclopedia plus the university. Nerds may sneer, but AOL has become the largest Internet service provider, with more than 20 million customers, an order of magnitude bigger than its nearest competitor. The merger with Time Warner (itself the product of several mergers) will make the new company a formidable organization by any standard. At the time of the merger announcement, AOL Time Warner was expected to become the fourth-largest corporation in the world, as measured by the total value of outstanding stock.

The idea that an upstart company such as AOL could come to overshadow all the stalwart industrial giants of a century ago—General Motors and AT&T and the remnants of Standard Oil—is disorienting. Seeing AOL become the pre-eminent Internet company gives me an even dizzier sensation of the world turned topsy turvy. I must reach for a literary analogy. In Marcel Proust's vast novel A La Recherche du Temps Perdu, the Verdurin family are introduced as tasteless nouveaux riches so ignorant of Parisian society that they don't even realize they are outcasts, snubbed by such luminaries as the Guermantes family. One of the novel's big jokes—you have to wait 3,000 pages for the punchline—is that Madame Verdurin winds up presiding over the capital's most exclusive salon; and, through the magic of remarriage, she is transformed into Princesse de Guermantes. AOL's trajectory is no less astonishing.

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