• New York Times, Monday, July 10, 2006 11:45 AM

In the next two weeks, AOL CEO Jonathan Miller will propose a massive overhaul of AOL's business model to Time Warner's board, with the idea of virtually killing off Internet service, its cash cow, which could lead to thousands of layoffs, price cuts for existing customers, and a halt to all related marketing. The result would be a leaner, meaner AOL that revolves around ad-supported Web-based services, and looks a lot more like Yahoo. It would be a radical move, indeed, as companies that have profitable but dying businesses tend to milk as much money from what they have as they can without investing in new areas. In fact, Miller himself has been driving AOL through this strategy for several years. Miller's proposal hinges on the idea that AOL can't aggressively compete with the like of Google, Yahoo and MSN while it's weighed down by a dying business--even if it banks the company $2 billion per year, which is what Merrill Lynch analyst Jessica Reif Cohen says the plan would cost Time Warner annually. She said it's unclear how long it would take before things get better for AOL. "Every conversation we have is: what is the inflection point?" she asks. "When do the subscriber losses get offset by the growth in advertising? Nobody knows this." Under the new plan, AOL would offer just about everything for free, with the exception of a few things like enhanced anti-virus and parental control software. Other analysts aren't convinced that the up-tick in advertising is substantial enough to replace its dial-up revenue. Even though AOL says 35 million new non-subscribers now use the site, it still posted a 27 percent drop in year-over-year Web traffic in May 2006.

Read the whole story at New York Times »