Why AT&T Should Buy America Online
The best thing that could happen to America Online is for it to become AT&T's America Online.
In the next couple of years -- it is happening rapidly already -- Internet service providers and their online services counterparts will die or be bought. As smart as these companies' presidents are, as much stock as they move, in the end the consumer and business customer will want a big, reliable company that will offer a fixed-rate price and one bill.
To put it bluntly, Internet service providers have been doing the research for telcos and will make a chunk of change for their effort and invaluable knowledge. As the two related industries inevitably merge, an AT&T buy of Dulles, Va.-based AOL could be the strongest end result.
It's not that Internet will get less exciting. In fact, as computer companies, banks and content providers determine how to do electronic commerce, the information age will really take off. It's just that Internet access will become less exciting because companies will be concentrating on the real business.
UUnet Technologies Inc., Fairfax, Va., was the first of the providers to make all the right moves. It was recently bought by MFS Communications, Omaha, Neb., which in turn was purchased by Jackson, Miss.-based World Com Inc., the fourth-largest long distance phone company.
PSINet, Herndon, Va., last we heard, was still being shopped around. Other smaller companies such as Beltsville, Md.-based Digex, which just started trading publicly last week, and Erol's, Springfield, Va., which is said to be going public soon, will likely be bought by telcos. Online service providers such as CompuServe and Prodigy, already fading away, will at this point be lucky to find good suitors.
AOL, on the other hand, for all its trauma in the stock market, its executive hiring and its August network failure, is still one of the most promising Internet-related companies in the Netplex or anywhere else in the country.
AOL's new business-to-business strategy shows it is willing to take risks for new revenue streams, but also that it is running out of time.
While AOL must convince business users that it's not just a consumer company, it has a chance. There is no way Prodigy or CompuServe could come close with such an offering. Other online service providers such as Genie, bought recently by IDT Corp., Hackensack, N.J., from GE Information Services after it was run into the ground, have already fallen by the wayside. IDT said it bought Genie for its games.
While it's unlikely AOL's value would be reduced to one area of content, now is the time to take all the great stuff it has and merge it with a powerful corporate parent. MCI is linked too closely with Microsoft, and Sprint can't figure out how to promote the fact that it really is a big Internet player.
AT&T's deep pockets would give AOL the marketing clout it lacks on its own. The two brand names together would be virtually unbeatable for consumers and businesses alike. In all things Internet, AT&T, Basking Ridge, N.J., tends to sit back and wait for things to shake out. Then it attacks and comes out on top. The problem is, as with its WorldNet service, AT&T still doesn't exactly know what it's doing. AOL does. All egos aside, AT&T's America Online would be the most powerful of the emerging supercarrier breed.