In an attempt to innovate their company and improve profits, AOL has purchased three different companies. According to the Wall Street Journal, AOL purchased the TechCrunch blog, a high-profile tech website, for around $30 million. TechCrunch brings in about $10 million every year. AOL also purchased 5min Media, an online video company, and web-based software company Thing Labs Inc. Thing Lab Inc. is the creator of Brizzly, an application that allows users to utilize Twitter and Facebook simultaneously. This purchase by such a large company as AOL just reinforces the popularity and lucrative possibilities of social networking. AOL is trying to move past it's old business practices as a seller of dial-up internet and related subscription products by taking steps towards becoming a hub of internet videos and articles. There is a lot of concern that this transition just won't be possible for the company. More than 40% of it's revenue still comes from it's dial-up internet and subscription products. The transition is a massive one.
Innovation is something that all companies have to do in order to survive, but AOL is changing their company in very big ways. In one of my earlier blog postings, I discussed the fact that Twitter is also making changes to their services in order to better compete with other social networking sites. Competition is ubiquitous in every industry and can have very negative or very positive results. The fact that competition forces companies to innovate to better serve their customers reflects a positive impact on the industry and benefits consumers very much. Competition also has the negative impact of putting companies out of business, but also, like AOL, forces companies to make very rash decisions and spend large amounts of money with no promise of improvements. These purchases by AOL may not end up benefiting the company because they are attempting for such a big transition, a transition that may not be realistic.
http://online.wsj.com/article/SB10001424052748703882404575519831320838198.html?mod=WSJ_Tech_LEFTTopNews
ReplyDeleteIt is true that many times companies like this one rush themselves to buy other smaller companies without knowing if they are going to have profit about it or not. As I wrote on my post many companies do get a lot profits from acquisitions, as a matter of fact the leaders of the telecom industry have made their way to the top by buying other companies. Buying other companies many times expands the brands to different places or markets; Perhaps AOL is not one of the giants of telecom but they have been showing good results for many years, so maybe they do know what they are doing. After-all there is always a lot of research done behind this type of acquisitions.
ReplyDeleteClaudio Lacayo
Claudio brings up an excellent point about whether or not branching into another segment is the right move for AOL. As you note, they have been very successful in the dial up market but now that technology is advancing, it seems they are being forced to innovate. In such a competitive landscape companies are continually forcing competitors to take their product or service to the next level. With the move into social media AOL enters with huge odds already stacked against them. It will be interesting to look ahead into the future to see if the company can adapt their already successful business practices in a slightly different sector.
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