America Online had no choice but to restructure, marketing professional says

Thursday, August 3, 2006
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How does a company market itself after completely changing the way it does business? That's the question facing executives at the Internet service America Online, following news it will cease to market its subscription service in favor of a Web-based business supported by advertising.

Dr. David Strutton, chair of the Department of Marketing and Logistics at the University of North Texas, says AOL management had no choice. Their current business model simply wasn't working.

"Something should have been done two or three years ago. This restructuring is an effort to make the best of a bad situation. They couldn't continue to do what they had been doing," he says.

Strutton says while it's often difficult for large companies to change the way they do business, some has succeeded.

"Several years ago IBM leadership committed to making a change, moving from hardware to a business services corporation, and it was successful," he says. "J.C. Penney has been able to change its business model. But, on the other hand, look at the big three U.S. automakers. They have struggled to change their business model, and the results show."

Strutton says the key for a business trying to reinvent itself is to control costs.

"AOL needs to control its costs in order to be successful. Not spending the money to retain customers will be a cost savings," he says.

He adds, however that AOL will probably not be able to recapture its "halcyon days of market dominance."

"Consumers have so many more choices out there than when AOL was dominant," Strutton says.

Following the dot-com bust of the late 1990s, businesses were wary of relying on Internet advertising as a revenue stream. But Strutton says the market has stabilized, and AOL is right to consider it.

"The e-model is a viable one," he says. "In a fragmented market, advertisers have to spend money somewhere, and if they set precise targeting they will be successful."

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