AOL Buys Game, Message Firms

By Sara Kehaulani Goo
Washington Post Staff Writer
Thursday, August 17, 2006

Shortly after AOL announced a dramatically new business plan that included laying off a quarter of its workforce, the company went on a small buying spree this week, purchasing two firms that the company hopes will lure new users to its Web site.

AOL said yesterday that it purchased, a Web site that provides information about video games and operates a newsletter for gaming enthusiasts. Earlier this week, AOL said it bought instant messaging firm Userplane, which provides technology that allows users of social-networking sites, such as MySpace, to communicate with one another.

AOL did not disclose the financial terms of either acquisition.

The company is trying to cut costs as it transitions from an Internet service provider to a Web portal that provides free services and draws revenue from online advertising. Earlier this month, the company announced it would cut 5,000 positions, including several hundred at its headquarters in Dulles, over the next six months as part of that transition.

Nonetheless, AOL said it would continue to look for strategic purchases of "focused, streamlined" companies that can add value to company.

"We're going to continue to look for targeted ways in which AOL can grow revenue, advertising, audience and search capability and acquire rich content that allows us to more effectively and efficiently meet AOL's business strategies," said Nicholas J. Graham, an AOL spokesman.

Yankee Group analyst Jennifer Simpson said AOL's acquisitions this week make sense, given the company's interest in trying to attract more users to its Web site. "Both these acquisitions seem to fit into their strongholds" of instant messaging and gaming, Simpson said.

The company is hoping that the purchase of privately held GameDaily will attract more men age 18 to 34 -- considered to be the gaming industry's core audience -- to its Web site, executives said.

AOL has two gaming offerings: AOL Games provides mostly free, casual games such as Bejeweled and Sudoku that attract mostly older women; AOL Video Games provides mostly free reviews and information about popular high-tech games such as Halo, Grand Theft Auto and Dead Rising, which are popular with the mostly male audience AOL wants to attract.

"Interest in this space is obviously growing from advertisers," said Ralph Rivera, vice president and general manager of AOL Games. Rivera said GameDaily will operate as a separate subsidiary, but the plan is that many of the gaming enthusiasts will migrate to AOL's Web pages. "We've been looking at: How do we take our video game efforts to another level?" Rivera said.

Similarly, AOL wants to expand its dominant position in instant messaging with its acquisition of Los Angeles-based Userplane. The privately held firm licenses its instant messaging technology to more than 100,000 Web sites, including, Friendster and internal company messaging sites.

AOL plans to increase the number of such licenses and use Userplane to extend AOL's reach to new online communities. For example, people who chat online on MySpace about a particular topic, such as rock bands, might also begin using AOL's instant messaging system to expand the group beyond those who use MySpace.

But AOL faces larger challenges in attracting the many users who left the company once they stopped using its Internet connection services, Simpson said.

"AOL will have difficulty reaching out to its prior users," she said. "If you've moved on to a comparable service, for example on Yahoo, Microsoft or Google, to come back to AOL won't be much of a draw, simply because they have such comparable services. The exception is IM. It's important for AOL to think about where it can draw people back in."

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