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The End of an AOL Era

By Robert X. Cringely
Tuesday, September 18, 2007 12:06 PM

AOL's departure for Manhattan is a slight to Northern Virginia, and it may complicate the region's efforts to promote itself as "E-country" (which is just as well -- the "e-" prefix is so 1998). But while it may mark the end of an era for AOL, it's hard to see how it will mean much for the tech economy locally.

The move may simply be an act of desperation from a company trying to do something -- anything -- to make it seem like it's going somewhere. AOL says the change reflects its shift to a company that sells online advertising. Yet it is also a reflection of AOL's demise as a technology company and the end of the very strategy that placed AOL in Northern Virginia in the first place.

The Beltway has long been home to telephone and other communication companies, drawn by a confluence of optical fiber and political influence. The fiber was there because the Internet was originally a U.S. government-funded operation. But telecom outfits were probably drawn as much by the proximity of their primary regulator, the Federal Communications Commission, and their biggest single customer, the U.S. government. And AOL was very much a telecom company: well into the 1990s, AOL headquarters operated to the tune of modems lighting-off at every desk as the workforce logged in each day.

The company grew to more than 30 million paying subscribers and a market capitalization so large that it allowed AOL to acquire dozens of companies, including its former rival Compuserve, Internet pioneer Netscape Communications and, most famously, old media stalwart Time Warner. This latter deal positioned Time Warner to take advantage of the booming new media business while ostensibly protecting AOL in the event of a dot-com meltdown.

The dealmakers were half right: The meltdown came, but it's difficult to argue that Time Warner has taken advantage of new media opportunities.

Then again, few old-media companies have, and Internet business isn't like normal business. Despite what appeared to be a near-total collapse of the Internet industry in 2001, use of the Internet by consumers continued to grow. It was this growth, in fact, that caused problems for AOL, which had great difficulty following its paid subscribers into the emerging broadband Internet. Facing a serious decline in subscriber revenue, the company announced in 2006 that its services would now be free for non-dialup customers and it would thrive, like its competitor Yahoo, as an advertising-supported service.

In the year following this change of strategy, AOL acquired half a dozen advertising-related companies while eliminating 5,000 jobs -- a quarter of its total workforce -- and moving all call center operations overseas. Wall Street has yet to declare the new strategy a success.

This headquarters move to New York is as much symbolic as real. The new headquarters will occupy two floors of the former Wanamaker's Department Store at 770 Broadway -- a space capable of holding fewer than 600 workers based on the 272 square feet per worker average for Manhattan offices. That is about a seventh of AOL's current headquarters staff of 4,000 in Dulles, while the company already employs 400 at its New York acquisitions.

The actual move, then, may involve 200 positions or less. The company says that there will be layoffs but that a substantial operation will remain in Virginia after the move.

Since its founding in 1989, AOL had become the most famous -- and for a time, the most successful -- homegrown tech company. So its departure may be a blow to the regional ego. But it's hardly a death blow. And it doesn't change the Beltway's allure for tech companies.

Robert X. Cringely is the host of PBS's NerdTV, an online interview show.

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