Why AOL Matters

Sunday, September 23, 2007

Why AOL Matters

Put me in the camp that thinks Time Warner's decision to move the headquarters of AOL to New York is significant.

Part of it is the job loss, which goes beyond the handful of top executives who will move now, and the others who will gradually follow. The bigger loss is prospective, all those people who would have been hired here as the advertising sales effort grows.

And while it is hard to quantify, it represents another leg down in the loss of standing and prestige in the corporate world, and the technology sector. Obviously that began years ago with the ouster of AOL executives from the corporate suite, and the AOL name from the company logo. But from now own, it will be less credible for local officials to use AOL's presence as part of their marketing pitch to lure companies to the region, and for companies to use it as part of their pitch to lure prospective employees.

For the rest of us, perhaps the biggest impact is to point up how irrelevant the region has become to the entire Internet revolution that, arguably, had its roots here and could have become the growth engine for the local technology industry. Sure, there are a few established players and a steady stream of small new start-ups. But whether you're talking about Internet hardware, software, distribution, entertainment, advertising, e-commerce or social networking -- almost any area other than security -- it's hard to think of a new Washington company that has become a household name in the way AOL once was.

And this gets us to an old dilemma for Washington. The past six years have been a boom time for the tech sector, but only because of the growth of federal contracting, and Washington's share of it. It's good business and it creates lots of high-paying jobs. But the heavy emphasis on contracting also creates a business culture, and attracts the kind of talent, that is incompatible with the freewheeling culture, creative risk-taking and understanding of consumers that seem to translate into success in the Internet world.

The hope, all along, was that Washington's tech sector could sustain both cultures, attract both kinds of talent, generate both kinds of companies. Over the years, individual companies have tried to do both and mostly failed. Now, with the departure of the top brass of AOL, it's fair to ask whether the same is true for the region as a whole, and what that implies for the future of the technology sector.

Tobacco Road, Redux

The Wall Street Journal last week had a wonderful article about the revival of tobacco farming in the United States in the three years since the government stopped subsidizing it.

The lead of the story was about an Illinois farmer, Martin Ray Barbre, who was doing better than ever with this year's corn crop, netting a record $250 an acre. But what Barbre is really proud of is his 150-acre tobacco crop. Each acre nets $1,800.

How could this be? It turns out that the subsidy program generated so much supply that it drove prices down below the cost of production, making it appear the subsidies were essential for the farmer's survival. Once the subsidies ended, however, so many subsidy-addicted farmers got out of the business that supply fell below what the cigarette companies needed, creating the $1,800-an-acre windfall. But don't worry: Before long, the market will do what markets do well, which is bring supply and demand back in balance at a price that allows a reasonable profit.

So tell me this: Why is Congress -- a Democratic Congress, no less -- about to renew a farm program that wastes $15 billion a year on market-distorting subsidies?

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