Bob Pittman's replacement of Barry Schuler as chief executive at America Online probably marks the first in a series of moves that parent company AOL Time Warner will make to align its resources with its long-awaited digital convergence strategy.
Keep in mind the scope of the moves that have to be made. Mergers such as the one between America Online and Time Warner are hugely complex undertakings and engender tremendous operational risk. Most often, companies stumble over basic business integration, lose market share and watch profits fall.
This concern is one of the points of contention in the proxy battle over Hewlett-Packard's proposed acquisition of Compaq Computer. Such missteps can be catastrophic in today's economic and competitive climate. The AOL-Time Warner merger didn't produce operational problems that might have crippled its competitiveness, but its leadership team seems to get little credit for that success.
Because of this management discipline, the media giant remains solidly positioned to pursue the convergence opportunities before it, despite the downturn in advertising revenue related to the economy's softening overall. In 2001, AOL Time Warner focused on basic integration; in 2002, the company will align its strategy. It will work on creating operational synergies most likely in 2003. Those who think that three years is an eternity in "Internet time" fail to recognize the lesson that execution wins out over speed in markets where new Internet-enabled infrastructures must be created.
The AOL unit now faces the challenge of growing revenue by earning more per subscriber instead of by acquiring new subscribers. Selling value-added products requires an intense focus on detail, marketing execution and economies of scale. Pittman excels in those areas, which is why he's assuming that role.
To succeed, AOL Time Warner and other big media companies must confront the Internet dilemma. The Internet is the ultimate medium for promoting and distributing content and targeting specific customer segments. Yet this delivery channel is spiraling out of control as new technologies such as peer-to-peer file swapping wreak havoc on companies' business models. Using lawsuits or legislation to delay the proliferation of disruptive technologies will ultimately fail. Nor can media companies lead technological innovation in Internet-enabled consumer devices--that isn't their core competency.
The solution lies not in begging Congress for protection from disruptive technologies but in putting aside petty rivalries and reworking the business models to exploit, rather than defeat, the new technologies.
Accordingly, AOL Time Warner must succeed at creating the new digital media platform, and it must not cede that responsibility to Microsoft. Success requires technological fluency, out-of-the-box thinking, innovative partnerships, and an ability to adapt rapidly to changing technological and behavioral forces. Schuler excels in those areas, which is why he's assuming the role of leading a new division to develop digital services.
See news story:
America Online chief to step down
The fact that Pittman will be filling two high-level offices--continuing as chief operating officer at AOL Time Warner even as he becomes CEO at America Online--may indicate that the company does not have enough talent at key levels to execute its new strategies. Schuler's move, meanwhile, may indicate that AOL Time Warner has found just the right guy to head its critical Internet platform effort.
In the end, the depth of the company's managerial talent and the ability of that talent to embrace the Internet world may be more critical to its success than the depth of its Internet and media assets.
(For a related commentary on AOL Time Warner, see gartner.com.)
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