Why aol failed

AOL had a vast audience of paying customers, all presumably thirsty for information. Underlying the new business model was the assumption that AOL customers care about proprietary content.

Now if that turned out to be true, then customers would flock to the merged company in droves. This starts to look attractive until we dig a bit deeper. Was it likely that competitors would merely sit by and watch AOL steal their lunch thanks to its Time Warner content?

No, they would refuse to distribute anything that Time Warner produced, online or not, and instead launch their own proprietary content. So much so obvious. But now let me put the arguments down more formally. In doing so, they created a nonsensical structure that was unsupported by the facts at hand:.

Soon after the merger, multitudes of Nextel executives and mid-level managers left the company, citing cultural differences and incompatibility. Sprint was bureaucratic; Nextel was more entrepreneurial. Nextel was attuned to customer concerns; Sprint had a horrendous reputation in customer service , experiencing the highest churn rate in the industry.

In such a commoditized business, the company did not deliver on this critical success factor and lost market share. Further, a macroeconomic downturn led customers to expect more from their dollars.

If a merger or acquisition fails, it can be catastrophic, resulting in mass layoffs, a negative impact on a brand's reputation, a decrease in brand loyalty, lost revenue, increased costs, and sometimes the permanent closure of a business.

Cultural concerns exacerbated integration problems between the various business functions. Nextel employees often had to seek approval from Sprint's higher-ups in implementing corrective actions, and the lack of trust and rapport meant many such measures were not approved or executed properly. Early in the merger, the two companies maintained separate headquarters, making coordination more difficult between executives at both camps.

Sprint Nextel's managers and employees diverted attention and resources toward attempts at making the combination work at a time of operational and competitive challenges. Technological dynamics of the wireless and Internet connections required smooth integration between the two businesses and excellent execution amid fast change.

Nextel was too big and too different for a successful combination with Sprint. With the decline of cash from operations and with high capital-expenditure requirements, the company undertook cost-cutting measures and laid off employees. When contemplating a deal, managers at both companies should list all the barriers to realizing enhanced shareholder value after the transaction is completed. These include:. Managers at both entities need to communicate properly and champion the post-integration milestones step by step.

They also need to be attuned to the target company's branding and customer base. The new company risks losing its customers if management is perceived as aloof and impervious to customer needs. Finally, executives of the acquiring company should avoid paying too much for the target company. Investment bankers who work on commission and internal deal champions, both having worked on a contemplated transaction for months, will often push for a deal "just to get things done.

Career Advice. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification.

I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Central and Pennsylvania RR. Quaker Oats and Snapple. Parsons, the company's chief executive, succeeds him as chairman. Time Warner Board Backs AOL Spinoff Time Warner announces that it will spin off AOL in a much-anticipated divorce filing for a multibillion-dollar corporate marriage that came to symbolize an entire era in American business but that had long been acknowledged as a failure.

Betting on Hyperlocal News With Patch. In the next four years, AOL spends tens of millions of dollars to build hyperlocal news sites across the country.