The Albatross Around AOL’s Neck

Actually that’s a misnomer. But let’s look at digital music, MP3s, digital distribution and ecommerce for a moment. Apple is a $40 bn company, reshaping their OS (Lion) to reflect their mobile devices (originally the iPod).

From largest to smallest, you have desktops, laptops, iPads, iPhones, iPod Touches, iPods, and mini-iPods. iPods started out working with the desktops via itunes. Then came the miniaturized iPods. Then the now legendary iPhone, which also worked with iTunes. The iPod Touch was launched, which at the time was probably an exploratory push in to tablet territory. By this time, the iTunes Store had been active for some time and Apple was reaping the profits of a fully functional online music retail ecosystem.

Now the iPad exists. I doubted it originally, but Apple is now looking at triple digit growth this year (in a recession, no less), almost exclusively from iPad sales. Board members have commented that it is even eating in to their laptop sales (traditionally 50% of their sales). This is hugely in part due to the fact that iTunes works with everything they sell with a battery in it.

So what does this have to do with AOL? They’re just a third rate news outlet that owns Huffington Post, right? Well at the time of AOL’s aquestion of Nullsoft, maker of Winamp, they had just been purchased by TimeWarner. Prior to that acquisition, Winamp was the de-facto MP3 player from early 1997 when it was released, and awareness of the MP3 was just starting for early adopters, until iTunes took over the PC market sometime in 2005. Physical MP3 players appeared in 2008 with the Diamond Rio 300 PMP, about the size of a cassette walkman.

Then, in March 2000, Justin Frankel released Gnutella on Nullsoft’s ftp servers, the original distributed file sharing platform, precursor to Limewire, Bearshare, and perhaps most famously, BitTorrent. I should know; I wrote the original user manual for it. AOL hastily pulled the files from their servers, but the program had already proliferated, and reverse engineered versions of the program rapidly became available. BitTorrent came along a year later but didn’t hit the big time until around 2003.

So AOL had already bought the original PC MP3 player for $60 million; and Justin Frankel had given them the first bona fide digital distribution platform for free. They’ve sat on this technology for almost 14 years while Apple built their own system from scratch and then built a world class music store/digital distribution platform that is pulling in tens of billions of dollars a year and likely helped coin the usage of “ecosystem” in terms of software integration.

Next came the me-toos of digital music, then free streaming digital radio such as Pandora, Last.fm, Spotify, Mog and more. Yahoo, Microsoft and Best Buy even jumped in to the ring. Netflix streaming, then Hulu and more joined in for streaming video. AOL had it first though. They had the market share, the (seed) of technology to distribute it, and perhaps most importantly, through TimeWarner, they had the licencing to pull it off.

Winamp was more or less perfected by the end of 1998 with full plugin support. Hundreds if not thousands of plugins allowed you to do nearly anything with it. For certain users, it still stands above iTunes in terms of use. Yet AOL failed to ever come close to the $60 million they paid for the program. Someone had seen the future, invested heavily in digital media, but whoever they handed it off to never figured it out. They were expecting someone else to come along with the idea and buy them out, when they’d had the tools to do it all along.

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2 Responses to The Albatross Around AOL’s Neck

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