Here's the sequence:
Oct. 23: CEO Richard Parsons, reporting good third-quarter results except at floundering America Online, asks analysts to "bear with us" till a Dec. 3 analyst and media event where AOL would lay out its strategy. The stock moves up.
Dec. 3: AOL explains its strategy-and reveals advertising/commerce revenue will fall 40% to 50% in 2003. News stories and Wall Street fixate on that implosion. AOL's turnaround plan gets second billing. The stock tumbles 14%, sending it below where it traded late Oct. 23.
Financial disclosure is good. Telling the truth about numbers is a pleasant change from AOL's earlier habit of overstating revenue. But AOL Time Warner could have managed the news better by discussing AOL's dismal financial forecast when it released earnings.
Indeed, the revenue drop isn't surprising. The company last week said the decline is "largely due to lower revenue recognition from prior-period commitments"-something Chief Financial Officer Wayne Pace told analysts in July when he noted "the majority" of remaining contracts would play out in the four quarters ending June 30, 2003. Advertisers aren't lining up to do new long-term online ad deals. In the third quarter, the ad backlog accounted for 51% of AOL ad/commerce revenue; with a shrinking backlog, ad revenue next year crashes.
AOL also could have managed the good news better last week. Amid the flood of information and mea culpas for AOL's past failings, AOL failed to stir the crowd. The title of a briefing book given to attendees: "America Online Update." There's a vision statement.
If only AOL had looked for guidance from its nemesis to the northwest. In 1995, skeptics were convinced another giant had missed its chance to play the Net: Microsoft Corp.
Microsoft then and AOL now are mirror images: Microsoft was the leader of a mature market (PCs) operating under the scrutiny of federal regulators (antitrust), grappling with a technology shift (Internet), facing a fierce online rival (AOL). AOL is the leader of a mature market (dial-up Internet) operating under the scrutiny of federal regulators (accounting), grappling with a technology shift (broadband), facing a fierce online rival (Microsoft). AOL now and Microsoft then staged high-stakes analyst and media events the first week of December to change perceptions.
Microsoft's "Internet Strategy Workshop" on Dec. 7, 1995, changed the course of Microsoft and the industry. "I was realizing this morning," Chairman Bill Gates said, "that Dec. 7 was kind of a famous day." The sleeping giant had awoken.
Microsoft made myriad announcements that day on products, technologies and alliances. The specifics were less important than the big picture: Microsoft would do what it took to win the Internet battle. Netscape, the reigning Internet stock, crashed 18% that day.
Microsoft has failed on some Internet initiatives, but it's executed a winning strategy. That strategy took hold when Mr. Gates put on one of the best performances of his life that cold day in Seattle.
AOL can't copy Microsoft's script. It made sense for Mr. Gates to recreate his company around the Internet because the Net was upending every Microsoft business. It would make little sense for Mr. Parsons to recreate AOL Time Warner around AOL.
This dysfunctional family has to learn to live together, and AOL last week presented good ideas on ways it will work with siblings. But AOL failed to wow the market on a day it controlled the stage. It blew the debut of a critical revival.