| Event |
AOL-Time Warner Merger
|
| Background |
On 10th January 2000 AOL and Time Warner (TW) announced
that they would merge in a $183 billion deal. AOL was the dominant party. |
Analysis
(to offer your own
analysis go to the 'Current Events' section of theWorkshop zone) |
1. AOL needed: broadband access to residential
customers (TW is the second largest cable owner in the US after AT&T);
enriched content to differentiate its services from ISPs providing free access;
effective marketing and advertising of its services.
2. Time Warner
needed an effective presence in the new media possibilities created by the
internet.
3. The merged company is based on a vertical integration
business model. |
| Implications for Layer
Structure (see Industry Mapping for the layer
model). |
1. The merger demonstrates the importance
of content in the process of competition in the services layers, particularly
Layer V. (Nearly 40% of the time all Americans spend on the Web is currently
spent within AOL's 'walled garden' of content and services. The Economist
15/1/2000, p25).
2. It also shows the importance of broadband
access to residential customers, presently a bottleneck. AOL previously
sold its networks to WorldCom. Now, AOL, primarily operating in Layer V, is
'integrating backwards' into Layer II to get this accesss, representing an
increase in vertical integration.
3. It suggests it is
insufficient for a firm to specialise only in Layer III; competition is likely
to force it to move into Layer V and/or Layer II. |
| Implications for
Key Questions. |
1. The merger may seem to suggest that there is no
future for specialist facilities-less service providers (since a key motive for
AOL was to get broadband cable access to residential customers). However, the
picture would change if at least some of the alternative local access
technologies blossom, i.e. DSL over copper cable, radio access (fixed and
mobile cellular), satellite, power line (electricity cables). If they do, it is
possible that an efficient market in broadband access capacity could emerge
implying that Layer V firms could buy whatever broadband access they need on
spot and future markets rather than owning and controlling their own networks.
Vertical specialisation would increase.
2. It suggests that the
creation, packaging, branding and marketing of content may be as much subject
to economies of scale and scope as the network layer. |
