Tuesday, May 12, 2015

Sometimes a Technology-Driven Shift is So Great, Nobody Can Survive It

It is a misreading of history to argue that any company--AOL included--flubbed or missed out on the dial-up to broadband transition. In fact, no company that was a leader or at least a participant in dial-up access has really thrived in the broadband era.

You might remember that dial-up Internet access was pioneered largely by small, independent Internet service providers. AOL and EarthLink were among the firms that eventually got scale in the dial-up business.

No major telcos or cable TV companies were pioneers in the dial-up business. When the business shifted, the profit margin for dial-up went upside down, and advantage went to facilities-based network owners.

Recall that dial-up Internet access, as a value-added service, was built literally on “no incremental cost” access to often unlimited use local access. Dial-up ISPs were able to build a business because they did not have to pay for the actual use of access facilities.

When broadband came, everything shifted. All of a sudden, to sell broadband at retail, ISPs had to buy capability at wholesale. That took most of the profit margin out of the business, and accounts for the demise of most independent dial-up ISPs.

The point is that managerial brilliance was of no avail when the business model collapsed.

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