Transformation comes through innovation for net veteran AOL

In the face of falling AOL members, the company's Dublin-based development centre is creating broadband applications to update its internet services and attract new users, writes John Collins

In a darkened conference room in a business park on the edge of Dublin, four casually dressed engineers are sitting in front of laptops. On a number of large screens at the top of the room are pages from the America On-Line (AOL) website and a live feed from a similar conference room in Bangalore.

Jumping between instant messaging programs and web browsers on their screens, the techies chat easily among themselves. The relaxed atmosphere gives little indication that the process they are going through is the culmination of more than six months of work and involves rolling out an application that could soon be in use by millions of AOL users.

The engineers are based at AOL's Dublin development centre, which employs more than 200 engineers and develops, tests and localises applications for the AOL website. The application they are rolling out, StockScreener, which has been developed entirely in Dublin, allows the 10 million unique visitors to AOL's Money & Finance channel (money.aol.com) to choose investment stocks based on their own specific criteria. It is proof of the important role that the local operation plays in AOL globally.

Following a reorganisation of its internal development centres a few years ago, the Dublin lab was given primary responsibility for developing AOL Search (search.aol.com), applications for its Money & Finance channel and a number of community applications.

Aengus McClean, the AOL vice-president who heads up the Dublin operation, does not break out any figures for his operation's financial contribution to parent Time Warner. However, according to its 2005 figures, paid search grew by 35 per cent last year to $300 million (€252 million). The revenues come almost entirely from Google, which displays sponsored links on AOL's search results. The development centre is responsible for ensuring the search application integrates with Google and that revenues can be tracked.

Back when everyone accessed the internet through dial-up connections, AOL was king in the US. It brought the internet to a mass market and provided a walled garden of approved content. That success ultimately led to its controversial merger with Time Warner.

"Historically we've always been viewed as the internet with training wheels," admits McClean. "Customers didn't have to worry about dial-up or browsers - we provided all of that for them."

In Ireland the company suffered from a different issue - a total lack of profile. "The problem was that, in the dial-up arena, AOL could never do a deal with Eircom in a way that was meaningful," explains McClean.

"The UK business got a Friaco deal [ which provides a revenue share between the internet and telecoms providers] with BT and the regulator was much more active in the UK. So effectively they put all their efforts in there.

"It is the UK business that owns the rights to the Irish market within AOL."

All that is changing now, however, as internet users switch to broadband. Last year, AOL decided to start opening up its site to broadband users from other providers. At the end of last year it still had about 25.5 million members in Europe and the US. That figure is only heading in one direction, however: it was down more than three million from a year previously and, if anything, the fall-off in members is likely to become more rapid.

Seeing the writing on the wall, AOL is keen to roll out applications for broadband users. Its portal is still one of the most popular destinations on the internet. In fact, McClean says it is viewed like a television network and is the third-largest entertainment network in the US.

The mix of members and broadband users gives the company a unique advantage, according to McClean. "We know when they are on broadband and when they are on narrowband, so we can differentiate and offer different products based on how they are coming to us."

In contrast, he says competitors such as Yahoo! cannot segment their traffic in this way as it is not possible to detect at browser level the speed at which someone is accessing the service. AOL intends to capitalise on this advantage with more events such as its video feeds from the Live 8 charity concerts.

In the coming weeks, it will launch In2TV, a free TV re-broadcasting service in the US. Not surprisingly, it will initially focus on Time Warner shows that are no longer in syndication.

The change in corporate strategy will see an increase in demand for applications from the Dublin developers, and McClean says StockScreener is just the first of a sequence of services they are developing for AOL Money & Finance. The engineers have started brainstorming regularly with product managers in the US as AOL seeks to become more innovative and shake off its conservative image.

The move to broadband also opens up the possibility of Irish content and services."This is something we'd love to do - we could build it out of here because we're building the applications anyway and we could arrange hosting," says McClean.

One ace that the company has up its sleeve is its AOL Instant Messenger (AIM) product. While its dial-up service may have appealed to an older generation, AIM is one of the most popular internet applications and has a much younger demographic.

McClean points out that the company has never really tried to monetise AIM with the exception of a small amount of advertising.

As it makes the transition into the broadband world, AOL can rely on help from Google, who late last year paid $1 billion for a 5 per cent stake in AOL. Yahoo! was also rumoured to be bidding for a stake, although it subsequently denied it made a bid.

With some Time Warner shareholders suggesting it should sell off AOL, it can't hurt that two of the hottest internet properties think the old lady of the net is still worth investing in.