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Wednesday, 11 October, 2000, 09:54 GMT 10:54 UK
The first 'clicks-and-mortar' company

The merger of AOL and Time Warner will create the first big "clicks and mortar" company.

"Clicks and mortar" describes the so-far mythical union between internet growth and traditional levels of profit.

When the merger was announced in January, internet and online companies were fashionable investments and hugely capitalised in many cases. Their revenues, though growing fast, are still generally small.

Today internet firms are seen as a much riskier investment, but picking the right company can still result in massive returns.

More traditional companies, on the other hand, are (as a rule) soundly-based on a relationship between revenues and capitalisation. But they are seen to lack internet skills and strategies for success in a wired world of the future.

A media monster

AOL and Time Warner were both, separately, on their way to resolving these tensions.

In AOL's case, they have fared better than anyone in making a successful business model out of online service provision. They have survived periods of bad publicity caused by outages and the disdain of the more technically-minded internet enthusiasts.

Time Warner had poured millions into a number of internet ventures which never quite worked and had struggled through years of internal dissent over strategy.

But their purchase of CNN gave them one of the biggest web news sites in the world and they have developed a strategy which is taking the CNN Interactive division into profitability.

Together, AOL and Time Warner have the potential to cross-exploit and cross-promote their assets to create a media monster.

Marrying online skills with content

AOL has online skills, massive market share, distribution - and profitability.

Time Warner has content - which is vital, because there is still a shortage of good content on the web. It is particularly strong in one of the most popular genres - news - and it has lots more content which can be deployed when and if the web develops into an entertainment medium.

Further, both sides of the partnership have important gateways. AOL have the online entry-point and Time Warner have a cable network in the US.

If they can agree on how to push the Time Warner content through the AOL gateway and the AOL content through the TV screens, they will have important advantages over rival services.

The advantages are easy to see and it is not surprising that at least Time Warner's stock prices has risen sharply.

Obstacles

But there are obstacles and difficulties, too.

The larger companies get (and the combined AOL Time Warner would be one of the biggest companies of them all), the more difficult it becomes for them to respond with the agility necessary for success in this most competitive environment.

It is not always easy to see how best to exploit the rapidly-changing technology in the internet "space", and neither company is particularly strong in this area.

But the rest of the online and conventional media will be galvanised by this bold merger and will no doubt see AOL Time Warner as a model for further partnerships.

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