Steve Makes a Good Case

In today’s Washington Post, AOL founder Steve Case eloquently argues that Time Warner should split into four companies. He writes that in early 2002: “I proposed to the company’s board that it was time to ‘liberate’ and split the conglomerate into four freestanding companies—Time Warner Cable, Time Warner Entertainment, Time Inc. and AOL—each with its own strategy, stock, balance sheet, management team, and board.”

He contends that the four units would “benefit from the separation” and “that other parts of Time Warner would achieve similar results if set free from the conglomerate. Time Warner has proven to be too big, too complex, too conflicted and too slow-moving—in other words, too much like a classic conglomerate—to seize new opportunities”. He sees big potential from separation, and I can’t disagree. 

Just last week I blogged about the cycles of life, arguing “that big companies tend to work against their own interests or that of their customers”. I used Microsoft as example of a company that should have voluntarily split into at least three separate companies.

The AT&T breakup was hugely successful and a pretty good example to follow.

There is a corporate cycle of life, just like the natural world. I wrote in October: “Old people have a hard time adapting. It’s worse with old companies, I say. The nature of life is to multiply, to create new life…The best thing these companies could do is to break up into smaller companies around core areas. In essence, reproduce”.

Not surprisingly, Steve argues that of the four units, AOL would have the biggest potential. “Could a stand-alone AOL stage a comeback?” he asks. “Five years ago, most people thought Apple was a tarnished brand destined for declining market share and irrelevance. But some (including its co-founder Steve Jobs) saw the potential there, and a spirit of innovation has returned to the company to produce breakthrough products. Apple is now more valuable–and more relevant–than ever. Liberated to pursue its own future, AOL could have an Apple-like renaissance”.

Execution would be key, and there are plenty of market pressures, particularly with Google and MSN knocking heads. I can’t say whether AOL really could return to past glory days. But I do agree with Steve that a split could make the four companies stronger than the one and return to shareholders increased value (Fair disclosure: I am not an AOL/Time Warner investor, or any high-tech company, for that matter).

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