Subject: Re: Washington Post: Rumor: AOL, RH, in aquisition talks
From: Tom Lord <lord@regexps.com>
Date: Mon, 21 Jan 2002 03:28:34 -0800 (PST)



	
	Frank on AOL/TW's schizo nature re: open standards
	v. proprietary technology


	AOL TW is motivated to retain proprietary advantages and lock out 
	competitors in areas where it has market share superiority (e.g., with 
	instant messaging); on the other hand it is motivated to pursue a more 
	open strategy and to cooperate with others in areas where it faces a 
	major competitor who has market dominance (e.g., with web browsers and 
	operating systems).

	You're right, this is a "little schizo", but IMO it is not necessarily 
	irrational as a business strategy.

I think you're roughly right about "areas where it has market share
superiority", but have the wrong model of the technology when you
speak of "areas where it faces a major competitor who has market
dominance".  The areas you cite as examples (browsers, operating
systems) aren't much where the game is (which isn't to say they aren't
important -- they do have to support emerging standards).

AOL/TW needs to participate in the convergence-into-coherence of many
different media-related businesses, spanning the spectrum from low
level (e.g. networks and bandwidth) to high level (e.g. content and
high level communications coordination).  As the pieces being worked
out in open standards processes come together in practice, it seems to
me, AOL wants to continue the abstract role they carved out for
themselves wrt. email: to be the default provider for non-techies,
making everything simple and accessible, and having such good name
recognition that they practically become synonymous in popular culture
with services that, in implementation, are much larger than AOL/TW.

If AOL succeeds in continuing in that role, they're economic position
is special, because they're the ones who invoice individual customers
and spend the revenue collected.  That's why they're in a good place
to be pro-active in helping the convergence come about.

Messaging, in addition to being a way to chat with friends or get
alerts from your broker, is a deep infrastructure component somewhere
in the middle of that convergence spectrum and the various players
that need to get along in that space won't ever agree on a proprietary
solution for it.  You wouldn't want a proprietary messaging system in
the context of converged communications any more than you'd want a
closed DNS substitute in the context of email.

Maybe AOL is rational to try to keep messaging closed while all it is
is just simple chatting and alerts because by keeping it closed they
can get subscribers (that's where I agree with Frank).  But the real
growth path makes the messaging infrastructure important in lots of
ways people aren't talking about much yet (outside of the hackers
themselves) and I'd guess that at least parts of AOL/TW are
forward-looking enough to recognize that.

Another guess: AOL surveys new customers and ask "what's your favorite
feature"?  or see which features new users use most.  or ask "what
features brought you to AOL".  While "joining my buddies who already
use AOL messaging" brings in customers, they'll keep it closed, but
when that drops off, or when they have some interesting convergence
plays lined up, they'll open it up.  As more and more players in
adjacent businesses become more and more accustomed to using open
standards and implementations to implement convergence, the
possibility of a repeat of the pattern of a closed standard like AOL
messaging becomes more and more unlikely.

AOL knows all that.  They're three steps ahead: They're worried about
getting interesting devices into the hands of consumers to take
advantage of unified communication infrastructures, and that's why
they're talking to RH.  MSFT, with Xbox, is trying to sneak into that
same market but in a way that makes MSFT technologically dominant.  As
I said, a credible open standards and implementations reply makes the
Xbox strategy look dumb.  But, as of today, Xboxes are for sale and
the open reply ... isn't.

AOL *should* also be worried about the server side of that
infrastructure (including servers AOL will never own) and about a
not-far-off future in which there's an entrepreneurial explosion of
tiny device manufacturers, some of whose inventions will, just by the
million monkeys principle, become enormously popular and
market-expanding.  For those two reasons, at least, they'd be better
off just handing RH a big sack of money and encouraging them to remain
neutral rather than trying to buy them.

How much should AOL pay for monthly technical and business meetings
between AOL, senior engineers and managers from RH, and various execs
and engineers from adjacent businesses?  How much would it be worth to
have an RH-like company host such a forum while preserving a
reputation for technical excellence and independence?  How much would
it be worth for RH hackers to come away from such meetings with plans
to implement the device and server platforms that add up to the
shortest path to communications convergence?

The design space for those platforms is huge and the raw materials
abundant.  The problem at this stage is picking some points in that
design space, nailing them cold, and gaining widespread adoption
across lots of different kinds of businesses: an inter-corporate
specification, design, and deployment problem, combined with an
internal quality-of-engineering problem.

I think the value of that host-a-design-forum service to the people
who should buy it would exceed RH's market cap + good will, and that
AOL buying RH could destroy that potential source of value by
destroying RH's perceived independence and internal culture
(c.f. jwz's editorials about post-AOL netscape).  A big bag of money
is the right solution.

And, incidentally, such a service would be a specific real-world
instance of the business model I've been rambling about abstractly on
this list for a while now.

-t