AOL Time Warner represents two industries; this organization is an Internet service provider (ISP) and media company at the same time. It is possible to apply Porter’s model of Five Forces to this organization. First, the threat of new entrants is quite significant, especially if we take into account the growing number of small ISPs in the US and Europe.
On the other hand, as a media company, AOL Time Warner operates in a very consolidated industry in which start-up costs are very high. So, from this point of view, the threat of new entrants is low. The second issue is the bargaining power of customers. Overall, it is very strong because the ISP market is full of various companies trying to create new offerings to the clients. These companies can compete in terms of price and variety of services.
The third aspect is the threat of substitute products. The management of this organization should pay its attention free ISPs which offer customers access to such resources like chat rooms, newsgroups, and so forth. However, this threat is not significant. In turn, media products offered by AOL Time Warner can hardly be substituted because they are highly differentiated.
It is also important to discuss the bargaining power of suppliers, namely music recording companies, film studios, magazines, newspapers, etc. One can argue that their power is quite limited because many of them are incorporated into the structure of AOL Time Warner.
The final aspect of Porter’s Model is the intensity of competition. As it has been said before, there are two types of rivals, Internet service providers and media companies. These organizations attempt to gain advantage by means of price differentiation and innovation. Overall, competition in these two industries is very intense.
Among the main strengths of AOL Time Warner one can single out a large base of subscribers and potential customers, international media presence of this organization, and most importantly, the diversity of multimedia products that they can market to the customers. For instance, they can offer music, television programs, films, press, and so forth.
Yet, this merger also has some significant weaknesses, namely the differences between organizational cultures of two companies as well as leadership styles. Besides, the size of this company can make it very difficult for them to react quickly to the changes in the industry and economy. In order to establish a new culture that can fit both AOL and Time Warner, the management will have to spend years. Additionally, we need to speak about the opportunities that AOL Time Warner has.
For instance, it is possible to mention the increasing popularity of online subscriptions to magazines or other type of media and growing number of Internet users throughout the world. There are also some threats which cannot be overlooked, namely the increasing number of free Internet service providers (ISP). Yet, the most significant problem is the absence of mechanisms which can protect media content on the Internet.
At this point, the management of this organization has to develop methods of marketing their products to the subscribers. The main problem is that modern Internet users have an opportunity for content-sharing and it is rather difficult to prohibit such practices. To resolve this issue the company should take several steps.
First, they need to create a single platform that will allow the subscribers to purchase media products of AOL Time Warner at a reasonable price. To some extent, this platform may resemble a Web-based store that will sell music, films, television programs, magazines, and so forth. The second step is to make sure that there is no illegal distribution of these products on the Internet. This strategy will result in significant marketing costs, but it will also ensure a constant source of revenue for this corporation.