Can Miller Put the Oomph Back in AOL?

The new CEO has to find ways to build customer loyalty -- and draw more subscribers to the company's broadband offerings

When Jonathan F. Miller reported for work on Aug. 6 at America Online Inc. (AOL ), few employees of the stumbling Internet giant realized their unassuming new CEO walks softly but carries a big stick -- literally. An accomplished practitioner of the martial art of kung fu, Miller's forte includes traditional Chinese swordsmanship. And yes, Grasshopper, the student is devoted. Miller periodically flies to London to work with his kung fu master. "It might come in handy" in his new job, he deadpans.

No kidding. A former top exec at USA Interactive Inc. (USAI ), Miller, 45, needs all the weapons he can muster to keep from becoming another casualty of AOL's ongoing financial woes. Slower advertising and subscriber growth and federal investigations of accounting at the online unit have helped send parent AOL Time Warner Inc.'s stock down roughly 75% in a year, a swoon that cost ex-AOL CEO Barry M. Schuler and Robert W. Pittman, AOL Time Warner's former COO, their jobs.

So can Miller pull AOL out of its slump? To do that, the Net-savvy exec will have to boost ad revenues and bring in subscribers even as he devises a better plan to persuade AOL users to switch from dial-up services to broadband. He has one edge already: a track record of figuring out how to profitably leverage the combined strength of USA Interactive's Internet, broadcast, and cable units. He negotiated a complex deal, for example, to broadcast games and sell sports collectibles on the Home Shopping Network while hawking tickets online via Ticketmaster. Miller also has the backing of the new chairman of AOL Time Warner's Media & Communications Group, Don Logan. "Don and I will be in lockstep developing an overall business model," Miller pledges.


  Miller and Logan will likely take until late fall to hammer out a comeback plan for AOL, but a blueprint is already taking shape under existing top AOL managers. A page from Logan's own success as former CEO of Time Inc. and, indeed, from Old Media could be key. Like Time, AOL wants to lure more subscribers by tailoring content to individual tastes -- and then charging advertisers more for reaching a narrowly targeted audience. "It's the classic strategy for every consumer product that has reached a stage of maturity," says AOL Time Warner adviser Peter A. Kreisky of Kreisky Media Consultancy.

With AOL 8.0, the new version due out in October, the company will begin experimenting with the concept. Subscribers will be able to choose one of six user profiles -- such as newshound or entertainment junkie. They will then get a customized welcome screen highlighting content and services keyed to their interests. Soon, the site will invite members to interactive chats with their favorite celebrities or enable fans of popular TV shows to chat.

The scheme is far from a sure-fire fix, however. Many Net companies have attempted such personalization before without success. "The land is littered with companies that thought they'd go to one-to-one marketing," says David Card, a senior analyst at Jupiter Research. One big hurdle: For the service to work, AOL will likely need personal information that users may be reluctant to provide for fear of inviting more pop-up ads.


  But audience segmentation clearly fits with Miller's aim of attracting and keeping subscribers by offering more value for AOL's $23.90 monthly rate. To that end, he's looking at jazzing up programming to make AOL a "must-see" ISP. He also wants to offer AOL's most active members benefits ranging from exclusive music downloads to discounts on merchandise and services. "Membership should have its privileges," he says.

Will it be enough to jump-start the troubled online giant? While such moves could help burnish AOL's dial-up service, it's far from clear that they will draw enough new or higher-paying advertisers to make a big difference. They also do little to resolve the far larger problem looming on the horizon: Miller must create unique content that will persuade users to jump to broadband. And with shareholder grumbling growing louder, he has to move fast. It's up to Miller to prove he's a kung fu hero and not just fodder for swift swordplay by angry investors.

By Catherine Yang in Washington