You've Got Obsolescence: The Rise and Fall of AOL. In the late 1990s, AOL was the undisputed king of the Internet. AOL’s log-in chime became an iconic reminder for users of their connection with community. Its CDs flooded mailboxes across America. AOL’s subscriber base dwarfed all its competitors. For many millions, AOL = the Internet. In the age before the convenience and ubiquity of the smartphone, the words “You’ve Got Mail” attracted a cult-like worship by its audience. Yet, within a decade, AOL's dominance vanished.
AOL’s story illustrates how early starter advantages can turn into liabilities, and for today’s tech leaders, how failure to nimbly adapt to the changing terrain can turn today’s Goliath into obsolescence.
The Walled Garden That Couldn't Grow. AOL’s success was built on a "walled garden" approach. Users logged into a curated AOL experience: email, news, chat rooms, and games all housed within AOL’s proprietary ecosystem. On the other hand, the Internet was the “Wild West” -- open, chaotic and slow. AOL’s garden offered users structure -- safety and simplicity, guaranteeing reliable user experiences.
Meanwhile, overall access to broadband expanded significantly in America and beyond its shores. With the improvement of web browsers, millions of users started venturing outside the AOL garden. As the global consumer explored open borders, AOL stuck firmly to its closed ecosystem. Meanwhile, other leading search engines, such as Google and Yahoo, embraced the open web and facilitated outward exploration. AOL misread the moment. Their users didn’t want its gates. Instead, they sought gateways to the outer galaxies.
Echoes of MiniTel: When Walled Gardens Wither. AOL’s story is not unique. In the early 1980s, France Telecom launched a government-backed, pre-Internet network that allowed its millions of users to search directories, check their bank accounts, and make purchases, such as travel and theatre tickets, through the company’s proprietary MiniTel terminal. The network gave its mostly French consumers access to the convenience of digital networks years ahead of the rest of the globe.
With the rise of the Internet, MiniTel, like AOL, faced a key decision about its dominant position. Stick with the walled garden or open up? As the open web emerged, MiniTel leaned into its closed architecture, leading to its eventual downfall. The MiniTel system couldn’t compete with the open web’s flexibility, creativity and scalability. MiniTel was like a fused back, a tightly locked system built for a specific moment and unable to evolve with the open architecture offered by the Internet.
💡 MiniTel and AOL suffered a similar corporate history lesson. Operators of walled gardens enjoy the early spring, but open ecosystems usually win the long game. While open systems invite growth, these closed gardens gatekeep access. The future belongs to those building communities through invitation.
A Graveyard of Early Tech Leaders. AOL wasn't the only tech giant to squander an early inning lead during the Internet Era. Another famous example of the early Internet is Yahoo whose products once dominated web search and news. Unfortunately, it failed to commit to its core strengths or innovate fast enough. It famously passed on the chance to acquire Google, twice, and later struggled under the weight of inconsistent leadership and shifting priorities.
In the mobile phone world, Nokia and BlackBerry were once the standard-bearers. Nokia excelled in hardware, but it was slow to recognize the software-centric shift ushered in by the iPhone. BlackBerry clung to its physical keyboard and enterprise model, underestimating the appeal and power of the modern smartphone OS. Neither kept up as Apple and Android captured the mobile phone market.
And yet, there are curiosities. Yahoo Japan remains a significant success. It spun out as a joint venture between Yahoo and SoftBank in the 1990s, and unlike its U.S. counterpart, it adapted to local user behavior. It offered services like auctions, payments, and weather tailored to Japanese preferences, embedding itself deeply into Japan’s digital life. While Yahoo faded elsewhere, it thrived by going native in Japan.
💡 Winning early doesn’t guarantee staying power. It often takes reinvention and relentless focus to survive the next innovation wave.
Missing the Broadband Bus. AOL's second great misstep was its failure to pivot its infrastructure. Its business model depended on dial-up subscriptions which generated billions annually. The arrival of ubiquitous broadband made dial-up a relic.
AOL didn’t invest aggressively in broadband. Nor did it transition to an ISP partner model. Instead, AOL resisted cannibalizing its golden goose, doubling down on dial-up revenues. As a result, AOL missed the next set: Comcast, Verizon and other telecom leaders hopped on top of the new wave, seizing the broadband future. AOL’s dial-up base steadily declined in cadence with consumer adoption of broadband.
The Time Warner Merger: Strategy or Distraction? In 2001, AOL merged with Time Warner in what was then the largest corporate merger in U.S. history. The promise: a visionary union of old and new media. The actual result: a strategic, cultural quagmire. The promised synergies didn’t materialize, and the two executive teams clashed. Meanwhile, the so-called “Dot.Com Bubble” burst, with the merged company losing over $200 Billion in market value in a matter of a few years. The merger didn’t reinvent or reinvigorate AOL. The combined companies were bogged down in red tape and executive infighting.
Ad Blindness in an Ad-Driven World. While Google was pioneering AdWords and Facebook was redefining targeted advertising, AOL remained tethered to its subscription mindset. When AOL started transitioning to an advertising-based revenue model, it was too late to the party and reportedly lacked the necessary data infrastructure for success. Moreover, the most valuable territory in the ad-tech arena had largely been claimed.
Talent and Culture. AOL had the wrong army for the tech battle ahead of them. At its heart, AOL was a media company, not a tech innovator. It was not an “engineering-first” culture. As the tech boom accelerated, leading engineers and product developers joined Google, Amazon, Facebook and tech startups. Any hope for reinvention would require such talent to foster game-changing ideas to fuel its turnaround. However, AOL couldn’t compete for the talent required for such reinvention.
The Core Lesson: Past Success Can Cloud Future Vision. AOL was so successful in its first act that it failed to write a compelling second one. It mistook distribution advantage for permanent defensibility.
Being early ≠ right.
Traction ≠ inevitability.
Startups and market leaders alike must beware: the infrastructure, platforms, and interfaces that define one generation often become heavy baggage in the next. Climbing up the next set of stairs is even more difficult!
From Dial-Up to AI: Echoes of Obsolescence. Today’s AI titans, such as OpenAI, Anthropic, Google DeepMind, and xAI, lead the charge in a generational revolution. But the ghost of AOL still whispers its warning: early dominance can dull strategic edge.
As Jeff Bezos reminds us, it must always be “Day 1.” Complacency is fatal. Strategic rigidity is the road marker every startup must steer clear of…
Rigidity? It leads to stasis.
Stasis breeds irrelevance.
And irrelevance is the first step toward death. (FN1)
It is seemingly a bit depressive to think about Day 2, but it underscores the importance of wiping the slate clean and bringing Day 1 under the light every single day. That’s very much aligned with the thinking of another technology leader, NVIDIA’s CEO and co-founder, Jensen Huang, whose love of the whiteboard is widely known in the meeting rooms of his company. The whiteboard reportedly represents “both possibility and ephemerality – the belief that a successful idea, no matter how brilliant, must eventually be erased, and a new one must take its place.” (FN2)
In 2012, NVIDIA, despite the domination of its chips in the gaming industry, started laying the foundation for another long-term bet: artificial intelligence! Doing so well in advance of the advent of AI was a risky move, but it gave NVIDIA an early starter advantage which ultimately paid massive dividends for its stakeholders.
As Intel founder Andy Grove famously titled his book “Only the Paranoid Survive,” there’s a lot for today’s AI leaders to think about:
Closed platforms lose to open ecosystems. In AI, countless players are building smarter mousetraps—and they’re doing it in the open.
Distribution isn’t destiny. Without continuous innovation, even the best channels become brittle.
Mergers can’t replace momentum. Acquisitions don’t always fill the gaps, and moats often look deeper from the outside than they really are.
Infrastructure always evolves. Just as broadband killed dial-up, today’s centralized LLMs may give way to edge-native or open-weight models.
The lesson from AOL? Yesterday’s advantage often becomes today’s anchor.
Success is never a finish line—it’s a setup for reinvention.
To today’s giants and tomorrow’s unicorns: Don’t just win the first wave. Win the next one, too!
A Lesson for Today’s Unicorns. For breakout companies like Stripe, Databricks, and other tech leaders reaching unicorn or decacorn status, the cautionary tale of AOL is especially relevant. Momentum breeds confidence, but it can also dull urgency. The next chapter requires discipline, curiosity, and constant evolution. Customer expectations shift. Infrastructure evolves. Markets re-price. Technologies commoditize. Being dominant today doesn’t protect you from irrelevance tomorrow.
The most important question for every successful startup isn’t whether you’re winning today’s game. Rather, are you recognizing the signs of changes in the game? Are you ready, and does your team have the courage to play again? If not, the next email in your box might be titled “You’ve got Obsolescence.”
© 2025. The Savvy Startup Advisor, LLC. All rights reserved.
About the Author: Kevin R. Davis is a 2x General Counsel who offers business stakeholders strategic guidance aimed at optimizing their operations, including implementing lean legal systems, improving risk management processes, undertaking business transformations, fundraising, engaging in strategic planning and handling exits. Kevin publishes a weekly newsletter, The Savvy Startup Advisor™, which provides guidance for startup success. Earlier in his career, Kevin worked as a corporate attorney with Kirkland & Ellis, LLP and as a legal executive of Publicis Groupe. Kevin is a graduate of Northwestern University School of Law and Northwestern University.
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Nothing contained in this article should be construed as legal or investment advice. This article does not create an attorney-client relationship between any reader and its author. Neither the author nor the publisher is responsible for updating this publication to consider any changes in applicable laws. Nothing in this article is based upon the author or publisher’s experience with any specific individual or organization; any resemblance to actual persons, places, or events is purely coincidental. If legal advice or other professional assistance is required, the services of a competent professional should be sought.
References
FN1 / Bezos, J. (2017, April 12). 2016 Letter to Shareholders. Amazon.com. https://www.amazon.com/ir/shareholder-letter-2016.
FN2 / Kim, T. (2024). The Nvidia Way: Jensen Huang and the Making of a Tech Giant. W. W. Norton & Company.
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