Most software developers and engineers know what it means to be sherlocked — the worst of fates for an app. The term was first coined in the early 2000s when Apple implemented its Sherlock search tool in Mac OS 8. Sherlock shipped only a few months after Karelia Software made a similar third-party application for the Mac called Watson. You’ve likely never heard of Watson because it was sherlocked.
Sherlocked is a series that recounts companies that were on track to be a massive success, only to be upended virtually overnight.
“We have always been shameless about stealing great ideas.” – Steve Jobs
America, Online! was Sherlocked
In the early 90s, the internet was a growing niche in computing — a hobbyist market. Analysts predicted, however, that by the end of 1995, the internet would be filled with 10 million people.
One pioneer of the revolution was America Online (AOL). With its creation of AOL Instant Messenger (AIM), the company broke through the barriers of communication by reducing the cost, increasing the speed, and expanding the scope of this new, instant communication method to over 35 million users at its peak. The running man became a symbol of America.
At the time of AOL’s inception, however, only 3% of people were online at an average of about 1 hour per week. A niche, hobbyist market, indeed. Early on, the case (pun intended) for the internet was compelling to Steve Case, the founder of AOL. Case knew that the “killer app of the internet” would be people.
Before AOL became one of the most recognized brands on the web, it was an online search service named PlayNET which was licensed to QuantumLink. Quantum’s growth strategy was to partner with PC manufacturers, like Apple who had just released the Macintosh. In 1985, Apple agreed to license its brand name to Quantum in an effort to build and market a software called AppleLink, Personal Edition.
AOL wanted to democratize the internet by giving away software for free. But, back then, Apple was selling its software in authorized Apple stores only. This tension persisted for four years until Apple finally tore up the contract. The rights to the software, however, remained in the hands of Quantum.
While Quantum’s discord with Apple seemed like a dead-end, it was just the beginning for America Online. Quantum rebranded its name to America Online and, on March 19, 1992, began trading on the NASDAQ. It would eventually become the top-performing stock of the 1990s.
In 1994, Apple launched a Mac-only, subscription-based online service called eWorld. It was an aggregator of news, entertainment, and email filtered through an Apple interface. The service managed to generate only 147,000 users and ultimately, Apple closed the program. The most ironic part: Apple told its users to go to AOL.
The growth of AIM
In 1995, the homepage for America Online launched. More users signed onto the internet and AOL began to expand its product line, generating 3M active users. Analysts expected AOL to be the online industry’s first $1B company.
On the day of AIM’s launch, however, there was nobody to talk to. There was an existing internal operation that allowed users to query for friends who might be online. Is Louis on? Is Joseph on? Users would blast this part of the system all at once, and it was not scalable.
AOL’s Head of Server Development, Barry Appelman, and SVP of Systems Infrastructure, David Lippke, began thinking of ways to more efficiently inform users. From this brainstorm, the Buddy List would soon be born. Until it was approved by management, the Buddy List started as a secret, side project known to only a handful of the company’s engineers.
“This wasn’t a project to us,” Lippke said. “This was a crusade.”
With AOL driving half of the internet traffic at its peak, battle calls for engineers and operations staff were commonplace. One of AOL’s early co-founders, Ken Huntsmann, placed his house phone on his wife’s side of the bed. She became so familiar with the fixes to common issues that she’d often pick up the phone in the middle of the night and walk AOL operations staff through problems herself.
In 2001, as AOL reached the height of its popularity, the internet landscape was already evolving. Media was transitioning from analog to digital. The dot-com bust had just happened. And, AOL, a leader of the narrowband world (dial-up), risked being kicked out of the new digital world (broadband).
The largest M&A in tech history
AOL began to shift from a fast-moving tech startup to a slow-moving media company with its acquisition of Time Warner. It was recognized as the first global media communications company of the internet century.
The acquisition cost a whopping $182B, valued at $350B. Here’s what happened:
AOL had lobbied to put rules of open-access into the broadband world, but they were never adopted. They knew they had to find a way to embrace the digital transition through M&A. Time Warner was the largest operator of cable systems and supported a list of major brands like Time Inc., HBO, Warner Bros., Warner Music Group, Turner Broadcasting, and CNN.
At its peak, AOL Time Warner had a market cap of more than $200B. In five years after the deal was announced, Time Warner’s stock declined 90%. It was a classic tale of culture clash, between traditional media and internet-digital media. Most damaging, AOL’s focus on fostering community was lost in lieu of a focus on content. In survival mode, AOL even made attempts to purchase Facebook, YouTube, and Tencent.
Come here, Watson!
Another collaboration taking form on the sidelines was with Apple, yet again. At WWDC 2002, it was proudly announced by Steve Jobs: instant messaging built directly into Mac OS X Jaguar. Almost beaming, he said: “We’re the first company” that AOL has “let under the tent, with their 140M strong instant messaging community.”
This deal was when the ship sank. AOL gave Apple access to piggyback off their network. Users could log in with their AOL screen name, or better yet, their new Mac.com email address. “Either is fine,” Jobs nudged.
By 2006, AOL was struggling to keep up with competitors.
At Apple’s March 2008 event, AIM for the iPhone was presented by Rizwan Sattar, former Senior Software Engineer of AOL. The application allowed faster access into the AIM network through a third-party application and was the first time you could use AIM on-the-go. He quipped that it was a “Come here, Watson! moment.” Sattar now works as a Software Engineer at Apple.
Only three years later, at WWDC 2011, a new, free messaging service was released in iOS 5. They called it iMessage. For instant communication, users began migrating to SMS, iMessage, and even social networking sites like Facebook who integrated their own proprietary messenger applications.
As a result, AOL’s market share had collapsed to less than 1%. Eventually, AOL sold to Verizon in 2015 for just $4.4B, and AOL Instant Messenger was shut down permanently in 2017.
What is the future of instant messaging? We see three possible avenues for innovation:
- Instant translation
- Augmented reality
Communication is a fundamental human need, and that won’t change.
From the telephone to email, instant message to iMessage, Zoom calls, and now TikTok, our methods of communication evolve. The commonality of communication technologies that win is a strong network. Without that, a communication technology can’t do its job of connecting people. There’s always a need for low-engagement, low bandwidth communication tools like instant message and text message. There’s also a persistent, and ever-evolving need for high-engagement, high bandwidth communication tools like Zoom and TikTok.
For rapid communication, instant messaging was 10X better than email. For mobility, text messaging was 10X better than instant messaging. We believe persistent communication will be the next evolution for communication, 10x better than iMessage and TikTok. The form those communications will take include instant translation, AR, and chatbots. The winners will likely be the same cast of companies that are powering today’s communications platforms; you guessed it, Apple, Google and Meta.