ICQ: Meaningful revenue elusive

It took AOL Time Warner's ICQ instant messenger service just four years to hit 100 million users, but AOL's dream of turning ICQ into a business has yet to materialize.
Written by Jim Hu, Contributor
It took AOL Time Warner's ICQ instant messenger service just four years to hit 100 million users, but AOL's dream of turning ICQ into a business has yet to materialize.

The media giant on Wednesday celebrated the passing of the 100 million marker by touting ICQ's popularity and rapid growth through "viral marketing and word of mouth." ICQ has quickly grown to be one of the most popular instant messaging services on the planet. Along with AOL Instant Messenger, it gives AOL the two largest IM services based on usage.

ICQ was anointed as a cardinal player in AOL's proselytizing against Web portals such as Yahoo, Lycos and Excite.com. But its success in becoming a "desktop communications portal" remains elusive.

"Do all their IM platforms combined create meaningful revenue for them? Not really," said John Corcoran, an equity analyst at CIBC World Markets. "This is more of a feature, and for the big players you need more features to be in the game. This is part of why people think of AOL when they first go online."

AOL acquired ICQ in 1998 for $287 million in cash. The acquisition at the time was perplexing: The service, created by three 20-something Israelis and the father of one developer, didn't make a cent in revenue.

Like AIM, ICQ allows people to send text messages to each other in real time. Unlike AIM, it's been beefed up in AOL's hands with many portal-like features, such as a Web search engine, links to third-party content and chat rooms.

In 1998, ICQ's appeal to AOL stemmed from its numbers. At that time, it had nearly 12 million registered users, a big tally in those days. In addition, ICQ's users were different from AOL's core subscribers--they were younger and more international, allowing AOL to serve a different demographic.

But most importantly, the nature of ICQ, along with its wildfire growth through word of mouth (and word of e-mail), presented AOL with a competitive test bed. In 1998, Web portals such as Yahoo, Lycos and Excite.com were wowing Wall Street with their ability to lure millions of new visitors every quarter, while reaping the advertising splurge of capital-infused Web start-ups.

For AOL, ICQ would become the first step toward competing against the portal stars mesmerizing investors and consumers alike. On the day of the announcement, AOL said it planned to use ICQ as a "launch pad for our broader Web portal strategy," spokeswoman Tricia Primrose said at the time.

A couple of months later, Bob Pittman, then AOL's chief operating officer, told Wall Street analysts that ICQ would join AOL.com and CompuServe as the company's multibranded Web portal triad.

Former AOL President Ted Leonsis led the push toward ICQ's rebirth. In an interview in 1999, Leonsis described how the company would transform ICQ piecemeal into a real business. The ideal evolution of ICQ would be to use the instant messenger as a way to create one-on-one purchases through auctions or purchasing products from Web retailers.

"This year is really a year to (turn) that time online into page views, page views into impressions, and impressions into dollars," Leonsis said in 1999.

Three years later, things have certainly changed. AOL.com, redubbed "AOL Anywhere," has become a Web offshoot for its proprietary service members. And CompuServe, once deemed a service for older, more "serious" Internet users, continues to search for an identity. Since the end of 1999, it has been recast as the "value" brand under AOL's umbrella, which offers service for $19.95 a month in contrast to AOL's $21.95.

So far, it's unclear whether the company has been able to convince ICQ's 100 million registered users to open their wallets. Web communities can be sensitive to change. It wasn't until February 2001 that AOL began testing ways to plaster persistent ad banners on ICQ's software.

"This is an offering that will clearly present challenges going forward for any company to turn it into this grand vision of, 'It's auction, it's commerce, it's media, it's legalized Napster-lite,'" said CIBC World Markets' Corcoran. "It may take away from the fast, light, one-to-one communications that is the core appeal to IM."

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