External Analysis Macro-Environment Industry’s Dominant Economic Features Driving Forces (Porter’s Five Forces) Industry Driving Forces Market Rival Position Key Success Factors Industry Attractiveness

Macro-Environment Technical: Economic: Pressure to continuously develop innovative products and services (Opportunity and Threat) Economic: Current recession (Threat) Increased Interest Rates (Threat) One of the major technical issues is continuously developing new and innovative products and services in order to remain competitive. Most ISP companies struggle with the ability to provide adequate server, network and system capacity. Cable firms compete with alternative methods of TV (I.e. Direct Broadcast Satellite (DBS), DirecTV, and even DSL/wireless Internet providers. AOLTW is currently having trouble rolling out its broadband services. This force acts as both an opportunity and a threat. If they are efficient in rolling out new products, the will reap the benefits of winning new customers and increasing revenues. If they fail to provide innovation, they will face the consequences and lose market-share. Economic issues include the current recession and the effects of increased interest rates. During periods of economic slowdowns, people may elect not to pay $25 for Internet service, or $55 for digital cable. Especially with the availability of free internet service and standard cable. TW has a plan where you can package digital cable and roadrunner service for just over $100. Of course both of these issues act as threats to companies.

Macro-Environment Social/Cultural: Political/Legal: Increased Online Time (Opportunity) E-Business (Opportunity) Necessity of the Internet (Opportunity) Political/Legal: Regulatory Environments (Opportunity and Threat) Protecting Intellectual Property Rights (Threat) Social issues provide one of the largest areas for opportunity. In today’s society people are spending more time online than ever. Email has become the standard method of communication. And with the endless amount of information in the Internet, many everyday tasks are being performed over the Internet. E-business: Shopping, Banking, Research, Communication have all migrated to the Internet. Because the Internet is now a necessity, there lies opportunity for companies to improve revenues through increasing subscriptions. Finally, there are political and legal issues. Companies are concerned with the ability to expand successfully into international markets. They also face risks from changes in the U.S. and int’l regulatory environments. The cable industry faces increasing government regulation of basic cable and equipment rates, and its broadband cable modem service is subject to similar pending restrictions. One other problem is protecting intellectual property rights. AOLTW has sued Microsoft over damage to the Netscape browser, alleging that Microsoft monopolized the browser market by illegally tying its IE browser to Windows. These issues also pose both opportunities and threats. Tightening of gov’t regulations or negative response from int’l gov’ts can hinder performance. However, release of gov’t control can act as an opportunity, especially for new entrants.

Dominant Economic Features Market Size Market Growth Rate Degree of Vertical Integration Technology & Innovation Product Characteristics Scale Economies Learning & Experience Curves These are features that are shaping the industry today. *Market is growing, but at a decreasing rate. There is more opportunity for growth abroad in developing countries. *Vertical Integration varies. The majority of ISP have low. However, AOLTW is extremely high. *Technology and Innovation is important as discussed earlier. *Scale Economies are somewhat important in that, the larger a firm becomes, the more bargaining power it has. For example, AOLTW can negotiate prices in each of its business segments more successfully because of its size and the money it has. *Learning and Experience Curves are moderate. Those having been in the industry for a while have some advantage over newcomers. However, with technology constantly changing, there is a constant learning process involved.

Porter’s 5 Forces Rivalry Among Competitors Barriers to Entry Strong: intense technological competition Barriers to Entry Moderate to Strong: required capital needed to compete Substitute Products Weak: numerous Internet providers Strong: alternative forms of entertainment Power of buyers Moderate: low switching costs Power of Suppliers Weak : Size of AOLTW gives them bargaining power *Rivalry among sellers is strong in this industry. It is a fast paced environment where those who do not stay on top of thins get left behind. Also, a significant number of competitors increases the rivalry. *Barriers to entry are moderate to strong. Enormous sums of capital are required, as well as expertise and know-how. *Threat of substitutes: In regards to each of its business units, the threat can be considered moderate. *Bargaining power of buyers is weak. Low switching costs attributes to this. *Bargaining power of suppliers is weak given that AOLTW is the leading entertainment company, and owns many of its would be competitors.

Industry Driving Forces Internet & New E-Commerce Opportunities Increasing Globalization Technological and Marketing Innovations The first is important because as the Internet and E-commerce continue to grow, more and more companies are looking for ways to buy, sell, and market through it. Increasing globalization is important because of the ability to connect and do business with anybody in the world, regardless of their physical location. Finally, technology is constantly evolving, and AOLTW has taken a unique approach to marketing and promoting its services in its software disk mail-outs.

Market Rival Positions Broad Medium Slim Low High AOL Prodigy MSN AT&T Juno Netzero EarthLink Product Line Local Service Providers Comparing market rival positions (ISP industry only). The strategic group map is an important tool for this, identifying patterns of competition and pinpointing our closest competitors. Per the map, we can see some of our smaller competitors are the local service providers. Some of our midlevel competitors are Juno, Netzero, and Earthlink. Finally, a few of our major competitors are Prodigy, MSN, and AT&T. Price Range

Key Success Factors Strive for Technological Superiority Constantly Produce Innovative Ideas Offer Wide Scope of Services Strategic Partnerships Key success factors are factors that most affect industry members’ ability to prosper in the marketplace. Technological superiority, of course, is a strong factor. The ability to constantly providing innovative ideas is another. AOLTW’s ability to offer such a wide scope of services places them in a strong position. Finally, strategic partnerships are important.

Industry Outlook Attractive to Firms Currently in the Industry Continues to generate revenue & show profit However, volatility of the industry, as well as rate of technological innovation leave future uncertain Not attractive to Potential Entrants The last step is to analyze the industry attractiveness. The ISP and entertainment industry is attractive in that it continues to generate significant revenue and show a profit. The volatility of the this market and the rate of technological innovation leave the future of this industry uncertain. Additional factors such as government regulation and the high cost of doing business leave no guarantees for success tomorrow. This is not a good industry for new entrants because of the amount of capital and technology required.