January 17, 2000

DIGITAL COMMERCE

A Marriage of Convenience -- and Control

By DENISE CARUSO

merica Online's proposed purchase of Time Warner is probably not, after all, a snapshot of the new economy vs. the old. Nor is it a slightly sordid wedding between a luscious nubile and her tottering trophy husband, shuffling to the altar on his last hormonal surges.

It's more like two very wealthy old men doing comb-overs on their balding pates, trying to look hip and zippy but not quite willing to let go of the past.

	Tom Bloom

Like all such deals, this deal is about control -- in this case, control over as much of the system as possible for the high-speed delivery of digital entertainment.

Time Warner, which owns one of the largest and most valuable libraries of print and video entertainment properties in the world, also owns one of the largest means of distributing that entertainment, via its cable television system. That system is now being retrofitted with Time Warner's Roadrunner high-speed cable-modem service to deliver as many as 21 million potential subscribers their daily dose of broad band.

America Online, for its part, talks like an Internet company -- and in fact is the world's largest gateway to the Internet. But it clings tenaciously to the proprietary, not-the-Net features whence it came. AOL's 20 million users pay $21.95 a month for the service's Instant Messaging, e-mail and chat. And while they're online, their movements are closely tracked throughout the service. As a result, AOL probably has the most extensive database of online consumer practices and preferences in the world.

With such huge assets at risk, neither company knows -- or seems particularly eager to learn -- about operating in an environment like the Internet, which defies control and confounds planning for the future. As Scott Rosenberg, a columnist for Salon.com, wrote, "These companies leapt into bed not because they felt confident but because they felt insecure."

With that in mind, it seems particularly poignant if not downright odd that these two companies are set to become co-owners of a property that would be considered anathema in either of their proprietary domains: the Open Directory Project (www.dmoz.org), the only free, resolutely anticommercial, openly available human-edited directory of sites on the World Wide Web.

The benefit of hand-crafted Web directories like Open Directory and Yahoo -- and the reason for their popularity -- is that they virtually eliminate the hundreds of irrelevant results that most automated search engines deliver.

The Open Directory Project, which used to call itself Newhoo, was started when Rich Skrenta and two other programmers at Sun Microsystems saw that Yahoo was becoming a victim of its own success, and a growing number of its links -- first entered by human hands -- were dead or expired.

So they decided to create the Web's most comprehensive and accurate directory by building an open system that could accept input from an unlimited number of volunteer editors.

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On June 5, 1998, the site went live. By June 18, there were 200 editors, 27,000 sites and 2,000 categories. By July 10, there were 1,200 editors and 40,000 sites. And in November 1998, shortly before AOL announced it was buying Netscape, Netscape bought Newhoo.

Since then, the volunteer staff has increased to 21,500 editors who have indexed more than 1.4 million sites in more than 200,000 categories, according to Skrenta. America Online and its Netscape subsidiary already have the Open Directory on their own sites, and they place advertisements on each page of search results that Open Directory delivers to their customers. This practice is also followed by Lycos, Alta Vista, Hotbot, Metacrawler and scores of other sites. That makes it so widely used that, in Skrenta's words, "We out-refer just about everyone else."

But the directory itself does not sell ads, and he insists it never will. "We want to keep the environment as clean for the editors as possible," Skrenta said. "If someone is putting in sites for you, you don't want to slow down their experience by gunking it up with ads." As a result, any Web users who do not want ads "gunking up" their screen can set the Open Directory as their home page.

The fact that a project as noncommercial as Open Directory is permitted into an environment as proprietary and commercial as AOL might be seen by some as evidence that AOL "gets it" about the Internet.

And perhaps it does. But it also heightens the contrast between the open, free flow of information that was the original impetus for the Internet today's cash-cold realities: All too predictably, now that it owns one, AOL has already backed off its outraged demand for open access to cable systems, saying the market should decide. With so much money riding on hedging the future, especially if the AOL-Time Warner deal is consummated and inspires similar mega-deals, the real questions are: What are these guys really up to? What will they think of next?

While makers of mega-deals are sure to find and cultivate projects like Open Directory to prove their Net citizenship, they are clearly angling to carve out the same lucrative fiefs they controlled in the good old days before the Internet turned their businesses upside down.

Whether that is their sole intention or whether there is some new gambit that the strategists haven't come up with yet will reveal itself as the AOL-Time Warner merger proceeds. But suffice to say there are likely to be far greater and deeper implications to this deal than we have heard about so far.

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• Open Directory Project