Sega Headquarters in Tokyo.
Morning sunlight streamed through the floor-to-ceiling windows into the Executive Office.
Takuya Nakayama placed the newly finalized Sotsu acquisition schedule into his desk drawer.
The encrypted hotline on his desk rang.
He pressed the answer button, and a faint crackle of static filled the line, followed by the prompt from the operator in North America.
"Boss, Tom is here too," Frank's voice came through.
"It's five in the afternoon in California," Takuya Nakayama said, glancing at the world clock on the wall. "Is there something urgent enough to warrant a transoceanic conference call?"
"It's about Steve Case and his America Online," Frank got straight to the point. "We've noticed some interesting little moves they're making in AOL's own backyard."
Tom Kalinske's voice then cut in: "To be precise, it's a soft blockade against Silicon Valley Online."
Takuya Nakayama leaned back in his chair, remaining silent as he waited for the rest of the report.
Frank began to explain the origin of the matter.
"The afternoon before yesterday, a manager from our administrative department was complaining in the breakroom. She's a veteran AOL subscriber of five years."
"She noticed that for the past half a month or so, there hasn't been a single report about Dungeons & Dragons Online in AOL's homepage news feed or entertainment section. During the Olympic Games, AOL's sports section also deliberately avoided all data and page links referencing go.com."
"Just the daily complaints of a non-technical employee," Frank paused. "But I had the Technical Department run a comprehensive test. They registered fifty brand-new AOL accounts, simulating user behavior across different personas."
"And the result?" Takuya Nakayama asked.
"It's clean," Frank replied. "AOL isn't directly blocking our IP at the physical layer. Users can still visit go.com normally if they type the address into their browser. But in AOL's internal search engine, category directories, and all algorithm-driven recommendation weights, Silicon Valley Online's related services have been downgraded to the lowest priority. Unless you type our full name in exactly, you can't find us at all."
Tom took over the conversation: "This is called 'cold treatment.' They aren't leaving any evidence for us to sue them for monopoly, but they've effectively cut off the channel for AOL's massive user base to naturally flow to us."
Takuya Nakayama tapped his fingers on the desk.
America Online was the largest Internet service provider in the United States. They operated on a closed subscription model, where users paid a monthly fee to access news, email, and chat within AOL's "walled garden."
Silicon Valley Online's strategy was the exact opposite. They offered free email, a free news portal, free social software, and aggregated content, monetizing the traffic through a few value-added services and game subscriptions.
"This downranking didn't just start recently, did it?" Takuya Nakayama assessed. "Steve Case must have sensed the danger when ICQ and BBS data started exploding, even before Silicon Valley Online went public."
"Exactly," Frank agreed. "Our Passport System and aggregated portal are directly challenging the foundation of AOL's subscription model. Users are realizing they don't need to pay AOL dozens of dollars a month. All they need to do is find a place to get online and type in go.com to access better services. AOL is scared."
The sound of pages turning came from the other end of the phone line.
"They have every reason to be afraid," Tom said. "After our GG revenue report came out last month, Wall Street's valuation models for AOL started to diverge. Some analysts believe the walled garden model will lack competitiveness in the long run against the open Wide Area Network. AOL is simply leveraging its existing ISP channel advantage to contain us."
Takuya Nakayama leaned forward slightly, moving closer to the desk microphone.
"Since you've organized this meeting, you must have already prepared," he said, his tone flat and devoid of emotion. "What's the status of the recent in-depth investigation into America Online?"
The soft rustle of paper came from the other end of the line.
"The Marketing Department has combed through all of AOL's public data and internal moves from the past three months," Frank said, clearing his throat. "Let's start with the conclusion: Steve Case isn't targeting us specifically—he's trying to keep AOL on life support. We just happen to be blocking his escape route."
Tom added from the side, "AOL's current user retention data isn't good. Their traditional hourly billing model has backed users into a corner. Some netizens have discovered that as long as they find a pure ISP that supports monthly flat-rate access and then open go.com, they can get better free services than what's inside AOL's walled garden. AOL's user churn rate hit a new high last month."
Frank took back the floor.
"According to the intelligence we've gathered, AOL announced a highly disruptive decision in late October," Frank dropped the core information. "A pricing model shift. Starting December 1st, AOL will fully implement a $19.95 unlimited monthly subscription plan."
Takuya Nakayama leaned back in his chair, his mind rapidly reconstructing the map of the North American Internet market.
"This is a survival gear shift," Takuya Nakayama said, cutting straight to the point. "They were forced to abandon their most profitable hourly billing and compromise with the pure ISP monthly subscription model. Steve Case is a smart man; he knows if they don't do this, all their users will flee."
"The cost is extremely high," Frank's tone carried a hint of mockery. "After the monthly subscription, the logic of hourly revenue will no longer exist. AOL must make up for this deficit. With what? GG, transaction commissions, branded content sponsorship, and business partnerships."
To support this transformation, AOL performed what could be described as a 'severing the arm to save the body' surgery on its finances.
"We reviewed the Form 8-K they submitted to the SEC," Frank reported a set of figures. "AOL wrote off a total of $385 million in long-term deferred customer acquisition costs—including the postage for those free trial CDs flying everywhere and channel commissions—as a one-time charge."
"A financial bath," Tom chimed in. "They're dumping all their historical baggage to start fresh. A classic Wall Street move."
The upheaval wasn't just financial; AOL's organizational structure was also undergoing a seismic reorganization.
Frank held a report from the Marketing Department, breaking down AOL's strategic focus for October point by point.
"They've split the company into three independent business lines," Frank explained. "First, AOL Networks. Their core mission is the expansion and maintenance of the flagship dial-up access network. When the monthly subscription plan takes effect on December 1st, the surge in concurrent users will crash their servers. They're now desperately increasing network capacity."
"Second, AOL Studios. They're treating content programming as a sellable brand asset—integrating original channel brands, bundling and selling GG, and implementing cross-platform distribution."
"Third, and most critical, is the Consumer Network. Email, IM, chat rooms, and buddy lists. These are the core applications that lock in users. Users can only access these features by staying online."
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