Summary

  • AOL paid $287 million in cash for Mirabilis assets in June 1998. Mirabilis had generated no revenue, though its ICQ trial service had 12 million registered users at the acquisition date, about half of them active.
  • At the fiscal year end, AOL counted 13.9 million ICQ downloads and 6.8 million active users. It wanted an all-service web portal with a permanent desktop presence; security, architecture and commerce work still stood between that plan and revenue from unfinished projects.

Twelve million registrations walk into a valuation

The most revealing line in AOL's fiscal 1998 filing is almost comic in its restraint. AOL paid $287 million cash for Mirabilis assets, including ICQ, and then said Mirabilis had generated no revenue. There was no contradiction in the accounts. ICQ was already an active communication service; its business model was still an assignment for the buyer.

The filing is careful about the denominator. Mirabilis reported 12 million registered trial users when AOL acquired it in June 1998, with roughly half active. By 30 June, AOL reported 13.9 million software downloads and 6.8 million active users. A download, a registration and a person actively using the service are three different measurements. The acquisition price cannot be divided by twelve million and called a price per customer. AOL had bought technology, a name, a trial-user base and the chance to build a business around their daily conversations.

ICQ already occupied a place that most web portals had to beg for: a window on the desktop where friends looked for one another. AOL's filing called it an Internet-based communications site and said the company wanted an all-service web portal with a permanent desktop presence. That was the strategic wager. A habitual chat window could become a doorway for more services; the filing described the doorway as an intention, not a completed commercial machine.

The balance sheet split the running service from the unfinished one

AOL assigned value to existing technology, the base of trial users, the ICQ name and brand, goodwill and in-process research and development. It charged about $61 million of the purchase price to unfinished development because technological feasibility had not been established for that work. The distinction matters: people were using ICQ, while the projects meant to turn it into a wider, revenue-producing platform still carried development risk.

The company expected to spend more than $15 million over the following two years, mainly on salaries, to develop the in-process work into commercial products. Its own list of unfinished tasks included security, architecture stability and electronic commerce capabilities. It also allowed for up to $120 million in later contingent payments tied to future performance. That ceiling was a possible addition, not cash already paid on the acquisition date.

The same annual report places ICQ inside AOL Studios, beside other brands that were supposed to attract distinct audiences. AOL's advertising and commerce strategy offered a possible destination for attention gathered by chat. The filing gives the price, the trial activity and the plan. It does not give a finished ICQ portal or revenue from Mirabilis. In 1998 the conversation was running; the business case still had to catch it.

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