WHEN AOL took over Time Warner for $164 billion (£84 billion) in 2000, it was hailed as the “deal of the century”.

“I don’t think it is too much to say this really is a historic merger. We’ve transformed the landscape of media and the internet,” said Steve Case, AOL’s then chairman and chief executive officer.

But almost before the ink on the deal was dry, the merger was being called “the worst deal of the century”.

Last week Time Warner finally moved to rid itself of the internet firm that was once the world’s hottest online company.

New chief executive Jeff Bewkes is separating AOL’s declining internet-access business from its content business in a move that is likely to lead to the eventual sale of the access division.

It was Bewkes’s first quarterly financial conference call since taking the top job. “This should significantly increase AOL’s strategic options,” he said – options that seem likely to lie outside Time Warner.

Even at the time of the merger the more net savvy were questioning AOL’s business model. The firm made most of its money from charging people to access the internet through its website. In 2002 AOL had almost 30m paying subscribers, but dial-up internet-access subscriptions have declined as high-speed broadband access has risen and advertising has become the most lucrative source of revenue on the web. Today AOL has about 10m subscribers.

The company is now ramping up its advertising business but lags way behind the rest of the industry. In the fourth quarter, ad revenue at AOL grew 18%, less than the International Advertising Bureau’s industry average of 25%. Google’s ad revenue grew 51% in its fiscal fourth quarter.

Rival media and technology firms have been on a second multi-billion dollar internet spending spree in recent years. News Corp, parent company of The Sunday Times, bought MySpace; Google snapped up DoubleClick; Microsoft took a chunk of Facebook and is now trying to secure Yahoo. But AOL has continued to look like a dud.

Analysts calculate that AOL will be a declining contributor to Time Warner’s fortunes. Separating AOL from Time Warner’s content business is a must, because it will “allow for more focus on stronger businesses,” said UBS analysts last week.

Time Warner has blown billions chasing the wrong business model with AOL, said one rival executive. “Follow the money. Platforms, not content businesses, are where the money has been made on the internet,” he added.

For too long AOL tried to keep its users in a “walled garden” offering them AOL content. And the money never followed. Instead it went to Google, which links you to other people’s content, or MySpace, Facebook, YouTube and eBay, which rely on their users to put up their own content.

In 2000, combining Time Warner’s expertise in creating content with AOL’s subscribers looked like a great deal on paper. But as Time Warner’s shareholders found out, big promises aren’t always worth the paper they are written on.

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