America Online has been seen by Forrester’s Charlene Li and others as a hidden force in local that could emerge as the segment’s breakout player. I worked as a consultant and observer with AOL Local for several years, and tend to agree.

Under the direction of Ted Leonsis and Paul Debenedictis, AOL was early in investing in its Digital City city guide, early to solicit local business reviews, early to see the power of mapping via its acquisition of Mapquest, and early to see the importance of offline activities by purchasing MovieFone.

The company wasn’t necessarily strong on follow-thru, however. In fact, funding was being stripped from the local properties, even as local was being prominently promoted in the hype surrounding AOL’s software releases (i.e. AOL 6.0). During its dark, transitory period (2001-2004), AOL Local actually lost market share and users, while the rest of the local segment was growing in ace and spades.

During this period, AOL got rid of a 200-person strong local sales force, and coasted on Mapquest’s high awareness. It also made an Apple-like mistake – keeping MapQuest’s API internal, and selling it on a B2B basis, netting just 1,400 customers. Meanwhile, a new online mapping industry based on open API was opening up, winning thousands of new sources of access, and becoming the beneficiary of lots of innovative applications.

Still, AOL’s infrastructure for being a leader in local remained in place. That is what the current management is seeking to leverage as it repositions AOL as a portal.

Speaking at Kelsey’s ILM conference, AOL Senior VP Jim Riesenbach reminded the audience of AOL’s advanced status in local. He promised that the company would see significant progress in 2006, especially now that AOL has worked out many of its transition problems and is widely considered a hot property again.

A major emphasis for AOL will be to leverage its assortment of platforms as a “communications suite,” now that it has been freed from emphasizing the fire-walled access service. “AOL has 220 million users across its networks. But less than 10 percent of that audience uses anything else on AOL,” said Riesenbach. “The vast majority of AIM users, for instance, don’t use anything else in AOL, although AIM is the most meaningful brand for users between the ages of 12 and 24.”

Mapquest’s 43 million unique users will also be prompted to use other AOL services. The service may not have the bells and whistles of Google Maps and Microsoft Maps, but Reisenbach asserted that MapQuest remains the most functional service. He noted that it has retained its enormous brand value, as well as a 70 percent market share.

Starting in 2006, PC-to-Network (PSTN) phone calls will also become a major factor in the equation, with every AOL user being given their own phone number. By 2007, geo-targeting, zipcode and age will become part of the PSTN platform.. Broadband is an even bigger channel for AOL, with 50 percent of all access coming in via high speed, much of it during office hours.

To Riesenbach, local figures into all of it. “It is counterproductive to think of local as a vertical,” he said, responding to a comment by a Microsoft executive earlier in the conference. “The question for us is how we integrate local as an enabler for everything that people do online.” Riesenbach added that the richness of AOL’s local offering will make its local search among the industry’s most compelling.

In recent weeks, all of us have contemplated AOL’s strengths and weaknesses as its spin-off value has been assessed by Google, Yahoo and Microsoft for possible partnerships or acquisition. AOL’s value has also been assessed in a weird, revisionist way, by Steve Case and Carl Icahn. Case doesn’t seem to remember. But he was definitely there, focused on balancing AOL’s difficult books, while key components of AOL, including local, were being methodically stripped.

These days, AOL Local is certainly a little rusty in places – some of its user reviews date back to 1998. But it remains a major community asset and traffic driver. It is a rich collection of synergistic assets and ought to be effectively leveraged by any of these players – or more likely, be developed on its own.