Number
6
America Online Inc.
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Those who cannot accept the future as envisioned by Steve Case have never been shy about rejecting the man and his ideas. Such behavior dates back to at least 1980, when the recent college graduate boldly proclaimed that cable television would be the one-stop information medium of the future. He was roundly rejected by every firm in the business to which he sent a resume, including the new HBO channel created by a rising Time Inc. executive named Gerald Levin. Case, in fact, could not get his foot in the door until he refined his thoughts on technology and consumers during stints outside the industry at Procter & Gamble and Pizza Hut.
Armed with a new understanding of his own goals and the electronic tools becoming available to achieve them, Case resumed his quest and ignored the naysayers. He refashioned an online video game company into one of the first interactive computer networks, although most observers doubted it would fly. He would set up shop in a nondescript suburb near Washington, D.C., and drew derision from the high-tech digerati on both coasts. He went public in a triumphant IPO that led to seven two-for-one stock splits in seven years, but financial people were always skeptical of his abilities. He took on major competitors as his ideas gained validity, and observers consistently predicted his demise.
Today, of course, Case’s America Online got the last laugh. With more than 23 million subscribers, it is the world’s top provider of online services by a huge margin. It owns its biggest former rival, a popular Web portal and the omnipresent browser software developed by a cyber-pioneer, and a diverse array of other sites and products. Its 15,000 chat rooms, ubiquitous e-mail, and Instant Messenger utilities, and world-class sources of information and news are now offered in seven languages, available in 15 countries, and delivered over telephones and televisions in addition to computers.
And, if that weren’t enough, at the beginning of the millenium Case announced an historic $172 billion merger with entertainment goliath Time Warner that promised to make AOL the world’s undisputed media leader. Among other things, it also elevated Case to the head of HBO—the cable channel that rejected him 20 years earlier—and placed him above its former head on the new organization chart.
The first online services began appearing in Europe a little more than a dozen years after Steve Case was born in Honolulu. At the same time he and brother Dan were forming “Case Enterprises” which sold everything from seeds to personalized Christmas cards with help from a neighborhood paper route. The beginnings of an interactive world were forming at the hands of government-owned telephone agencies striving to promote local computer networks. A few daring newspaper publishers around the globe soon followed with early electronic editions accessible through television terminals. This development didn’t escape Case’s attention until years later when, as a student at Williams College, he became interested in the fledgling cable TV industry. Case saw a synergy, as the potential convergence would come to be called, and decided to make it his life’s work.
In a surprisingly prescient projection that has since been reproduced in numerous publications, Case predicted in his 1980 resume that “innovations in telecommunications (especially two-way cable systems) will result in our television sets (big screen, of course!) becoming an information line, newspaper, school, computer, referendum machine, and catalog.” Potential employers like HBO refused to bite, so he put his marketing skills to work at a couple of major consumer-products companies while learning all he could about both consumers and products. When he bought a Kaypro computer in 1982 and discovered how much farther this technology could advance his ideas, he switched gears and accepted the chairman’s position at a Control Video, a debt-ridden start-up that planned to help computer users communicate with each other. After several shakeouts Control Video was reconstructed in 1985 as Quantum Computer Services, and within a half-dozen years had secured deals to provide general online services for machines made by Commodore, Tandy, Apple and IBM. In October 1991, with 156,549 members, its name was changed to America Online.
Growth was exponential from the start as the personal computer became increasingly commonplace. Five months after its revamping, AOL took advantage of the climate and went public on the NASDAQ market, raising an incredible $66 million. The good times were hardly over, of course: Stock splits over the next seven years made an initial $10,000 investment worth approximately $6.8 million. Case, who owns or has options on nearly 31 million shares, saw the value of his holdings increase to $1.8 billion by early 2000. Despite competition from heavy early hitters such as CompuServe, owned by H&R Block, and Prodig y, owned by Sears and IBM, America Online continued to pick up steam. By the end of 1993 it exceeded 500,000 members and tallied $40 million in revenues. But the real boom—as well as the real challenges—were yet to begin.
Due in large measure to Case’s fanatical insistence on simplicity and consistency— and the computer savvy public’s growing passion for chatting online, membership doubled during the next eight months, and then doubled again in a little over eight more. By the time AOL’s ranks swelled to 4.5 million at the close of 1995, its reach was felt well beyond the so-called early adopters who initially embraced the online world. After it was recognized as “Best Consumer Online Service” by publications like PC Magazine and Family PC, growth came even more rapidly. AOL capitalized on it the following year by inaugurating its first efforts outside the U.S., adding service in Canada, the U.K., Japan, and France. A million new members kept joining every five months, and AOL moved from NASDAQ to the New York Stock Exchange.
Naturally, the ride was not destined to remain so smooth. AOL prospered by providing consumers with unusually safe and incredibly easy access to the brave new world of cyberspace, as well as original “content”—chat rooms, e-mail, news, stock quotes, shopping and the like. But with total online participation reaching 13 million in 1996, the stakes increased and so did competition on all fronts. Adversaries from CompuServe to newcomers on the upstart World Wide Web battled for cyber-travelers with equally useful and attractive features, while access providers shifted from pricing by the online minute to unlimited flat-rate connections to attract newcomers. AOL stretched its resources to the limits to keep up. Resultant technical problems surfaced regularly, as did charges of underhanded marketing and persistent overbilling. Investment bankers also convinced Case to ease off in deference to his notable lack of people skills, and he reluctantly handed over the CEO reins to a confidante named Jim Kimsey.
Compounded by personal problems that led to the breakup of Case’s 11-year marriage, AOL’s walls seemed to be crumbling. Customers, though, refused to give up on it. The service kept adding more and better features, and membership kept climbing—reaching 8 million in January 1997 and 10 million the following November. Three months later, AOL announced it was buying rival CompuServe. In less than a year it also purchased Netscape, made a critical e-commerce alliance with Sun Microsystems, and saw its subscriber base exceed 14 million. Before 1998 was over, AOL also was added to the S&P 500 Index.
Suddenly, the critics stopped sniping. It was obvious, even to the most skeptical, that Case and his ideas had finally become accepted.
America Online has thrived in the evolving online world mainly because the calm, confident Case has always kept his focus on the customer. Since retaking the CEO role, he has demonstrated an ability to react more effectively than his competitors to the industry’s constant changes. With AOL traveling in a positive direction in 1999, he shifted a long-held strategy and began relying more on outside sources to provide members with unique content. This was embodied by a deal he made with Oxygen Media, the firm run by a high-profile group that includes Oprah Winfrey and Nickelodeon creator Geraldine Layborne, to develop a new women’s site. It additionally was reflected in an agreement he inked with popular online employment Web site Monster.com, making it the exclusive poster of job listings on AOL.
The Netscape purchase was also completed in 1999, as was the acquisition of Internet chat company Mirabilis—giving AOL control of three of the most-visited destinations on the wide open Web (NetCenter, ICQ and AOL.com). Its hot Instant Messenger utility surpassed 45 million users, and it launched service in Hong Kong as well as a Portuguese-language site for Venezuela and Brazil. Finally, as the year came to a close, it announced a deal with Wal-Mart to provide Internet access to customers of the giant retailer.
But the biggest news of all came on January 10, 2000, when Case announced his historic merger. His dreams would come true later the year in Decmember 2000, when U.S. antitrust authorities gave AOL the okay to buy Time Warner. They gave a number of conditions, such as having Time Warner open up its cable lines to competing cable providers, ensuring consumers have a wide choice of content. The resultant AOL Time Warner—worth about $290 billion—would produce books, music, movies, and other products for distribution over broadcast networks, cable TV, theaters, and the Internet. Offices would be relocated from AOL’s in Dulles, Va., to those of Time Warner in New York. And Case would become chairman of the new company while Gerald Levin—the former HBO leader who had ultimately risen to the top of its parent company—would serve one step below him as chief executive.
After two decades, Steve Case and his ideas had made it to the top.