I SAT SILENTLY at my desk after I hung up the phone. I don’t think I budged for an hour. I had no idea what to do, and I didn’t want to break the news to the others until I had some semblance of a plan. But what possible plan was there? Our whole strategy had been to team up with computer manufacturers, but now we were without Apple, our largest and most important partner. At some point, I had to just get up and alert the others. I gathered the troops in our conference room. It was like going through the five stages of grief all in the same afternoon.
First, denial. Marc was convinced the deal wasn’t really dead, that this was just a bluff in a game of poker we’d been playing for months. Then came anger, first at Apple, then each other. “Why did we have to be so goddamn rigid?” Jim yelled, looking straight at me. “We can’t expect to work with partners and get everything we want. It doesn’t work like that!” Then came bargaining. I stood at a whiteboard and wrote out a list of concessions we could offer Apple to get the deal back on track. Everyone called out suggestions. But by the time we were done putting the list together, we realized that none of us were really willing to make those kinds of sacrifices. “If we do it Apple’s way, we will fail,” I said. “But if we lose Apple, we could lose our investors. At the same time, I don’t know how we can make an offer like this and then look at our investors with a straight face. What’s the point of continuing on a path that’s going to fail?”
That’s when the depression set in. I couldn’t imagine how uncomfortable the next board meeting would be. Our investors had already taken a flier on us—twice. And several had pushed Jim to fire me for spending too much on the Apple launch. This surely would be the final straw.
We sat silently in the room, disappointed, frustrated, and fearful. We were at the end of the line, it seemed, and no one wanted to be the one to say so. Jim finally broke the silence.
“Here’s what we have to do, guys. Apple can’t just unilaterally cancel the agreement. We raised and spent millions to support the AppleLink launch. We need to threaten to sue them, and force them to pay us a settlement. Then we can use that money to stay alive until we figure out our next move.”
The next move was really the only move we could make. It was both obvious and terrifying. “We have to move beyond the private label strategy,” I said. “We need to create our own brand, propelled by our own marketing, paid for by us. Let’s combine all of our independent separate services—Q-Link, PC-Link, AppleLink, and Promenade—into one service.”
“Do we even have the runway for that?” asked Marc.
“No, but we need to find a way to raise the money to make the transition,” I said. “And the first place to focus is on getting as much money from Apple as we can. If they want a divorce, so be it. But they need to pay for it, so we can move ahead on our own.”
I left the room and went back to my office to reread the agreement we had signed with Apple. I jotted down all the commitments they had made that they were now reneging on. I huddled with Jim to figure out a plan. Then we took a deep breath and hit redial on my phone.
We told the Apple executive that we didn’t want protracted litigation over the breach of contract, that it wasn’t in either of our best interests to go down that road. And so we suggested a settlement: For a onetime payment of $5 million—the amount our venture capitalists had kicked in to support the Apple deal—we’d agree to void the contract. Otherwise, we’d file suit, and be noisy about how bad a partner Apple had been.
The response was tentative. The $5 million demand was rejected, but it was clear Apple recognized that they had culpability and liability and would pay us something to go away quietly. After a few weeks of back-and-forth and several trips to California, we finally struck a deal. Apple would pay us $3 million to tear up the contract. We’d stop using the Apple brand and go our separate ways.
Just a few years after pivoting from CVC to Quantum, we were once again starting over, this time with Apple’s cash. Our team rallied, working endless hours to make the new vision a reality. It felt, at times, like a moonshot. But it was ours, and we weren’t going to stop until we got it right—or ran out of money trying.
By then, our team’s mood had brightened. Fear was replaced by relief. Apple was a difficult, demanding partner, and for months we had been dealing with one crisis after another. Once the shock had passed and acceptance kicked in, people got back to work, filled with excitement about what we might build.
We had the chance to become the direct portal to an online world for everyone with a modem. It was a long shot—but what if it worked?
We didn’t know what to call it, and couldn’t afford to hire a branding firm. So we held an internal competition with our employees and debated the options for weeks. The leading choice was Online America, which most people generally liked but which never struck my ear the right way. “How about we flip it? America Online,” I suggested. It stuck. We renamed the service (and later the company) and suited up for launch.
The rollout of the AOL service was a little bumpy. Users had different computers and somewhat different needs, so it took us nearly a year before we got much traction. Our growth finally accelerated once we launched the Windows version. We were suddenly picking up users at a rapid clip, and they seemed to love our service. The press was intrigued as well; our coverage was wonderful. We were the underdog startup, fighting the big, entrenched companies. And we had a better sense of what consumers wanted, because we were living and breathing the service, not just relying on focus group research.
One afternoon, I was chatting with some of our employees at AOL’s headquarters in Tysons Corner about trying to make the software feel a little more friendly and accessible. There were still plenty of online skeptics, plenty of people who couldn’t understand what the Internet would offer them. It all seemed too impersonal, too detached from genuine social interaction. I knew that was wrong, both from my own experience and from that of our happy customers. AOL wasn’t limiting social interaction; it was magnifying it, making it possible to communicate to more people in more ways than at any time in human history. But we needed to listen to the concerns of the unconverted so that we could convince them to give AOL a try.
I had an idea. Why not make the service more personal by adding the voice of a person? Karen Edwards, one of the customer service team members, overheard me make the suggestion.
“If you need help with that, my husband, Elwood, does voice-overs,” she told me. “He’s done a bunch of radio commercials.”
I’d never met him, and didn’t know what his voice sounded like. But I figured it would at least be a good prototype, a sample we could play for other voice-over actors when we started auditions. So I scribbled a few phrases onto a Post-it note and handed them to Karen.
“See if he’s interested in recording these for us. Think he could get it done by the end of the week?”
“He’ll do it tonight,” she said. “I’ll make sure of it!”
The next day she brought the recordings to me. His voice couldn’t have been more perfect. It was disarmingly friendly, like the voice you’d expect from a stranger who offered to carry your grandmother’s groceries. The second I heard it, I knew we weren’t going to be auditioning anyone else. I instructed our engineers to add the voice files to the new version of our software.
Within a month, we were mailing CDs to millions of Americans, each containing our upgraded software and a message from Elwood.
“Welcome. . . . You’ve got mail.”
You could feel the excitement in the office as it became clear our pivot had been successful. The fear of going under had subsided, and our team was genuinely enthusiastic about our future prospects. After many years and several false starts, we had finally found our footing.
In the process, I emerged as the company’s leader. People appreciated the critical roles Jim and Marc had played to get us going, but the team increasingly looked to me for guidance. In January 1991, the board voted to make me the CEO. I was thirty-two.
My key focus was expanding our customer base. We knew tough competition was coming, so I pushed the team to go faster and grow faster. “It will never be easier or cheaper to gain market share” became my mantra. We slammed on the accelerator, dramatically increasing our marketing spending.
To raise money to fuel this rapid expansion, in late 1991 we decided we needed to take our company public. The board concurred, but there was a catch. America Online would be the first Internet company to go public. The market size was unclear, and the competitive risks significant. So the board quietly huddled and decided to reverse the CEO decision. They concluded that I was too young to be accepted by institutional investors who were used to much older CEOs.
Jim took me to lunch to break the news. “Everybody thinks you’re doing a great job,” he assured me, “but you’re young and untested, and most companies going public have much older CEOs who have long track records. So I need to step back in as CEO. You need to go back to being executive vice president.
“Don’t worry,” Jim told me, “it’s only temporary.”
I was devastated. Furious. I felt like I’d been robbed. I wasn’t an accidental CEO. I had earned the job painstakingly over time. And to be sidelined, not because of my skills, but because of a theoretical fear that investors would be skittish about my age—it all seemed totally preposterous to me. I thought about quitting. And when others on the team learned of the board’s decision, many offered to resign in protest. I was heartened by the support, but I knew that I couldn’t leave the company, and couldn’t let anybody else leave, either. I’d invested too much of myself into it—and so had they. So I let my dissatisfaction be known but ultimately chose to suck it up and stay.
In March 1992 we went public. At the time, we had fewer than 200 employees and a mere 184,000 subscribers. We had $30 million in revenue and had raised a total of $10 million over the previous seven years. We raised an additional $10 million in the initial public offering, at a $70 million valuation. Most institutional investors weren’t particularly interested in us, seeing us as a small player in a niche market. The Wall Street Journal didn’t even call AOL an “Internet company” or a “tech company”; in describing our IPO, they called us a “computer-based provider of consumer services.”
But the ride was just beginning. The IPO gave us not only capital to expand but also public visibility and a currency (stock value) that we could use for acquisitions. It also gave individual investors—ordinary citizens—the chance to be part of a fast-growing company, something that is all too rare today.
Our first post-IPO acquisition came to our attention through my brother. Ted Leonsis, the thirty-five-year-old CEO of Redgate Communications, had hired Dan’s firm to represent him in a transaction. The two got to talking and Dan suggested he introduce us. “You guys should really meet,” Dan said, “because you’re talking about the exact same stuff.” When my brother called me to set up the meeting, I told him that I’d already heard of Ted.
Ted was at the forefront of a lot of early digital innovation. He had been as taken as I was by the possibilities that the Internet offered. Ted once told the New York Times that “in ’84 and ’85, no matter what meeting I was in, I felt something cataclysmic was happening.” I could relate.
At Redgate, Ted produced some of the first multimedia CD-ROMs, as well as a pioneering shopping service (we didn’t yet call it ecommerce) that used graphics stored on disks to create a compelling visual buying experience (keep in mind, at the time most online services were text-centric). He had written three books and started half a dozen magazines focused on technology. What had gotten my attention, in particular, was Ted’s seemingly innate ability to envision and evangelize a digital future, something I was very focused on doing with AOL. So before I even sat down for breakfast with Ted, I was eager to make a move.
We had a warm and engaging conversation that lasted about ninety minutes. He was very impressive. After the waitress dropped off our check, I decided it was time to make an offer.
“I want you on our team,” I told him. “We’d be great together.”
“We probably would,” he responded, “and I’m flattered. But I love what I’m doing at Redgate and I couldn’t walk away from the company.”
“Ted, you misunderstand. I’m not here just to offer you a job. I want to buy your company.”
Ted has a great poker face, and he was careful to be noncommittal.
“Can we date first?” he asked.
But I knew I had him. Our visions were too similar for him to say no. I knew that what was coming out of his mouth belied what was going on behind those eyes. He was imagining what it would be like to use his skills on the biggest possible stage. It was only a matter of time.
Ted became one of AOL’s most influential executives. A few months after we closed on the acquisition of Florida-based Redgate, Ted agreed to move to the DC area to oversee the AOL service. Later, we put him in charge of our content efforts, where he acquired brands like Moviefone, created the Digital Cities local brand in partnership with newspapers, and launched one of the Internet’s first incubator and accelerator programs, called AOL Greenhouse. The strategy was to help develop new brands, then launch them with independent management teams and outside investors. The goal was to let them be nimble, while leveraging the AOL platform. Greenhouse helped launch dozens of brands, including The Motley Fool, a personal finance software, and PlanetOut, an LGBT-focused digital media company founded by Megan Smith, who would later become an early Google executive and, later still, the White House’s chief technology officer.
Seven months after our IPO, Walt Mossberg, a highly influential and widely read technology columnist then writing for the Wall Street Journal, penned a glowing review of our service, comparing us favorably to our biggest competitor:
Prodigy is huge, claiming 1,750,000 subscribers, but it has been aimed mainly at computer novices. It is taking some welcome steps to become speedier and more sophisticated. But at present I regard Prodigy as seriously flawed. Its navigation system is unusual and confusing, its text is clunky and moves at a snail’s pace, its content promises more than it delivers. And the service splashes distracting paid advertisements across the bottom of many of the information screens (including pitches for this newspaper and even for America Online).
In contrast, I see America Online as the sophisticated wave of the future among such services. Though it has just 200,000 subscribers and still suffers from some shortcomings, America Online features the type of graphical user interface, popularized by the Apple Macintosh and Microsoft Windows on the PC, that is sweeping all of personal computing. It uses overlapping windows to hold and display text that can be freely manipulated, menus of plain-English commands that can be selected with the mouse, and colorful icons you can click to quickly reach any of a wide variety of rich information databases.
That review was a tipping point in terms of how people viewed the online market. They took it—and us—a lot more seriously. We were still small; but now we were on the map. And our growth accelerated from there.
In the spring of 1993, Jim and I went to lunch a short drive from our headquarters. When the waiter came over, Jim ordered a bottle of champagne, the nicest on the menu.
“Are we celebrating something?” I asked.
“We sure are,” he said.
“Okay,” I said, with confusion in my voice. “What is it we’re celebrating?”
“You,” he said.
“Why me?”
“Because I’m stepping down and you’re stepping up.”
The waiter popped the cork and poured two glasses.
“You see,” Jim said, holding his up to toast. “I told you it would only be temporary.”
The board voted me back in as CEO. Over the next three years we grew to 4,000 employees and were creating 200 jobs each month. Within seven years, we had 25 million customers and were one of the most highly valued companies in the world.
For those of you who don’t remember or who weren’t old enough, it may be hard to appreciate how significant AOL’s role was in ushering in the Internet age. But in the late 1990s, AOL was the way most people did everything there was to do online. If you were online then, the odds are high that the first time you connected to the Internet, the first time you sent an email, the first time you did a search, the first time you received electronic news, the first time you bought anything online, the first time you heard music or watched a video online, the first time you saw, sent, or stored photos online, the first time you connected with friends online, it happened on AOL. For most Americans, AOL was, for its time, Google, Facebook, Twitter, Amazon, Spotify, YouTube, and Instagram combined.
AOL wasn’t the first service to connect people to the Internet, but we were the first to turn the Internet into a way of life. We were the first to allow millions of people to instant message with friends. We were the first to offer a complete shopping mall, anchored by major retailers. We were the first to partner with dozens of magazines and newspapers, kick-starting the dramatic transformation of the way journalists create and people consume their news. We were proud of these innovations. But at the core, what we built, and cultivated, was the first widespread online community.
I saw my role at AOL, in addition to my being CEO, as that of mayor of the online community we built. I was trying to get people comfortable with this new digital medium, trying to put a friendly—and human—face on it. In some cases, that meant small things, like the monthly letters I wrote to members for more than a decade, updating people on what we were doing, and highlighting new features. In others, it meant being the public face of a crisis while trying to solve it from behind the scenes.
I remember one early morning phone call particularly well.
“There’s a problem. We’re down,” Mike Connors, a buttoned-up IBM executive who had recently become the leader of AOL’s technology and operations team, said. “The whole site is down. Nobody can log in. Customer service is overloaded with calls from customers complaining. And it may take us a while to fix it.”
It was August 7, 1996, just a little more than four years after we’d gone public.1 AOL system administrators had just completed a code push, updating our software to cope with our growth. We had shifted from charging customers for the hours they spent on AOL to charging a flat rate fee for unlimited access. As a result, usage was soaring; we had added more than 1 million new users in the six months leading up to that morning.2
For our customers, there was no way to figure out what was wrong by checking out Twitter. There was no Google yet. Newspapers were still printing the word “email” with a hyphen and quotes around it, followed by a description of what it was. The World Wide Web was still a new concept. For most people, AOL represented their entire experience with the Internet.
At the time, AOL was the dominant Internet provider, handling nearly half of all U.S. traffic. So whereas today, when a service like Snapchat goes down, it creates a lot of annoyance, back in 1996, when AOL went down, it caused a national incident.
As the hours ticked on, the complaints flooded in. We got phone calls from consumers and companies that were paralyzed without access to email. A swarm of frantic engineers tried to isolate and fix the problem. But twelve hours in, the problem still wasn’t resolved. The story of AOL’s being down led the network TV news shows and was a front-page headline in almost every newspaper in the country. I did dozens of interviews, trying to explain how such a calamity could have happened—and when it might be resolved. In the end it took us twenty-three hours to get our systems back online.
It was a bizarre experience, and an incredible realization, all at the same time. After years of evangelizing the benefits of going online to an audience that rarely seemed convinced, watching the commotion was surreal. On the one hand, we had been under siege, trying to calm people down while we worked feverishly to get things back online. On the other, we felt this sense of excitement. What better proof that the Internet had entered the mainstream? Finally, after more than a decade of struggling, the Internet’s First Wave was gaining momentum.