Tech elites think AOL is dull as a dial tone. But with the company leaping into its broadband future, unsexy could equal unstoppable.
I was visiting AOL president Bob Pittman last time the company's death was foretold. It was spring 1999, and America Online, the world's largest Internet service provider and a newly anointed member of the S&P 500, was perceived to be in trouble. Big trouble - the kind that can sink a company living on Internet time.
The problem was broadband, the long-anticipated fat pipe into the home. With broadband finally in view - thanks to cable modems, DSL phone lines, and other new technologies - AOL, long mocked for having less-than-the-best Internet offerings, didn't seem to care about getting up to speed. Industry analysts and Silicon Valley competitors were once again charging that AOL's lowest-common-denominator style would be its undoing. And though AOL has always been derided for being square or clunky or slow, this time the detractors had a point. What was AOL's broadband strategy? Why wasn't the company hammering out a deal with, say, a major cable-modem franchiser?
As the noise level rose, AOL's public responses - amounting to a collective corporate shrug - were unsatisfactory enough that its stock began to dip. From April through June of this year, AOL lost more than 40 percent of its paper value, dragging the share price of other Internet companies down with it. The word "crisis" was heard in the ranks of mutual-fund managers and daytraders who pass judgment through their market moves. Lose their faith, and a company can lose in a blink one of the most important assets it holds: the constantly inflating stock value it needs to finance acquisitions and motivate option-obsessed employees.
Yet Bob Pittman, the 45-year-old programming wunderkind who helped turn MTV into a catchphrase and cash cow in the early 1980s, was almost cavalier about the situation when I met with him. In 1995, when Pittman was running the real estate franchiser Century 21, he accepted an invitation from Steve Case, AOL's high-profile chair and CEO, to join the online service's board of directors. A year later he accepted Case's offer to assume the presidency of AOL Networks, just in time to help the company through another major crisis, the "busy signal" debacle that occurred when AOL's 1996 move to flat-rate pricing lured more customers than its systems could handle.
This time around, the drawling, honey-voiced Mississippi native who learned to dodge bullets in the executive suites of midtown Manhattan seemed unfazed by AOL's broadband predicament. One source of comfort: his belief that the importance of cutting-edge technology is overrated. Pittman knows that AOL's strength is its huge, middle-of-the-road constituency, 17.6 million strong, who are reasonably content with the service they get. Most AOL patrons aren't going to become early adopters of cable modems or DSL lines; they're plug-and-play Net users who will enter the broadband era whenever AOL decides to take them there.
"Yes, technology's terribly important here, but the wow factor is long gone," he said, leaning across a glass-topped conference table in his sprawling office at AOL's northern Virginia headquarters. In his days at MTV, he added, the parent company was called Warner Amex Satellite Entertainment - Pittman dragged out "satellite" for exaggerated effect - "because satellite, if you put that in your name, it was like putting dot-com in your name today. It was high tech!"
As shocking as Pittman's blasé attitude appeared, it was justified by AOL's even more shocking success story. The company with nothing more than the dial tone, a GUI, and chat as a killer app had long ago become the leading online service. Stock fluctuations notwithstanding, AOL's fundamentals were (and still are) quite strong. The dull, slow-moving brontosaurus that tech elites love to hate doesn't really need their love: It has locked in 12 times more customers than its nearest competitor, AT&T WorldNet. AOL's revenue growth is stratospheric: up 66 percent in the quarter ending last March. Unlike many new economy companies, AOL actually operates in the black, its quarterly profits hitting $420 million in the same report. Its laundry list of recent acquisitions includes CompuServe, ICQ, Netscape, and MovieFone. Even its marketing slogans highlight the dominance: It recently announced the rollout of AOL Anywhere, an ambitious, own-the-future plan that will, in theory, deliver the company's services in multiple ways, allowing customers to check their email and carry their AOL Buddy Lists from PC to Palm to television to any device they want. AOL officials talk confidently about becoming one of the world's largest media operations, and to many Americans who spend time online, AOL has already become a fact of life, far more than just a company that connects people to the Internet. Indeed, for many people AOL is the Internet.
Not that Pittman was asleep at the wheel. He knows full well that technology has its merits. Only a few weeks after he dissed satellites, AOL suddenly got serious on the broadband front. In late June it announced a $1.5 billion cash investment - more than half the money it had banked - in the Hughes satellite division of General Motors, as part of a plan to offer high-speed one-way satellite broadband beginning early next year, and full two-way broadband service by 2003.
Maybe it was this deal, maybe it was Alan Greenspan's decision not to raise interest rates, maybe it was sheer luck - but AOL's stock price started to recover after the Hughes deal was announced, rising from a low of $90 shortly before the June 21 press release to more than $120 per share in mid-July. As it did, though, other challenges cropped up, giving fresh hope to the AOL-is-a-dinosaur crowd. Lately, securities analysts like Merrill Lynch's Henry Blodget have been arguing that AOL's subscriber growth rate might slow down in the next few quarters. In Europe, free online services like the UK's Freeserve are stealing market share before AOL has a chance to claim it. Ecommerce hubs like Amazon.com are threatening to grab control of online shopping, an area where AOL must become a major player if it's going to justify investor confidence over the long haul.
Worst of all, Microsoft had begun leading an assault on a big part of AOL's killer app, its Instant Messenger service. Microsoft, along with Yahoo! and Prodigy, had found a way for its customers to track AOL Instant Messages and Buddy Lists without using AOL's software. Its proprietary stranglehold on chat threatened, AOL closed off access to the three usurpers, in a heavy-handed response that begat a coders' war and chipped away at the "openness" pedestal AOL had claimed in its fight with the cable industry.
After suffering through a week of PR hits, AOL announced in late July that it had formed a committee - whose members included Marc Andreessen, Steve Jobs, RealNetworks' Rob Glaser, and Novell's Eric Schmidt - to advise the Internet Engineering Task Force on development of an open messaging standard.
Could the brontosaurus stumble into a tar pit and perish after all? Possibly. But don't bet on it. What's more likely is that it will slowly, ploddingly eliminate every threat in sight.
Companies have personalities, and the most vivid corporate personalities of the new economy tend to be a little warped and sharp-edged. Think of the paranoia that marks Andy Grove's Intel, or Bill Gates' and Microsoft's relentless desire to defeat opponents with a force disproportionate to the threat.
If Intel and Microsoft seem strangely menacing, Steve Case's AOL seems ... strangely unmenacing, a place mixing an unshakable confidence with a wooden Beltway earnestness. Observers who can't get past AOL's relaxed, almost lackadaisical air usually miss an important attribute - its ability, one former employee says, "to survive the most nuclear, tectonic events." As former AOL chair and CEO Jim Kimsey put it shortly after the company's founding: "We're like the New York cockroach."
AOL's mass-market style and its unsophisticated look may not be sexy, but they're keys to its success. Over the years, the company has masterfully created a likable, homey interface for its customers. When you look at AOL today, you're looking at the future of the Internet: where technology companies riding cool new hacks succumb to relentless marketing machines that are endlessly patient about building brand loyalty.
The AOL campus sits in Loudoun County, Virginia, in an old farm field just a few miles from Dulles International Airport. The nearest town is Sterling, but in true exurban style AOL uses the more familiar Dulles as its mailing address. Either way, it's not an exciting locale: One AOL exec I spoke to derisively pronounces it "dull-ass."
The main building, now home to AOL's corporate and executive staff, is all glass, thin stone slabs, and stainless steel. Everything about it screams defense contractor; an earlier tenant was British Aerospace. Behind it are two buildings - vaguely Frank Gehry-ish in appearance and with more open floor plans - labeled CC1 and CC2. These are the "creative centers" where most of the staff works.
Inside these buildings, the halls are filled with youthful employees who dress casually but look slightly better-scrubbed than their peers in Silicon Valley. The usual symbols of Internet energy are missing, and the absence of pets and loud music creates a weird silence. In striking contrast to the Valley, there's even a smell of perfume in the air, thanks to the cologne wafting from nearly every male executive I meet. The campus is a cocoon, reinforcing the occupants' sense of invulnerability.
As is true with Microsoft, AOL's isolation helps define workplace culture. There's a Wal-Mart across the street, but there are few nearby shops or restaurants, making a long car trip a necessity for even the simplest errand. AOL tries to liven things up by, among other things, inviting vendors in to hawk jewelry and other goods from hallway tabletops. (Last Christmas the children's toy vendor was particularly popular.) The AOL mission statement, emblazoned on the wall of the main lobby, accentuates the torpor: "To build a global medium as central to people's lives as the telephone or the television ... and even more valuable." It's not poetry, but it has kept AOL on course for nearly 15 years. The statement's author: Steve Case.
Case's office occupies a corner on the fifth floor of the headquarters building. During my first visit with him, I saw a stack of books resting near the edge of his giant oval desk. Among the titles on display were Joel Garreau's Edge City, Direct From Dell, The Motley Fool Investment Guide, The Servant: A Simple Story About the True Essence of Leadership (a business self-help book set in a Benedictine monastery), and George Stephanopoulos' All Too Human.
Reading a lot, Steve? Well, not exactly, and Case said I was wasting my time if I looked at the titles for clues to his personality.
"I wouldn't do any psychoanalyzing," he said. "One of the things that happens when you're a CEO is that people send you things. But I'm not necessarily reading those." Pressed, he admitted to having "picked up" the Stephanopoulos book, but he demurred on having any opinion of it.
In recent years AOL has tried to present Case as a lively elder statesman of the information industry, and he plays the part as scripted, but he's partially handicapped by physical appearance and personality. Gravitas, if it ever comes, lies years in the future. At 41, he's a remarkably youthful, even adolescent character, with a placid unlined face and cheeks still round with baby fat. His eyes don't look lived in. They're missing the flickers of emotion - passion, intensity, anger - usually found in someone whom others call a visionary.
But if Case's outward demeanor lacks the impact of Steve Jobs' or Andy Grove's, like those men he's managed to imprint his personality on his company. AOL is an invulnerable survivor because Case is one, too.
"He's like one of those Saturday morning cartoon characters, like Gumby," says a former colleague, describing Case's ability to absorb blows and bounce back. "His feet stay grounded, and he can twist like a human contortionist."
He's also earnest in a Mr. Smith Goes to Washington way that's hard not to like. A few weeks after our first conversation, I watched Case speak at the National Press Club, where he addressed a liberal audience - the Leadership Conference on Civil Rights - on a topic that was part geek, part wonk: "Using the New Medium to Build One America in the 21st Century: Challenges and Opportunities."
Working the crowd beforehand, Case spent much of the conversation talking about his appearance the previous day at a White House conference on youth violence, called in the wake of the Columbine High School massacre. He also took the chance to hobnob with another luncheon guest, FCC chair William Kennard, a man he had been lobbying intensely to pass rules that would give AOL access to broadband cable systems.
Whenever he stopped to listen to someone else talk, Case set his face into an impassive mask, turning his mouth into an inverted U. The only physical sign of the discomfort felt by this shyest of public CEOs was the way he steadied himself by clasping his hands behind his back, rhythmically squeezing the left with the right.
"I prefer being a more private, anonymous person, and certainly my family would prefer that," Case told me afterward, as we rode back to Virginia. "If I could sign a pact and be able to do what I think is necessary to build the medium without ever having to be on another magazine cover or do another TV interview, that would be preferable." After a pause he added: "But I do think it would be tragic and sort of selfish to say, 'I've made a lot of money, and the company's going OK, so why don't I just hang it up and put my feet up?'"
On the Case spectrum, this was a rare moment of introspection. It came at a time when criticism of AOL's broadband strategy, or lack thereof, was starting to peak, especially in the wake of AT&T's successful trump of Comcast's bid for cable franchiser MediaOne.
This battle between two of the biggest cable companies for control of a third had included a fleeting conversation between AOL and Comcast about combining forces in a last-minute counteroffer. The theory expressed in news reports was that a partnership with Comcast might help AOL gain a foothold in cable that it could use to leverage a broadband deal with Comcast's industry peers. That was an iffy proposition at best. But when AT&T won out, AOL was depicted as one of the losers in the deal. Speaking with me, Case seemed intent on projecting just the opposite - that the perceptions about his company were wrong. That they were always wrong.
"The articles that say we're the dumbest guys anybody has ever met and we're destined for the Internet trash heap are almost encouraging, in a bizarre way," Case told me. "One, they keep the company on edge, which I think is important, as opposed to getting cocky and complacent. And second, I look at it with a bit of detached bemusement, because I've seen this enough times to know that the harder they fall, the faster they rise."
"Said another way," Case concluded, settling back into the Lincoln Town Car's leather seat, "if we're dumb today, we're likely to be smart tomorrow."
AOL grew out of the dregs of a nearly bankrupt online game vendor called Control Video in 1985, and it honed its survivor's instinct during a seven-year struggle as a small private firm, chasing much larger competitors owned by giant public companies.
AOL lacked resources, but like most small-fry startups it also was free of the bureaucracy that slowed decision-making at its early rivals. Thanks to Case - AOL's young marketing vice president, who had been hired from Pizza Hut into the lowest rung on the ladder of the Control Video marketing department - it was also closer to its customers than any of them.
The corporate chieftains at IBM and Sears, for example, shared Case's vision, propounded in the memos and strategy papers he showered on his boss Jim Kimsey, that the online world was destined to be a mass-market phenomenon. They spent billions on Prodigy in an unsuccessful attempt to create that market from scratch. But what they lacked was a taste for Pizza Hut. They never spent a lonely night in Wichita, Kansas, dialing in to computer bulletin boards from a Kaypro, as Case had when he was sent to the heartland to test toppings for his old employer; they didn't have an ingrained sense of what the masses would want. Years before AOL was even launched, the unmarried young marketer was obsessive about a medium then used only by obsessives. Today Case's customers are more mainstream, but the obsession remains.
"It's like Steve is the only user," says someone who has known him for years. "He's a very lonely man." Perhaps his chief insight, then, was understanding that America was a lot like him - a nation of lonely people who would get off on being able to talk, flirt, and have sex (always a huge part of the AOLexperience) with strangers thousands of miles away. And the implacable mask he presents in person also seems to have served over the years as a protective shell, allowing Case - and by extension, his company - to survive personal and professional crises with few outward signs of damage.
Lucky timing was a factor, too. AOL came out of its fledgling years perfectly positioned to ride the Internet blastoff.
"The arrival of interactive services as a society-changing event happened to coincide perfectly with AOL's presence as the only pure play in the business," says one former AOL executive. Between 1992 and 1996, as competitors like Prodigy and CompuServe stagnated, AOL's annual revenues rose as if on autopilot, nearly thirtyfold, from $38 million to more than $1 billion. During the same period, its stock value grew 23 times larger. As the Internet boomed, AOL began its controversial disk spams, peppering consumer mailboxes with waves of free trial offers and adding customers at an even more phenomenal rate.
But go-go growth also brought on operational woes. In 1994, AOL purchased an insignificant CD-ROM company named Redgate Communications, which was run by Ted Leonsis, a heavyset, outspoken character whom Case would install as his right-hand man and president of AOL Services Company. If Case was AOL's id - "blindly striving," as Freud wrote, "to gratify its instincts in complete disregard of the superior strength of outside forces" - Leonsis quickly became its ego. He brayed loudly and repeatedly that AOL was now a media company, one that would soon assume its rightful place alongside Hollywood and New York, with "studios" pumping out hit online "shows" destined to surpass Seinfeld.
Unfortunately, the aggressive, free-spending approach to marketing spilled over into other areas of the business under Leonsis' command. By 1996, a hiring spree had added more than 3,300 employees to the company in one year (in 1997 and 1998 combined, a more disciplined AOL hired only 2,700 people). At the same time, the company's revenues, primarily drawn from hourly access charges to its customers, were under pressure from Internet providers like EarthLink offering a flat monthly fee.
"Ted was never a budget guy," sighs a friend about Leonsis' solo reign as president of AOL Services. Chaos reigned, on a scale that makes today's perceptions about a broadband crisis look minor. The company that seemed to anticipate the online phenomenon better than any other was being called the world's most dysfunctional organization.
"Once I was inside AOL it was impossible to do anything," says one former executive who arrived shortly after Leonsis.
"Things started to get sour," chimes in another, pointing to the nine months from fall 1995 through summer '96. "It was obvious that we had hired a lot of shitty people, and that we were spending way beyond our means."
In 1996, when the company finally decided to jump on the flat-rate bandwagon, the infamous busy signal crisis ensued. The stock spiraled downward, and Wall Street ratcheted up its attacks. Insiders who once considered AOL immortal were suddenly comparing it with tech companies like Wang, which had succumbed to terminal illnesses.
The Leonsis regime ended with the late 1996 reorganization of AOL into three divisions and the appointment of Bob Pittman and Bruce Bond as division presidents and Leonsis peers, all three reporting to Case.
When the recovery began, in early 1997, one person more than any other would receive the credit: the new president, Pittman. If Case and Leonsis created an unbounded AOL ego, Pittman became its conscience, leaning on AOL's indestructible core while applying a whip hand to its dysfunctional urges. During the first full fiscal year of his regime, hiring slowed and a focus on new revenue became paramount. Marketing expenses as a percentage of revenue actually dropped between 1997 and 1998. Under Pittman's command, there's been a relentless focus on advertising and ecommerce deals (driven initially by the need to make up for the lost hourly fees). By April of this year, AOL was on pace to haul in more than $1 billion annually in ads and ecommerce. These changes helped reverse AOL's stock slide, and then some. During Pittman's tenure, AOL shares have split three times and risen from a pre-split low of $27 to their current lofty levels, making everyone around him much, much richer.
The fast ride has made Pittman a star inside AOL, and he knows it. "Bob Pittman," says one insider who watched his ascension at the company, "is literally - particularly in his own mind - in a completely different galaxy from everyone else."
Perhaps the true measure of Pittman's perceived value at AOL today can be seen in the ongoing effort by board members like Kimsey and vice chair Ken Novack to make sure he doesn't leave. When he first arrived at the company, many insiders believed it would be a short-term assignment, that Pittman was merely using the company as a pit stop on his way back to Manhattan.
"I think Bob now sees this as the fulfillment of his career in consumer businesses," says a hopeful-sounding Novack. "Bob has already been with AOL longer than anybody would have thought." Kimsey, who has cultivated a social relationship with Pittman and his new wife, says, "I spend a lot of time trying to make sure he puts his roots down here in DC ... I want to make sure he doesn't whistle up to New York every weekend."
Even Pittman sounds a bit surprised at the length of his current tenure. He even extols the virtues he and his wife have uncovered in the Virginia countryside. "We've got a lot of time to spend at home, and it's pretty quiet. You can go to the movie theater and not have to wait outside in the rain for 30 minutes for the doors to open," he says, as if to convince himself as much as a listener that there are advantages to life outside Manhattan. And he insists that Novack's instincts are correct.
"This is the last stop on Bob Pittman's train," he says. "I'm committed: I'm not leaving anybody in the lurch."
AOL is not the first place Pittman has displayed the impeccable instincts of an actor who always finds the spotlight. During his MTV days, he drew fire for portraying himself as the channel's "creator," a claim he later backed away from. The incident helped earn Pittman a reputation in New York media circles as an aggressive self-promoter who did not always deserve the laurels tossed his way, a master of turning perception into reality.
There's a faint echo of Pittman's earlier life in the physical surroundings of his office at AOL. The pastel rugs and furniture, the strategically placed bamboo screens, and the heavy glass-topped conference table reminded me of a 1981 lifestyle story in The New York Times about Pittman and his first wife, the socialite and mountain climber Sandy Hill Pittman. Bob, the Times reported, was the "modernist" of the two, "preferring hard-edged pieces and a cooler, more industrial aesthetic."
Pittman lived a highly public social life throughout the '80s - New York Magazine named him and Sandy "The Couple of the Minute" in 1990 - but his professional life wasn't keeping pace. MTV grew into MTV Networks with the addition of VH1 and Nickelodeon. But when Warner sold MTV Networks in 1985, Pittman began to drift.
There was his aborted attempt at entrepreneurship as an independent television producer, for example, shortly after the MTV sale, running an outfit called Quantum Media. When he sold that company to his old Warner boss Steve Ross, the charismatic chair of the newly merged Time Warner named Pittman an "executive adviser."
His colleagues there were soon annoyed by gossip items that said Pittman would replace them - them being nearly every senior Time Warner executive. The problem, says one highly placed source who was at Time Warner during this period, was that "Bob had a non-job. No one at the company at the operating level could stand him."
"The reason is Bob is a very bright, verbal guy, and he's got a lot of opinions, and a lot of them are pretty good," this person explains, "but he was always pontificating about other people's businesses. There were always rumors around New York that Steve [Ross] was going to send him down to take over for Michael Fuchs at HBO, for example, which was never going to happen in a million years."
Instead, Ross warehoused Pittman for nearly two years, before finally buying the Six Flags amusement parks and appointing Pittman to run them in 1991. Pittman was credited with a turnaround of the struggling Six Flags, the first real success he had enjoyed since the days of MTV.
By 1995, when he met Case, Pittman had fallen out of media altogether and was running Century 21 at the request of its owner, Henry Silverman. An AOL board seat couldn't have looked better when Case offered it - northern Virginia wasn't glamorous, but it also wasn't real estate.
As a director, Pittman turned on the Southern charm and regaled a board short on consumer marketing experience, and executives short on media savvy, with tales of his previous triumphs. "At board meetings, Pittman would say 'At MTV we did this' or 'At Six Flags we did this' - he talked about his old jobs all the time," remembers one attendee.
In October 1996 - at the board's behest as much as Case's, according to company insiders - Pittman, while retaining his board seat, became president of AOL Networks. Spun publicly as a solution to the ongoing busy-signal crisis, the reorganization made Pittman part of a three-man team - along with Leonsis and Bruce Bond, head of the ANS networking division - that reported directly to Case. By February 1997, everyone but Case reported to Pittman.
It was a move some insiders had anticipated from the moment Pittman arrived in his new job. "The joke," says one person recalling the internal chatter, was how soon Pittman would "kill" Bond (who did, in fact, leave) and then "in a friendly way, say to Ted, 'You're going to work for me.'"
Pittman had handled his relationship with Case far more delicately; he couldn't, after all, simply displace the visionary who had given the place its identity. In their public comments about each other Pittman is properly deferential, Case properly complimentary. But at the beginning there was an ego clash.
"They don't particularly get along very well," says someone close to both, and the fact that Pittman was being seen as a savior both internally and externally only exacerbated the tension.
There were also issues of personal style. At the management level, Case was often an opaque presence, whose elliptical response to conflict frustrated many who worked for him.
"Pittman is direct," says a diplomatic Ken Novack, trying to explain the contrast between the two men, "and that made it possible for us to disagree on things." Others say Novack, an attorney and longtime adviser to Case and Kimsey (who calls him "the consigliere"), helped smooth out the differences. Like every good consigliere, Novack deflects the praise. "I think what's happened is that as they've worked together they've built a gut-level trust that is really complementary," he says.
Pittman's account of his repair of AOL's dysfunction manages to sound gently self-deprecating and slyly egotistical at the same time, without divulging any details. "You know, we had to open up other revenue streams, and we had to sort of realign costs, and focus and stuff, but that's not a problem," he says. You're left wondering whether he didn't do very much, or whether he just told you that even the most challenging tasks were a breeze. Behind the easygoing facade, however, it turns out that Pittman is more of a numbers-oriented geek than his '80s socialite persona would suggest.
"Bob is one of the best financial deal guys I know - he is as likely to come up with the financial structure as I am," says Miles Gilburne, an AOL vice president and former venture capitalist who helped piece together AOL's acquisitions of ICQ and Netscape, among others. (Gilburne and fellow vice presidents David Colburn and Myer Berlow have been labeled the AOL negotiating "Dream Team." Dinner with the three was on the docket in a charity auction last summer at a conference for Net executives.) Pittman also spends a large chunk of his time poring over AOL's internal research, trying to sniff out patterns and uncover questions about what the company's audience is up to. "I am a research maniac," he admits. "Every decision you make is an instinctual decision. But the question is: What conditions your instinct?"
One venue where he asks those questions and enforces discipline is his Wednesday staff meeting. "The other day I told someone, 'I just walked out of a meeting with Pittman, where I got the shit kicked out of me,'" Ted Leonsis says. Leonsis is now one of five division presidents reporting to Pittman; his revamped AOL Interactive Properties Group contains younger Internet subsidiaries like ICQ and the recently acquired MovieFone.
"I've never heard him once say 'Nice job,'" Leonsis adds almost wistfully. "I think that speaks volumes for the culture and the way the company is set up." AOL may have 17.6 million users, but the drumbeat from the top, according to Leonsis, is "we have 60 million, 70 million customers left to go. If we're so good, why doesn't everybody have us?"
Those questions are also frequently posed in Instant Messages. AOL executives, like those at Microsoft and most other new economy companies, often trade elaborately argued memos via email. But they communicate just as frequently via IMs, which, because of their informality, often stray far beyond the latest deal or research report. "There's an undercurrent of Instant Message gossip that is just staggeringly fast and efficient," says one former participant. "Everyone in the management tier knows what's happening to everyone else instantly."
Pittman likes to claim that because AOL has "a remarkable number of executives who will never have another job, it really reduces the palace intrigue. They're all already rich because of the stock. So there's really no need for the sort of political maneuvering you get at companies where people are trying to climb up the ladder." But former insiders say just the opposite is true - that because most of the senior executives aren't going anywhere, the jockeying for position and for the boss's ear is only more intense. One person calls it "the Court of Saint James," where "who's in with the queen, who's not" can become an end in itself.
The future at AOL - the post-CompuServe, post-Netscape, post-ICQ-acquisition AOL - is about maintaining dominance as the overall Internet market expands. Getting to the 70 million customers that Ted Leonsis talks about can't happen, however, unless AOL can reach past the PC. Which is where the AOL Anywhere marketing campaign comes in.
"The biggest opportunity is to extend the brand beyond the PC, and create new subscriber revenue streams on top of existing revenues," says Hambrecht & Quist analyst Paul Noglows. That's why AOL is rolling out not only versions of its software for devices like the Palm, but new services like AOL TV that extend the brand. AOL TV is a selection of AOL services customized for the new era of interactive television; the hope is that consumers will pay an extra monthly fee to gain access to AOL-produced chat rooms and electronic program guide information via their television sets. (In addition to the broadband data services for the PC, the deal with Hughes will bring AOL TV to DirecTV customers.)
If all this works, it would help free AOL from the shackles of Microsoft. Ninety percent of AOL's customers use a Windows PC, making a productive relationship with Microsoft a strategic necessity. But based on the evidence and testimony in the Microsoft antitrust trial, that relationship is more strained than ever. According to a midsummer 1998 email from a Sun executive recounting a conversation with AOL's Barry Schuler (uncovered by Microsoft's attorneys), AOL Anywhere is largely about "breaking [AOL's] 'deadly embrace' with Microsoft and enabling them to quickly deploy new AOL services across multiple existing and future devices."
Maintaining the dominant position allows AOL to exploit a very old media model, by convincing marketers to take advantage of the huge audience it controls through its client software. In traditional media terms, of course, 17.6 million people having 17.6 million different experiences - which is essentially what happens on AOL after you move past the first popup ad and the opening screen - is a fractured, hard-to-categorize group. Particularly when compared with 26 million people having one experience, which is the kind of audience a Seinfeld commands.
Those hit television shows have become ever more valuable in the multichanneled world of cable and satellite, even while commanding smaller and smaller audiences (a vast majority of Americans watched I Love Lucy, for example, while only a minority watched Seinfeld). The fracturing of audience begun by cable is already worsening thanks to the Net, leaving AOL, even with its fleeting control of eyeballs, with one of the biggest audiences in any medium. "The only folks ahead of us in the media business today in advertising are probably the big broadcast networks. We're ahead of the cable networks now, and the print publications," Pittman says confidently, repeating an argument he made 15 years ago when cable first made its inroads on broadcast.
Gaining another piece of software that could control audience was a major factor in AOL's multibillion-dollar acquisition of Netscape and its browser - but not for the reasons Microsoft and its lawyers might think. From AOL's perspective, the Netscape browser didn't need to be a stand-alone revenue source. Giving away software to draw customers has always been AOL's game. "The real model is the client," one AOL exec told me, "and you can backfill the portal with a connected client." In other words, the value of Netcenter, the Web site, depends on its link with Communicator, the browser.
The browser will also function as the client for a new Internet product in the UK. Competitors like Freeserve, a spin-off of Britain's Dixons electronic store chain that offers free dialup access, have become enormously popular because they let consumers escape high per-minute charges for local phone calls in Britain. (Freeserve tries to make money on advertising and ecommerce revenues alone.) AOL, in a defensive move, announced last July that it would offer its own Netscape-based freebie in the UK, including email and Web access but none of the proprietary content on the AOL service itself.
Preserving its eyeball edge is also the motivation for AOL's increasingly aggressive lobbying efforts. In January, senior vice president for global and strategic policy George Vradenburg - a lawyer whose previous employers include CBS and Fox - announced the formation of a political action committee. And throughout the first half of 1999, AOL ratcheted up a vigorous campaign at every level of government to break up the cable industry's exclusive deals with high-speed Internet services like Excite@Home and Road Runner.
"This is an old media battle being fought by new media companies," says Blair Levin, a consultant on the other side for cable broadband provider Excite@Home:Levin suggests that AOL is using government to slow down Excite@Home's deployment, and trying to force cable companies to cut a deal. Will it work? So far, influential policy mavens like the FCC's Kennard have, for the most part, argued that the status quo should hold, and that local governments should not impose their own rules on cable Internet service.
Some observers say AOL's Hughes satellite investment, like its lobbying, is another bargaining ploy. "It's leverage," says Yankee Group analyst Bruce Leichtman. "They wanted to make a loud statement to the cable industry that says, 'Hey guys, here we are!'"
But suppose for a moment cable doesn't knuckle under - can Excite@Home or Road Runner or a much-rumored combination of the two become a real threat? AOL seems willing to wait to find out. The @Home exclusives with most cable companies, for example, come up for renewal in 2002. AOL plans to be around much longer than that. "There are a lot of people here who think this is a 100-year company," one AOL executive tells me in an unguarded moment. Ted Leonsis puts it more succinctly: "We can be the world's largest company!"
Even Steve Case, the original survivor, occasionally emerges from his shell to consider the future. His policy speeches in recent months have focused on the legacy of the medium, although like President Clinton he tends to shun Rooseveltian calls to arms in favor of limited do-gooder proposals and vague self-help phrasings. "Let's just take a moment to try and project what some of it might be," he said when I asked him about his policy goals. "Some will be good and some of them will be bad, and let's try to maximize the probability of trying to get the good stuff and minimize the risk of getting the bad stuff."
So what does he want the legacy to be?
"I guess," he says slowly, pausing as if he had never considered the question before, "I don't care quite so much if they have positive things to say. But I would care deeply if they had negative things to say." Telling me this, Case looks almost pensive for a moment. Much like the cartoon dinosaur Barney, his immensely popular AOL seems to attract the most visceral forms of ridicule. And like Reader's Digest it will always be dismissed as mass-market pabulum. But at least AOL will be around, as Case, in his inimitably flat style, makes clear.
"So far it's been an interesting journey," he says. "And I think it will get even more interesting as we really, in the next 10 years, you know ... really kind of take hold." Ahem. You heard it here first.
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