Stealing Time

Abstract: The book "Stealing Time" describes the growth of America Online and the events leading up to, and immediately following, its merger with Time Warner. The personalities involved are also covered, and as in many other corporate fiascos, they are fascinating, if more than a trifle repellent.

 

About the Author: Alec Klein is an investigative business reporter for The Washington Post who covered AOL Time Warner for more than two years. He previously reported for the Virginian-Pilot (Norfolk), the Baltimore Sun, and The Wall Street journal. A Phi Beta Kappa graduate of Brown University, he is also a playwright.

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Although he described himself as having previously worked with Pepsico as a 'marketing manager' his job with the company had involved tasting new pizza flavors at small pizza outlets across the country. In a display of good old-fashioned nepotism, Dan Case recommended to von Meister that he hire his younger brother to take care of marketing for the company. Von Meister, sensibly enough, acquiesced. However, this earned Case the nickname "Lower Case" - "Upper Case" being big brother Dan. Von Meister believed that, in the modem he invented, he had "the consumer electronic product of the decade". He was probably right, but the Control Video modems bombed in the market. Of the 40,000 modems shipped to retailers, 37,000 were returned unsold. The company was in serious trouble, having burnt through 20 million dollars in venture capital funds, with just 20,000 dollars in revenue. The investors in the company then brought in Jim Kimsey, a former army ranger, to turn things around. Kimsey brought order to the chaos created by von Meister, and remained as CEO with the company till 1992.

In that year, Steve Case became the CEO, while Kimsey retained the position of Chairman. Control Video became Quantum Computer Services Inc. in 1985, offering an online service that would allow consumers to receive news and other information through the PC, and also allow them to chat with each other using text messages. Thus was born the online community that would drive the growth of America Online. In 1991, when the service had around 150,000 customers, Quantum was officially rechristened America Online Inc.

The service really took off only after April 1993, when Jan Brandt, who had joined the firm as the marketing executive, began marketing the service by making free AOL disks available everywhere. By the end of 1992, the service had 300,000 subscribers. Within a year, this increased to 500,000, and by 1997, it had ten million subscribers. By the end of 1998, the market capitalization of the company touched $63 billion, and the stock became a part of the S&P 500 index. AOL had become a major technology stock. While the company's growth was spectacular, there were also fears that it could become an acquisition target for Microsoft. AOL's Business Affairs division, headed by David Colburn, aggressively pursued deals and ran roughshod over customers in its rush to boost revenues and attain the size and strength required to fend off the 'evil empire'.

At the height of the dotcom mania, an association with AOL was believed to increase the legitimacy of many of the decidedly 'iffy'ideas that were being turned into business plans by countless aspiring tech-millionaires. Many of the customers who came to negotiate terms for advertising on AOL were young, inexperience people barely out of college, with ideas funded by venture capitalists who had temporarily discarded conventional business wisdom for the virtual wonders of cyberspace. AOL forced these start-ups into advertising deals that were incredibly lucrative to itself - at least at the start. As the boom turned to bust, many of the advertisers who had entered into these deals were bankrupted by the enormous marketing costs, leaving AOL with a hole in its advertising revenues.

Meanwhile, over at Time Warner, it was a different world altogether. Things were not looking rosy for the company. The whole world was talking about a digital future; but no one at the company seemed to have a clue as to how to get there. Companies like Time Warner were being perceived by the stock market as dowdy old has-beens, with little future in the Internet world where business, apparently, was conducted at the speed of thought. Time Warner's one foray into this brave new world, the Pathfinder project, which sought to bring all its divisions to the web under a common, neutral name, had failed miserably due to infighting and turf battles among the company's divisions. In such a dismal situation, the obvious solution seemed to be a merger with a company clued into the tech future. What better choice than AOL, the torchbearer for the connected world?

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