AOL Time Warner, Inc.
Steve Case is chairman of AOL Time Warner. Prior to the its merger with Time Warner, Case served as chairman and chief executive officer (CEO) of America Online, a company he founded that became the world's largest Internet service provider. More than any other business leader he has made the Internet accessible to the masses. Through his market–leading AOL, he was actively involved in the transformation of dial–up computer networking services from obscurity to a mass–market, multi–billion–dollar industry. By the end of 2000, America Online had 24.6 million subscribers, and the company was connecting more than 11 percent of the U.S. population to the Internet.
Case was born on August 21, 1958, in Honolulu, Hawaii. His father was a corporate lawyer, and his mother was a teacher. He has three siblings: an older brother, Dan, an older sister, Carin, and a younger brother, Jeff.
Case was an enterprising boy and was involved in a number of ventures with his younger brother throughout the boys' childhood. When Case was six years old, the two opened a juice stand charging customers $.02 a cup; many gave them a nickel and told the boys they could keep the change. For Case, it was an early lesson in high margins in business. Later, the brothers opened a company to sell products through a catalog and door–to–door. The two also shared a newspaper route.
While Case was a student at the Punau School, a private college–preparatory school in Honolulu, he wrote album reviews for the school newspaper. Although the position didn't pay, it did get Case on the mailing lists of several different record companies. He began receiving free concert tickets and promotional albums.
Case then attended Williams College in Williamstown, Massachusetts, where he was a political science major. While in school, Case ran the student entertainment committee, which organized campus concerts and produced an album of some of the best musical offerings. He also became the lead singer in two rock bands, both musically fashioned after two relatively obscure new wave groups, one being The Knack.
In 1980 Case graduated with a B.A. from Williams and went to work in the marketing department of Procter & Gamble. He left the company after two years, having realized he was not comfortable working for such a well–established corporation.
Case lives in Fairfax, Virginia, and is divorced from his wife, Joanne, to whom he was married for 11 years. They have three children. He enjoys reading social history and political science.
It was in his next job with the Pizza Hut arm of PepsiCo that Case first began to explore the personal computer. He was hired to work in new pizza development, which entailed traveling the country in search of innovative pizza toppings. He devoted his nights on the road to learning about the portable computer. He had bought a Kaypro CP/M personal computer and subscribed to The Source, one of the earliest online services. He was especially intrigued by the chance to talk with people around the world, which the service provided. Case's fascination with the world accessible by computer was the first step in what would become his lifelong passion. Regarding the pizza company position, however, Case once said in an interview with the Washington Post, "I learned a lot about the big corporation experience, and that was good. But a lot of it was about leveraging business and not about innovating. . . . It was all incremental rather than breaking new ground."
In 1983 Case's older brother, Dan, introduced him to the start–up business Control Video Corporation at an electronics show in Las Vegas. Dan, an investment banker, was excited about the company's first product, a service that delivered Atari video games to personal computers. Case was offered the job of marketing assistant, only realizing later that he had entered the company as the video gaming industry was dying. Control Video let most of its employees go but retained Jim Kimsey as chief executive officer. Kimsey, a former venture capitalist, retained Case to help him develop new capital.
Chronology: Steve Case
1980: Graduated with B.A. from Williams College.
1985: Co–founded Quantum Computer Services, Inc. with Jim Kimsey.
1991: Quantum renamed America Online.
1992: Became AOL's CEO.
1994: Acquired Booklink Technologies.
1994: AOL subscriber count surpassed 1 million.
1995: AOL became a publicly traded company.
1997: AOL gained 2.6 million subscribers from CompuServe.
1997: AOL subscriber count surpassed 10 million.
1998: Stepped down as AOL president while remaining chairman and CEO.
1999: AOL acquired Netscape Communications for $4.2 billion.
2000: AOL announced it would acquire Time Warner Inc. to form AOL Time Warner, with Steve Case as chairman of the new company.
2000: Received the Millennium Award from Columbia Business School.
2001: AOL Time Warner, valued at $219 billion, looked for ways to increase its overseas revenue.
2001: AOL had an estimated 31 million subscribers; announced expansion of cable services to China.
In 1985 Case and Kimsey began a new company, Quantum Computer Services, Inc., which provided online services for users of Commodore computers, then a leading brand of home computers. Quantum quickly grew, and two years after the company was started, Case worked out an arrangement with Apple Computer, Inc. to provide his online service for Apple's operating system and developing software for both the Macintosh and the Apple II. Soon, Quantum was signing similar deals with other companies, including Tandy Corporation and IBM, which was then the industry leader. Although this was undoubtedly progress, the company's overhead costs were prohibitively high, eating through the $5 million capital the company had received. In 1991 Quantum was renamed America Online (AOL), and Case was appointed chief executive officer, replacing Kimsey, who then became company chairman. AOL stock went public in March 1992, at $1.64 a share. The stock offering garnered $66 million for the company.
Case then focused his energies and the increased company revenues on usurping the two established leaders of online services—Prodigy and CompuServe. He developed a strategy for market dominance that included alliances with companies that would benefit AOL, dropping membership prices below those of the major competitors and shipping out huge quantities of diskettes to potential clients, offering them a free trial period for the service. Membership began to grow, jumping appreciably each month until the end of 1993, by which time it had surpassed the 600,000 mark. The company had a difficult time keeping up with such rapid growth, fore-shadowing the service problems that would plague it for the next few years.
That same year, Case warded off two attempted buyout offers—the first from Microsoft cofounder Paul Allen. Allen, who had already left Microsoft, had purchased a 24.9 interest in AOL and had attempted to secure a seat on its board of directors. The second buyout offer came from Microsoft head, Bill Gates, who would subsequently go on to develop his own online service, bundling it with his company's other popular software titles.
Case continued to explore new marketing strategies and either purchased or forged alliances with companies that would further its foothold in the online services marketplace. These included content agreements with the New York Times, Time, and the National Broadcasting Corporation (NBC). He also developed a distinctive, user–friendly framework for his service, which was both intuitive and graphics intensive. By the fall of 1994, Case was beginning to establish a way to link his service with the World Wide Web, an increasingly popular arm of the Internet. Until then, AOL was essentially a closed network, meaning that subscribers could only interact with content provided by AOL, its vendors, or other AOL subscribers rather than the provider–independent content associated with the Internet. The company first bought Advanced Network Services, Inc., which was experienced in building the fiber optic support needed to access the Internet. The December 1994 acquisition of BookLink Technologies and the following purchase of Global Network Navigator provided the means for AOL customers to browse the Internet with graphic browsing software from BookLink, which competed with Netscape's Navigator browser.
As fierce competition heated up between the two leading web browser vendors, Microsoft and Netscape, Case came under significant pressure to choose one of the independent browsers for use on AOL. Until that point AOL subscribers were mostly restricted to using AOL's proprietary software from BookLink, which lacked the performance and features of the leading browsers. Whereas Microsoft had made heavy overtures to AOL, Netscape, which many inside AOL management favored, had given AOL a chilly reception. Presiding over the largest single base of web users, Case was especially wary of signing an agreement with Microsoft, which had recently debuted its Microsoft Network, a competitor to AOL. Thus, in 1996 he pulled off a pair of stunning and controversial deals, in which he formed a nonexclusive alliance with Netscape to use its browser but made Microsoft's Internet Explorer the primary one used with AOL services. Although some Netscape executives characterized these actions as "slimy," these agreements proved favorable to AOL.
During this period, AOL continued to grow at an unprecedented rate, outpacing all its competitors in the number of new users. By 1994, AOL had more than 600,000 members; by March of the next year, membership exceeded 2 million and continued to rise meteorically until, by August 1996, it tripled to more than 6 million. Two months later, Case announced that AOL would begin to charge a flat monthly rate of $19.95 for unlimited access to its service. Prior to the institution of this system, customers were billed a monthly charge of $9.95 for their first five hours, plus $2.95 for every additional hour spent online. Customers complained, however, that under the original rate system, the company was rounding online usage time up to the next minute, rather than basing billing calculations on a per–hour monthly rate. In addition to changing the rate structure, Case offered AOL users a free hour of online time to compensate for the perceived unfairness.
To manage AOL's sprawling services, in 1996 Case brought in Bob Pittman, founder of MTV and reputed as a successful brand manager, to improve the company's customer service and better establish AOL as a consumer brand. This decision was seen as a partial retreat by Case on some of his earlier strategies. Pittman succeeded in stabilizing AOL by reducing subscriber growth to sustainable levels and improving AOL's customer service reputation. For his efforts, Case rewarded Pittman in 1998 with a promotion to president and chief operating officer of AOL. Under this arrangement Case relinquished his title as president while remaining chairman and CEO.
In 1997, AOL gained nearly 3 million subscribers from CompuServe, which had been acquired by World-Com from H. & R. Block. WorldCom traded CompuServe's subscriber base to AOL in exchange for AOL's network integration division. The deal also gave AOL access to about 100,000 more modems and discounts from WorldCom. AOL continued to operate CompuServe as a separate business. The acquisition raised AOL's subscriber base to 11.6 million.
During 1998, AOL's stock increased in value by 600 percent and even more in 1999. This greatly increased the market capitalization of the company and gave it the power to make more and bigger acquisitions. In November 1998, AOL announced it would acquire Netscape Communications for $4.2 billion in stock, about 10 percent of AOL's market value. Among the assets AOL acquired were Netscape's Netcenter, a leading Web portal, and its browser. As part of the deal AOL formed an alliance with Sun Microsystems to provide support for e–commerce ventures. By March 1999, AOL, Netscape, and Sun had formed an independent division, the Netscape Enterprise Group, to focus on building Internet–commerce applications.
Among AOL's acquisitions in 1999 were two Internet–related music companies, Spinner.com and Null-soft, for about $400 million in stock. Spinner.com was a streaming audio site, and Nullsoft was an MP3 software company. Analysts believed that the Internet music market would explode, once broadband access to the Internet through cable modems became more widespread.
In January 2000, AOL announced it would acquire Time Warner Inc. for approximately $165 billion in stock, with the exact value to be determined by the stock prices of both firms. The new company, called AOL Time Warner, positioned Case as chairman. Case became the new company's chairman, Time Warner's chairman Gerald Levin became the new CEO, and Turner Broadcasting System's Ted Turner, who had sold TBS to Time Warner in 1996, filled the vice chairman spot. The merger gave AOL access to 20 million homes connected to Time Warner's cable lines and 300,000 cable modems already installed in Time Warner's Road Runner network. As a result, AOL started to deliver its content through high–speed cable access as well as telephone lines.
On July 27, 2000, Case and Time Warner chairman Gerald Levin defended their plan to federal regulators in the face of accusations by competitors and consumers that the massive deal could stifle customer choice. The two men argued before the Federal Trade Commission in Washington that the merger would be good for consumers and serve as a catalyst to speed availability of high–speed Internet and cable access.
The acquisition was eventually approved, and by 2001, Case was looking at ways to transform his media giant into a truly global enterprise by significantly increasing its revenues from outside the United States. Speaking at a JP Morgan technology conference that year, Case told the audience, "I really do think that in the next 5 to ten years you will see that we are really serious about becoming a truly global company. You are going to see more aggressive investments and acquisitions," adding that AOL Time Warner expected to get half of its sales in the next 10 years from international markets. To that end, at the end of October 2001, AOL Time Warner announced that it had gained cable rights to provide service in China, making it the first foreign provider of cable programming to the country.
Social and Economic Impact
Case's important contribution to the information age was his vision of a mass–market online service, a vision that was translated into reality within a decade. Case understood—perhaps better than any of his counterparts at other online service vendors—how to obtain and market unique content that was broadly popular and accessible. His aggressive marketing strategies of mailing out millions of free disks and CDs to consumers and offering free introductory service helped create the largest service of its kind. More important, Case was an adaptive leader in the rapidly changing online services business; he was able to embrace new technologies and new business models as they presented a competitive advantage. The result was a multi–billion–dollar powerhouse, headed by a man who just turned 40 in 1998, in the still young online services industry.
While the impact of the merger between AOL and Time Warner has yet to be played out completely, clearly Case has once again foreseen the future of the Internet as connected to high–speed delivery of Internet content via cable modems. Time Warner had already converted 85 percent of its cable infrastructure to Internet–capable high–speed networks. Its Road Runner network had installed 300,000 cable modems, about one–sixth of all cable modems in the United States. As a result, the merger made AOL the biggest provider of cable Internet access in North America.
The merger of AOL and Time Warner also combined the power of mass media, represented by Time Warner's popular magazines (Time, People, Sports Illustrated, and others) and cable television service, with two–way interactive communication over the Internet. That gave the new company the opportunity to combine powerful commercial messages with online purchases and boost revenue through advertising and e–commerce.
Delivering AOL content through cable modems is part of Case's "AOL Anywhere" strategy that aims to provide content "anywhere, anytime, on any kind of device." Prior to the Time Warner acquisition, AOL announced it would invest $1.5 billion in Hughes Electronics Corporation, a subsidiary of General Motors and the parent of satellite television provider DirectTV. The investment would facilitate delivering AOL content to subscribers through high–speed broadband channels via satellite. Other plans called for delivering content outside the home on portable devices.
Sources of Information
Contact at: AOL Time Warner, Inc.
22000 AOL Way
Dulles, VA 20166
Business Phone: (703) 448–8700
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