Saturday, July 25, 2009

Eleven Years of Ambition and Failure at AOL


article by  SAUL HANSELL of


I’ve been writing profiles of AOL executives for nearly half of the company’s 24-year life. And for all but one heady 18-month period, they were on the defensive. AOL, they said, had the technology, content and love of its customers that would prove the skeptics wrong. That’s what Tim Armstrong said in the article I wrote in Thursday’s Times.

And the message is no different from the one in the first profile I wrote of the three top leaders of the company at the beginning of 1998: Stephen M. Case, Theodore J. Leonsis and Robert W. Pittman. The headline was “America Online’s Triumvirate in Cyberspace; The Service Provider Everybody Loves to Hate Changes by the Nanosecond.”

The cast of characters changed many times. And so have the specific battles: persuading newbies to buy dial-up Internet subscriptions, selling add-on services, coping with broadband rivals and finally shifting to free, ad-supported services in an age of search. But there also have been common themes: the attempt to exploit the prominence of the AOL brand, the quest for the sort of content that will lure customers, the challenges of rapid growth and then drastic contraction.

Most of all, there has been a sense of bravado, that AOL’s destiny was to lead the Internet. Here are some choice quotes from the company’s many leaders:

1998: Getting in gear

With the addition of Mr. Pittman to the management team, AOL had recovered from the period when it didn’t have enough phone lines for customers and was starting to rake in the advertising money.

“Our strategy has been in place for more than a decade…. The goal has always been to build a mass medium that is as important in everyday life as the telephone or television. How we execute the strategy has always been in flux.” — Steve Case

“When I first got here, I scared them, because I looked at the numbers so much.” — Bob Pittman, referring to AOL middle managers

America Online’s Triumvirate in Cyberspace; The Service Provider Everybody Loves to Hate Changes by the Nanosecond” (Feb. 16, 1998)

1999: Bravado

AOL was at the top of the world, and cocky executives were talking about extending their reach to television, mobile phones and computers.

“Windows is the past. In the future, AOL is the next Microsoft.” — Steve Case

“Hopefully, we will establish AOL as the most valuable and the most respected company….We won’t settle for just one of them.” — Steve Case

“If you really love AOL, would you pay $10 a month for AOL TV and five bucks a month to get your AOL e-mail on your Palm Pilot? I am loath to predict the future, but people pay 50 or 60 bucks a month for cable. I think people see us as comparable, so we have a lot of headroom to deliver value.” — Bob Pittman

Now, AOL Everywhere” (July 4, 1999 )

2000: The deal

Ten days after the dawn of the millennium, Mr. Case persuaded Gerald Levin, the chief executive of Time Warner, to allow AOL to buy the venerable media conglomerate for $165 billion. Ted Turner, the vice chairman of Time Warner, was excited.

“When I cast my vote for 100 million shares, I did it with as much excitement as I felt the first time I made love some 42 years ago….I voted for it because we will have a stronger company that will create value. It’s not so easy to go out and recreate AOL. No one has been able to do it so far.” — Ted Turner

America Online Agrees To Buy Time Warner for $165 Billion; Media Deal Is Richest Merger” (Jan. 11, 2000)

“I accept that something profound is happening in the Internet space — I believe that….New media stock-market valuations are real — not in every case, of course. But what AOL has done is get first position in this new world. Its valuation is real, and I am attesting to that.” — Gerald Levin

Medium for Main Street” (Jan. 11, 2000)

AOL’s stock dropped sharply in the months after the merger, because Internet investors were worried that Time Warner’s old media assets would drag the company down. Steve Case tried to talk up the combination’s prospects.

“When it comes to valuing the new company, it’s clear that AOL Time Warner will be an Internet-powered enterprise….That’s similar to other Internet-powered companies like Cisco and Microsoft.…I have no doubt that a year from now, AOL Time Warner will be seen as one of the must-own companies, and stockholders who invest now will be greatly rewarded.” — Steve Case

America Online Posts Gain In Second-Quarter Income” (Jan. 20, 2000)

The backlash was starting against AOL’s powerful online marketing unit, which would charge Internet start-ups millions of dollars for “prime real estate” on its service.

“We may be 800 pounds, but I hope we’re guerrillas with an ‘e’ — not gorillas. I don’t want an attitude in our group that we don’t have to try harder because we’re No. 1.” — Myer Berlow, the president of America Online’s interactive marketing unit.

 Not-So-Subtle Engine Drives AOL Profit Forecasts” (Jan. 31, 2000)

2001: Doubts emerge

With the merger consummated, AOL Time Warner starts to have difficulty meeting its growth targets.

“We had higher expectations for the economy and advertising than what turned out to happen….Once you make a commitment, you want to do everything you can to stand by them.” — Steve Case

AOL’s Problems Go Beyond Even Harry Potter’s Magic” (Dec. 7, 2001)

2002: Stalling

Amid a sharp decline in ad revenue, the skepticism of AOL returns.

“I am confident that AOL will re-emerge as the key driver of growth for the whole company….Maybe it’s perverse, but it’s more comfortable to be in the idiot zone and know the pendulum will swing your way.” — Steve Case

The Stairmaster of Mergers” (July 21, 2002)

James de Castro, a former radio executive, is put in charged of the AOL online service. He tries to restore morale by teaching spinning classes and piping rock music into the halls.

“There is some dead skin and dry skin you have to peel away to get to the beautiful skin…. Just like HBO made a real difference on Sunday night by putting on really fabulous programming, we can increase members’ satisfaction by becoming an entertainment medium.” — Jamie de Castro

New Software (and New Bosses) at AOL Unit” (Aug. 5, 2002)

By the end of the year Time Warner brings in Jonathan Miller, a former executive of IAC/InterActiveCorp, over Mr. de Castro’s head to run AOL.

“I do think in retrospect that we did take our eye off the ball as it relates to the members, because of focusing on monetizing the service and doing advertising and e-commerce deals. The No. 1 thing Jon’s going to do is starting right now focus squarely back on the member and have our bias be maximizing satisfaction, maximizing retention and building the member experience.” — Steve Case

“This organization wasn’t clear about broadband in the recent past. Now we are in it to win it.” — Jonathan Miller

America Online Is Making More Changes at the Top” (Sept. 13, 2002)

2003: Making a new case

By the fall of 2002, AOL’s paying subscribers peaked at 26.7 million subscribers, and then started to decline. Richard D. Parsons, the chief executive of AOL Time Warner, said the company would focus on finding a way to raise the price of the service.

“While a number of people are getting AOL over broadband now, the product isn’t really differentiated in a way that we would like….I don’t think you are going to be able to look for clear indications of how the new broadband initiative is being taken up by consumers until midyear, because before you start throwing lots of marketing dollars after it, we want to put the product together — we want to do some test marketing.” — Richard Parsons

As Broadband Gains, The Internet’s Snails, Like AOL, Fall Back” (Feb. 3, 2003)

Mr. Miller introduces a new ad campaign, replacing Mr. Pittman’s slogan, “So easy no wonder it’s No. 1,” with “Welcome to the World Wide Wow.”

“People have already decided they know who AOL is, so you have to sound a wake-up call….The AOL brand was perceived as not sophisticated and not necessarily in tune with the times. We need people to realize we are not just the Internet on training wheels but a much more sophisticated, yet still friendly and easy, place to be.” — Jonathan Miller


Beyond War News, AOL’s Broadband Plan May Face a Struggle” ( March 24, 2003)

2004: Embracing broadband

In an attempt to reach out to broadband users, AOL makes freely available some content that had been exclusive to subscribers.

”We want to be a broadband company all the way through.” — Jonathan Miller

AOL’s Chief Revamps It, With an Eye On Yahoo” (Nov. 9, 2004)

“People were not signing up for AOL or canceling it because of news and sports and search.” — Ted Leonsis

Free or Paid? AOL Will Let Its Two Halves Duke It Out; In a Risky Reversal, An Effort to Cash In On an Online Ad Boom” (Nov. 22, 2004)

2005: Portal Days

Mr. Miller put all his energy into building the portal, meant to be different from Yahoo because it had a more populist and emotional “voice.”

“The day I thought we nailed it was the day that Terri Schiavo died. [While other portals used a headline from news agency articles similar to] “Terri Schiavo dead at 41, the AOL headline was, ‘Terri Schiavo’s sad story comes to an end,’” — Jonathan Miller

AOL Wooing Users to Portal, With a Little Help From Its Foes” (June 10, 2005)

2006: Dialing Down Dial-up and Changing Leaders

Mr. Miller abandons marketing AOL’s access service to concentrate on free Web sites.

“There are many businesses that need to confront legacy issues. We put a stake in the ground with our legacy issues and we’re moving on.” — Jonathan Miller

In a Shift, AOL Plans Free Mail” (Aug. 3, 2006)

Jeffrey L. Bewkes, Time Warner’s president, abruptly fires Mr. Miller, replacing him with Randy Falco, an NBC executive.

“I just wanted the best executive I could get. If there was an Internet executive as qualified as Randy, I would have hired that person.” — Jeff Bewkes

AOL Chief Has a View, a Long One” (Dec. 19, 2006)

2007: Abandoning the portal

After several rounds of layoffs, Mr. Falco moves away from the portal in favor of a strategy built on several different brands.

“Publishing is no longer just about the portal. We are going to be in as many different places as possible.” — Randy Falco

Falco Prepares Another Layoff: the AOL Brand” (Oct. 17, 2007)

2008: For sale

Amid ongoing talks to sell AOL to Microsoft or Google, Mr. Falco fires Curt Viebranz as head of ad sales, replacing him with Lynda Clarizio, who had run the unit.

“We sat here for a long time; Ron and I agonized over this….People will say five months after announcing the change, there will be some kind of meltdown, there is instability. People internally won’t understand it. Externally, people may raise questions. I said to Ron, ‘In my experience, it is always better to move fast.’ Another six months of this, we would be too far behind. We couldn’t wait another day.” — Randy Falco

The Curse of AOL” (March 13, 2008)

2009: The King is Dead; Long Live the King

Fed up with Mr. Falco, Mr. Bewkes, now Time Warner’s chief executive, replaces him with Tim Armstrong. Fed up with AOL, Mr. Bewkes plans to spin the company out to shareholders.

Mr. Armstrong says one of his primary challenges is to address AOL’s “crisis of confidence.”

“You can argue about its reputation, but everybody in the world knows AOL.” — Tim Armstrong


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