Da man of the day speaks, SO. Care to comment on the nuts or AOL specifically? In order to intice your opinion, here is a read of the NY Times article:
July 4, 1999
Now, AOL Everywhere
The Newest Giant Takes On Phones, TV and
Microsoft
By SAUL HANSELL
ULLES, Va. -- Over the last year, the walls of
America Online's rapidly expanding
headquarters here have been dotted with plaques.
They declare that the company's mission is "to
build a global medium as central to people's lives
as the telephone or television . . . and even more
valuable."
But wait. Aren't
telephones
everywhere? And
don't Americans
watch seven hours
of TV each day?
How can Stephen
M. Case, America
Online's chairman,
dare to think that
his company --
which just a few
years ago lurched
from one crisis to
the next and was
largely a chat service for lonely teen-agers --
belongs in the same league?
The answer is that America Online, confounding
the skeptics, has emerged over the last two years
as the biggest, most powerful company on the
Internet.
Indeed, an astounding 39 percent of the time
Americans spend online is spent using services
the company controls, 10 times the share of its
nearest competitor, Microsoft. AOL expects to hit
$5 billion in sales this year, more than the next 20
Internet companies combined and roughly the
size of NBC's. And the company's market value of
$110 billion is bigger than that of any other media
concern in the world.
So now Case, who has been talking for years about
taking on television, has a plan to realize the
ambitions of his most audacious rhetoric -- for
AOL to leap off the computer and be everywhere,
all the time.
The plan has these parts:
The company will try to roughly double the
number of subscribers, now 17 million, to its
flagship America Online service over the next five
years or so. And it will aim to add several times as
many users overseas and through its other
brands, like Compuserve, ICQ and Netscape.
It will develop new services to lure users to stay
online as long as three hours a day -- the current
average is 55 minutes -- and, in the process, make
advertising revenues as important to the
company as subscriber fees.
And it will set out to subsume all other media by
delivering its service on television screens, cellular
telephones and myriad other devices, in addition
to computers.
"Our goal is to establish AOL as a more important
part of tens of millions of people's everyday life,"
Case said a few weeks ago, nibbling jelly beans in
his office. "And to do that, we have to move
beyond the P.C. in the den."
If America Online
performs as planned,
fending off media giants
and the rapidly growing
army of well-financed
Internet start-ups, Case
may be able to fulfill yet
another ambition: for
AOL to be the most
valuable company in the
world. That would mean
achieving a market value
surpassing that of its
longtime rival, Microsoft,
now worth some $400 billion, or almost four times
its current value.
Outlandish? That depends on how you look at it.
America Online's estimated $378 million in
earnings for 1999 are barely 6 percent of
Microsoft's, so the company has a long way to go
by traditional measures. But for an Internet stock,
it remains cheap. After a 300 percent run up over
the last year, it is selling for about 31 times
revenue, far less than the 150 times for Yahoo.
America Online closed Friday at $115 1/4.
Overtaking Microsoft is an especially fitting goal,
because much of Case's plan resembles the
playbook of none other than Bill Gates,
Microsoft's chairman.
And just as Microsoft has come to dominate the
operating systems for personal computers, AOL,
Microsoft and many other companies are fighting
to control a new and crucial form of operating
system, in essence for daily life. As people wire
their families, their finances, their jobs -- even
their household appliances -- into one vast
network, whoever ties it all together will have
much say in how the electronic future unfolds --
and possibly capture much of the profit.
"Windows is the past," Case says flatly. "In the
future, AOL is the next Microsoft."
Like Microsoft as well, AOL has adopted a "fast
follower" strategy. It can afford to invest in the
sort of long-term projects that smaller companies
cannot. But to avoid becoming too bureaucratic
and introverted, it hopes to buy some of the most
creative start-ups. Indeed, its $4.2 billion
acquisition of Netscape Communications last year
was meant to inject Silicon Valley culture into AOL
and to create a home base from which to acquire
more West Coast start-ups, which might balk at
moving to Virginia.
"America Online has a grand vision and a size that
lets them achieve it like no one else," said Edward
A. Bennett, the former head of Prodigy, whose
online service AOL vanquished. "Because they
have so many customers, they can sell more
products and services to them. And they get the
pick of the content and services because everyone
else out there who is smaller comes to them for
exposure to their audience."
Microsoft certainly isn't ceding
any ground. It is spending
billions of dollars to insure that
Windows is widely used in
Internet-linked devices ranging
from cable television boxes to
cellular phones. And a big part of
its antitrust fight with the
Government is over its desire to
funnel Windows users to its
Internet browser and the
services that flow from it.
Case's big plans also come up
against the ambitions of AT&T,
the nation's largest
long-distance, wireless
telephone and cable television
company. With its direct control over
connections to millions of homes, AT&T would
love to drive traffic to its own online services,
especially Excite@home, a consortium of cable
companies developing a high-speed Internet
service.
Of course, the World Wide Web may defy any big
company's efforts to dominate it; most Goliaths
meet their Davids. But so far, America Online has
grown stronger from every challenge.
"I was the one who two years ago said, 'Bye-bye,
AOL,' " said Halsey Minor, the chairman of Cnet, a
technology news and shoping Web site that just
decided to pay $14.5 million to America Online for
promotion on its computing channel. "What they
have done is extraordinary. They have created a
great business."
Going Where the Users Are
o understand how Steve Case turned America
Online from laughable to extraordinary,
follow a typical suburban teen-ager after school.
You'll see that e-mail and chat rooms are as
important to his social system as cruising the mall
and talking on the phone. If his parents want to
cancel AOL in favor of another service, he may
howl, because all his friends are on AOL.
But most parents don't want to cancel AOL
anyhow. For the many adults who are unsure of
their technological sea legs, America Online has
positioned itself as the great life vest of
cyberspace.
"I don't know one
engineer in Silicon
Valley who uses
AOL," said Milo
Medin, the chief
technical officer
and founder of
Excite@home.
But, he conceded
grudgingly, "every
one of them has
told 20
not-technical
people that AOL is the best way to get on the
Internet."
Such endorsements can hardly be credited to
Case's discipline as a day-to-day manager. Distant
and taciturn, he has often allowed his
subordinates to wander off on uncoordinated
pursuits. The company has flip-flopped on
numerous important issues and strategies and
nearly collapsed in early 1997, when its phone
lines were swamped.
But America Online prevailed, in large part
because Case didn't waver on two central ideas:
first, that the most important use of an online
service is communicating with people, and,
second, that it is better to be easy to use than to
have the most sophisticated technology.
Moreover, Case's detachment -- along with AOL's
intergalactic stock price -- has allowed America
Online to recruit what is generally regarded as the
deepest bench of top-quality executives in any
Internet business.
Most important is Robert W. Pittman, the
president and chief operating officer, who gave
the company much-needed management
discipline and a flair for marketing. There is the
flamboyant Theodore J. Leonsis, once the
company's No. 2 executive, who is now running
the ICQ chat service and a few other
youth-minded brands.
There is also Miles R. Gilburne, the head of
corporate development, who concocted some of
the world's most complex acquisition deals. And
on the rise is Barry M. Schuler, who now runs
most of the programming services and is
spearheading the company's forays into the world
of electronic devices beyond the PC.
"The company is finally all marching in the same
direction," said Jonathan E.
Sacks, now the head of the America Online
flagship service. "It's not like this is a cult, but the
management has done a good job in rallying
everybody around a single and powerful vision.
Finally, the company has become comfortable in
its own skin."
Many Buyers, Many Brands
o listen to Bob Pittman is to hear parables
about business -- especially about the
importance of a well-promoted brand. He draws
from his experience as a disk jockey, as a founder
of MTV and as the head of the Six Flags theme
parks and, later, the Century 21 real estate system.
Consider his explanation for structuring America
Online to offer a series of products, each with a
separate brand, rather than unifying all of its
services under a single banner.
"The last time I did this was at MTV," he explained
in his Mississippi drawl. "We started VH1. Then
we took Nickelodeon and reformed it as a channel
for older kids. It was no longer spinach, but pizza."
In his vision, the America Online service will
remain the mass-market brand. But there will be
others for more specialized audiences:
Compuserve, repositioned as a budget brand;
ICQ, a chat service for college types too cool to use
AOL; Netscape's Netcenter Web site, for business
users. Coming next is a Netscape-brand online
service filled with the latest Web technology, to
follow Netcenter users home.
Besides drawing
more customers,
the company hopes
the multibrand
strategy will help
fight off
competitors, like
Freeserve, which is
offering free
Internet access in
Britain or Free-PC,
giving away both
access and a
computer in the
United States.
Instead of cutting prices on the flagship brand's
service, the company can use other brands,
notably Compuserve, to match competitors'
deals.
Last week, it announced a plan to provide free
computers with three-year Compuserve
subscriptions.
"We can use our core infrastructure, bought and
paid for by AOL, to create new brands with a real
cost advantage," Pittman said.
Cable television is also on Pittman's mind as he
considers America Online's bottom line. The
company takes in, for each subscriber, $19.44 a
month in subscription fees and $4.50 a month in
advertising. He hopes that those numbers will
eventually be about equal -- and that both will
grow as AOL lures users to spend more time and
money online. Indeed, Pittman looks at
broadband access and services like the company's
planned interactive television service as the
equivalent of premium cable channels like HBO.
"If you really love AOL, would you pay $10 a
month for AOLTV and five bucks a month to get
your AOL e-mail on your Palm Pilot?" Pittman
asked. "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."
The Well Connected Life
ehind Barry Schuler's
desk is a blue and red
box older than many of
AOL's employees. It is an
IMSAI 8080, one of the
very first personal
computers, and it is a
signal that in a company
devoted to the
technological novice,
Schuler is a true bit-head.
He recently put wireless
networks in his houses in
Virginia and San Mateo,
Calif., enabling his laptop
to automatically collect
his e-mail whenever he
walks in.
Schuler joined AOL in
1995, when the company
bought his firm, called
Medior, which designed
games and CD-ROM's
Until a recent promotion,
his job was to run the AOL
service, and he used his
designer's eye to help give
it a cleaner, more
consistent look.
The latest version of the
software, called 5.0, is to
be introduced this fall.
Instead of simplicity, its
focus is the addition of
new features intended to
keep users online.
One feature inspiring
high hopes here is called
You've Got Pictures, a
joint effort with Kodak to
let people send snapshots by e-mail. Another is
My Calendar, which lets users keep their
appointment books online. But why bother, when
a hand-held electronic organizer -- or a paper
calendar -- may be simpler? As always, the answer
is communication. The service will let a group
arrange the soccer carpool by bringing together
all the drivers' schedules.
Each of these offerings is meant to weave the
details of everyday life into AOL's services, so that
users will not switch to other providers but
instead will be exposed to more advertising and
more opportunities to buy products inside AOL.
The photo service sells reprints on mugs; the
calendar service hawks movie tickets from
Moviephone, recently acquired by the company.
"The whole game is about building the online
habit," Schuler said.
That is also where electronic appliances figure in
America Online's plans.
AOL is jockeying with many competitors for
position in an ever more wired world that is
connecting the Internet to the microprocessors in
everything from microwave ovens to cell phones.
Many other companies are focusing on helping
users stay abreast of information tidbits: stock
quotes, say, or news headlines. But building on its
heritage as the online community's favorite place
to chat, AOL is focusing on communication,
building on its existing "buddy list" system, which
now shows users which of their friends are online
and available for instant messaging.
Say you want to crow about that great play in the
N.B.A. finals. With one mouse click, you will be
able to track down a fellow fan, whether he's
working on his computer, watching television or
sitting in the stadium with his cell phone. All this
will take a while. But AOL users will be able to
check their e-mail on their Palm Pilots by the end
of this year.
The most ambitious of the planned services is
AOLTV, the company's version of a concept --
interactive television -- that has largely flopped in
other incarnations. Since paying $425 million for
the business in 1997, for example, Microsoft has
sold just 800,000 subscriptions to its Web TV
service, which is marketed mainly as a way for
people who don't have computers to get onto the
Internet.
By contrast, starting next year, AOLTV will be sold
mainly as a $10-a-month add-on for AOL
subscribers. It will allow Web surfing, but the
focus will be on services tied to watching
television, like an elaborate program guide and
live chat rooms that can be superimposed on the
screen during popular shows.
"People are already writing e-mail, sending
instant messages, watching television and talking
on the phone at the same time," said Anne M.
Borsch, the head of the AOL Devices unit. "We're
just making it easier for them to do it all in one
place."
Getting Ahead of Broadband
ow that it's clear that the company won't be
done in by the Web, the biggest worry for
AOL investors is broadband, the new generation
of high-speed online connections.
So far, America Online is locked out of offering
broadband access through cable television
systems, which are generally seen as the most
promising of several broadband technologies.
The company's responses to questions about its
broadband strategy are contradictory. Pittman
spent a good deal of a recent meeting with Wall
Street analysts arguing that the threat from
broadband is overblown. America Online's
research, he said, shows that demand for
high-speed service, especially at the current price
of $40 to $50 a month, is modest.
"Broadband doesn't sell itself," Pittman said in an
interview. "There is a small group that says 'Yeah,
it's faster.' " But high speeds don't make a
difference to the activities that AOL members use
most, he added, saying, "Your e-mail doesn't get
any better with broadband."
Even so, America Online is hardly staying on the
sidelines. It is about to introduce its own AOL Plus
broadband service, to be marketed initially to
telephone customers of Bell Atlantic and SBC
Communications. And AOL's $1.5 billion
investment last month in Hughes Electronics
means that Hughes will offer AOL Plus and AOLTV
over its Direct TV satellite system.
The new 5.0 software will have special audio and
video features for users on fast connections. The
company has also hired a former television
executive to develop broadband programming.
And it has begun an extensive lobbying campaign
in Washington, pressing regulators to force cable
companies to open their systems to AOL.
America Online's hot-and-cold rhetoric about
broadband makes sense when seen as part of an
elaborate game of chicken in which it is
negotiating the price and terms for gaining access
to cable systems.
Excite@home, which has contracts granting it
exclusive control over high-speed cable services
at AT&T and 20 other cable companies until at
least 2002, argues that it has the momentum to be
a powerful rival to AOL -- even though it now has
only 500,000 subscribers.
"More than half our new customers are ex-AOL
users," said Tom Jermoluk, Excite@home's chief
executive.
Ultimately, though, America Online is betting the
cable companies need it more than it needs them.
Pittman argues that if anyone can sell broadband,
it is America Online, because the most likely
prospective buyers are its 17 million members.
"We realize that we're one of the few who can
write the big check," he said.
Isn't that a little close to the sort of
offer-you-can't-refuse tactics that got Microsoft
in hot water?
Not to worry, says Case, raising the bar slightly
higher on his hyperbolic ambitions -- and
throwing a dig at Gates and company.
"Hopefully, we will establish AOL as the most
valuable and the most respected company," he
said. "We won't settle for just one of them." |
