Sure William, here it is:
nytimes.com
July 4, 1999
Now, AOL Everywhere
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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."
Reuters
Barry M. Schuler, the head of interactive services.
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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."
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Case may be able to fulfill yet another ambition: for AOL to be the most
valuable company in the world.
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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."
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Related Articles
AOL Plans E-Mail Access for 3Com's Palm
(June 22, 1999)
America Online to Put $1.5 Billion Into a Hughes Alliance
(June 22, 1999)
GTE and AOL Say Open Cable Systems Work
(June 14, 1999)
America Online Challenges Microsoft's WebTV
(May 12, 1999)
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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.
Reuters
Robert W. Pittman, AOL's president, left, spoke as he and Daniel A. Carp of
Eastman Kodak announced a joint project.
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"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.
Reuters
Stephen M. Case, chief executive office or America Online.
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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
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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."
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