BUSINESSWEEK ONLINE : JANUARY 24, 2000 ISSUE
COVER STORY Commentary: Is This Baby Built for Cyberspace? ''I feel betrayed. I bought a company that was going to change the world. I didn't buy a big, fat, stupid conglomerate. And now I've got one.'' -- Alan Towers Does Towers, a New York consultant and AOL shareholder, know something that the architects of the world's biggest merger don't? America Online (AOL) founder Steve Case has shown a keen ability for seizing on a world-changing vision and sticking with it. The boyish entrepreneur has defied the odds and the calamitous predictions to create the largest and most profitable company in cyberspace. And his audacious plan to take over Time Warner (TWX) is the grandest manifestation of that vision yet--a behemoth that can place more digital content in front of more consumers than anyone on the horizon. In short, a General Motors for the New Economy. DATED STRATEGY. Case's remarkably bold stroke is in fact reminiscent of the architecture designed by Alfred P. Sloan at GM in the 1920s. Through monumental acquisition and vertical integration, Sloan created a giant that outdistanced its rivals on every measure and dominated the world auto industry for nearly half a century. Sloan's strategy was simple but powerful: GM built a car ''for every purpose and purse'' and sewed up more of the market than anyone else. Seven decades later, Case is pursuing a similar strategy of vertical integration and conglomeration to rule cyberspace. There is, however, an inherent problem in the analogy: Case is using Old Economy tools in a New Economy that he has helped to define. Leaders in this economy have generally understood that, unlike in the world of iron foundries and stamping plants, the attributes of size--access to greater resources, economies of scale, and stability--are not nearly as crucial as flexibility, speed, and agility. They know that partnerships, without the fixed costs, inventories, and management headaches of pure ownership are the antithesis of vertical integration. And they've learned that melding a sleek, fast-growing organization with a big established enterprise is the quickest way to slow growth and smother creativity. Indeed, few people have mastered that lesson better than Case himself. The giants of old media, including Time Inc., were the first to enter the online services business with ill-fated experiments. Then came Prodigy, the joint venture of IBM and Sears Roebuck. But AOL was the one that triumphed--thanks to Case's focus on brand building and a strategy of turning cyberspace into a friendly place for everybody. OBSOLETE PIPE. The Time Warner deal smacks of an endgame maneuver--in a single strategic stroke putting miles between AOL and the competition. But who's to say that there won't be a new Steve Case who will use the tools of the New Economy--alliances, technological knowhow, and an inspired workforce--to leap over this giant combination? Alternate broadband technologies over copper, satellite dish, or wireless phone lines could render the AOL Time Warner cable ''pipe'' into the home obsolete. Smart new entrepreneurs could align with other content providers to create similarly large audiences. Timothy Koogle of Yahoo!, for one, says he ''sees no necessity'' to own content when you can partner for it. After the front-page hype and hoopla, after the i-bankers collect their fat fees, the dealmakers face the daunting challenge of making a sprawling and bureaucratic empire work. Just as Sloan did in his day. It's something that Tower and other shareholders ought to worry about. By John A. Byrne Senior writer Byrne covers management. To read a letter to the editor about this story, click here. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Welcome to the 21st Century COVER IMAGE: Men of the Century: Bob Pittman and Steve Case TABLE: How the Giant Fits Together Running the Numbers on the Deal TABLE: One Stab at Valuing the Stock Commentary: Is This Baby Built for Cyberspace? A Little Help from the Feds So Who's Next? ONLINE ORIGINAL: Loving AOL--Before Time Warner ONLINE ORIGINAL: AOL-Time Warner Creates "negative Synergy" INTERACT E-Mail to Business Week Online

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