BUSINESSWEEK ONLINE : MARCH 27, 2000 ISSUE
COVER STORY Q&A with AOL's Steve Case "We do believe there are transformational opportunities" Every year, America Online seems to reinvent itself as it navigates the fast-changing Internet marketplace. After closing its then-record acquisition of Netscape Communications Corp. last spring, the Number One online service dove into a series of deals to position itself for a future when consumers are no longer limited to slow dialup connections to the Web via PCs, but link to the Internet through fast broadband connections and non-PC Internet devices, too. In 1999, AOL teamed up with DirecTV to deliver AOL to the TV set, with Bell companies to send AOL over the phone carriers' fast Internet lines, and with Gateway Inc. to co-develop Web appliances. But among all these deals, AOL missed one key link: a cable partner to send AOL over speedy cable pipes. With the beginning of the new millennium, AOL solved that piece of the puzzle when it announced a record $183 billion merger with media giant Time Warner Inc., the nation's Number Two cable operator. AOL and Time Warner execs are betting that the marriage of AOL's Internet capabilities with Time Warner's media properties and cable pipeline potentially could change the way content and services -- including from music, news, and magazines -- are distributed in the new century. Merging the two industry giants is no small feat, though. On March 3, AOL Chairman and CEO Stephen M. Case talked to Business Week Correspondent Catherine Yang about AOL's accomplishments so far and its upcoming challenges. Here are edited excerpts of their conversation: Q: What were AOL's major accomplishments in 1999? A: A key part of the focus was AOL Anywhere and broadband. We made a lot of progress taking the concept of AOL Anywhere and making it a reality. We did deals with Hughes [to deliver AOL via satellite], with Bell Atlantic [to deliver AOL over the phone company's high-speed DSL connections], with Gateway [to co-develop non-PC devices]. But we also expanded internationally and continued to expand our portfolio brands through acquisitions, such as Spinner [Internet streaming audio], WinAmp [which makes software to download online music], and Moviefone [online movie-ticket sales]. We continue to strengthen our position in today's market while positioning ourselves for tomorrow's market -- whether it's Anywhere, international, or what have you. Q:When you look back, will the year 2000 be the defining year for AOL? A: Every year is a defining year for AOL. But this is a particularly significant year with the AOL-Time Warner merger being the most significant event. We kicked off the Internet century with the announcement of the deal. We'll end the year with the closing of the deal. It positions the combined company at the epicenter of a major change in consumer habits. What we've talked about is bridging what happens in the PC, TV, and the phone. We're taking that concept to a whole other level through this merger. Q: How will AOL attack the integration of Time Warner? Time Warner divisions historically have operated in a decentralized way and often had problems amongst themselves milking synergies between them. A: It all starts and ends with people. We're spending a lot of time on the front end of the process -- building relationships, understanding each others' objectives and businesses. It's a lot of what we've focused on since announcing the merger. We want this to be led by strategy. We do believe there are transformational opportunities: How do we fundamentally change the way people get information, communicate, get entertained? How do we reinvent TV so it's more interactive and personal? How do we reinvent music so you can access it wherever you want? How do we bridge the PC, TV, and phone in a seamless way? Having those strategic opportunities really drives the organization of the company and business plans. Q: How will you try to structure the new company? A: Our focus now is on the big strategic ideas, and then we'll move into the phase of building the right organization. There, we'll bring a sense of balance. There are benefits to some level of autonomy because it encourages entrepreneurship. In big companies, it's important to have empowered and impassioned executives. As we move into the new world of converging technologies and colliding industries, this requires more of a spirit of cooperation and partnership. We don't want to be too centralized. That likely will result in things moving too slowly. But we don't want [to be] too decentralized, because that can result in missed opportunities, especially in pursuing the big idea. It's a matter of striking the right balance. Q: AOL stock has fallen from $72.63 to a low of about $49 since the deal was announced Jan. 10. Although your stock is now in the mid-$50 range, if the price falls again, might AOL shareholders vote against the deal? A: That's a scenario we don't have to be too concerned about. As people understand the opportunity, the stock will be moving up. People understand the macro trends. Each industry, whether it's communications or media or the Internet, is really being transformed. The really big opportunity is to transform them together, as opposed to separately, and to bridge the way these things work. This will create a trillions-of-dollars opportunity. There's no company better positioned than AOL Time Warner to be the beneficiary. The next wave of companies that are providing services to consumers will be big beneficiaries. In the last 5 to 10 years, a lot of the infrastructure companies -- such as Microsoft, Cisco, and Intel -- have done very well. If you look at it five years from now, it's likelier the leading companies will be services companies. And AOL Time Warner is likely to be the leader of the pack. Q: A lot of companies have benefited from the growth of the Internet, but AOL towers above most of them. What makes AOL different? Is it because you had first-mover advantage, or is it something else? A: It's true we started 15 years ago. We've been at it some time, but the key to our success is building services consumers like and want to tell their friends about. That's the core. In last five years, we've gone from 1 million to more than 20 million customers. It's about resonating among consumers and attracting and retaining the best executive talent. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The 50 Best Performers COVER IMAGE: The BW 50: The Best Performers TABLE: The 50 Best Performers TABLE: Total Return TABLE: Sales TABLE: Net Margin TABLE: Earnings Decline TABLE: Earnings Growth CHART: The Fast-Changing BW 50: A Breakdown by Industry TABLE: Return on Equity Follow the Leaders CHART: Beating the Indexes--Again Great Performances, and How to Spot Them Sifting for Clues TABLE: How to Pan for Gold TABLE: Business Week's Performance Rankings of the S&P 500 (.pdf) TABLE: Business Week's Industry Rankings of the S&P 500 (.pdf) TABLE: Alphabetical Index (.pdf) ONLINE ORIGINAL: Q&A with Biogen's Jim Vincent ONLINE ORIGINAL: Q&A with AOL's Steve Case ONLINE ORIGINAL: Q&A with General Dynamics' Nicholas Chabraja ONLINE ORIGINAL: Q&A with MBNA's Charles Cawley ONLINE ORIGINAL: Q&A with Pfizer's William Steere ONLINE ORIGINAL: Q&A with Kansas City Southern's Landon Rowland ONLINE ORIGINAL: Q&A with Omnicom Group's John Wren INTERACT E-Mail to Business Week Online

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