aol.com
How Steve Case Beat Bill Gates, Nailed the Netheads, and Made Millions in the War for the Web

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CHAPTER ONE

The Canary in the Coal Mine

    The truth is: nobody knows.

    And, because most often they do not know that they do not know, no one will ever tell you that truth.

    Some people don't know because they are too hopeful and sometimes because they are very greedy. Some are profoundly stupid or are a little too smart.

    But in the spanking new world of the Internet, nobody knows because everyone and everything has just been born.

    Which is why Steve Case found himself on May 8, 1997 cruising on the calm waters of Lake Washington in Seattle on a boat carrying him and more than 100 other chief executives toward the 20,000-square-foot, $40 million home of Bill Gates.

    Case was definitely not supposed to be there--if you had paid heed over the years to a variety of learned Wall Street pundits, savvy journalists, pontificating technology consultants, and waspish naysayers in Silicon Valley. And the computer online service, America Online Inc., which he had built into the world's largest, was just one tiny step away from falling right over the precipice.

    The dirge had been endless: AOL was nothing. AOL was history. AOL was dead.

    Yet there Case stood--perhaps the liveliest corporate corpse one might ever meet--chatting with American Airlines head Robert Crandall, kibitzing with a cadre of Microsoft's top executives, and joking with Vice President Al Gore.

    In the near distance, in Bellevue, Case could just make out the outlines of Gates's glass-and-wood palace, still being built on the lakeshore, where an elaborate dinner awaited them. Getting to see the famed technological Xanadu that Gates was constructing for himself was the highlight of a flashy, two-day CEO "technology summit" Microsoft had organized. There had been speeches all day. Now a dinner of spring salmon, fiddlehead fern bisque, and tortes with Rainier huckleberries awaited them.

    As the boat wended its way from its launching point on Lake Union, surrounded by a flotilla of security boats to protect this small ship carrying very powerful people, to the place Case jokingly was calling "Bill's San Simeon" (after William Randolph Hearst's egotistical monument to himself), the man from AOL thought it was all just a little too bizarre.

    He was happy to have been invited, of course, but felt decidedly out of place. He had quipped to Microsoft finance chief Greg Maffei and other executives from the company that he felt like a spy deep in enemy territory. He ribbed them, asking playfully if he should be taking notes on any stray Microsoft secrets he could glean, and sending them off in a bottle over the side of the ship. But inside his head, he wondered seriously: Should he even be here at all, still standing? Had it only been four years ago that Case had been told by Gates that it was probably the end for AOL?

    Gates--whose leadership of Microsoft and ensuing vast wealth had made him into an American business icon on the level of John D. Rockefeller--had been spectacularly wrong.

    After the talks between them in 1993 had led nowhere, Gates had created his own online service as he had promised. But, in two years of trying and after hundreds of millions of dollars were spent, Gates's Microsoft Network had not bested AOL. With AOL now four times as large, it had not even come close.

    No one had--yet.

    This much was true: in the last decade of the twentieth century, an entirely new medium--online communications via the personal computer--had been born. It was being hailed as the next great technological innovation, in the same league as the telephone, the radio, and television.

    Few times in American business history has an entire industry been created from almost nothing and captured the attention and imagination of millions of consumers, setting off a titanic clash for money, power, and dominance among some of America's greatest businesses. But such has been the case with the Internet and the online services industry since its mainstream emergence at the start of the 1990s. And of the many companies vying to create empires in cyberspace, there was now none better known than AOL.

    In much the same way that Coca-Cola had become the name most people associated with sugared soda, the brand of this emerging new medium had turned out to be AOL. Since its founding only ten years before, the company had grown from a dinky computer games service aimed at teenage boys into a huge business with more than $1 billion in revenue. It had become, in the process, the way most Americans reached the Internet. With nearly ten millions subscribers worldwide, its "circulation" was much larger than that of any of the major newspapers in the United States.

    Yet it was also a company in constant danger. Innumerable challenges had given AOL a heart-rending roller coaster ride all along the way, and many observers had long predicted AOL's imminent demise. In 1993, they claimed that AOL was too small to compete with CompuServe and Prodigy (online services backed by big bucks from major U.S. corporations). AOL was too glitchy and simplistic to catch on with consumers, they opined in 1994. AOL was vulnerable to a withering frontal attack from Microsoft, they declared in 1995. AOL was going to really get knocked flat by the growing popularity of the Internet's World Wide Web, they announced in 1996. And finally, in 1997, they could say with absolute assurance, AOL was going to be its own executioner, shooting itself dead with a dizzying series of corporate missteps.

    And there were so many other AOL killers: the telephone companies, with their advantage in all things wired; the media conglomerates, with their abundant content; the scrappier Internet service providers, with their low prices.

    Beginning in the spring of 1996, the punches came hard: a precipitous stock drop that had cut AOL's market value by two-thirds; the increase of an online trend called "churn" that signaled dangerously restless customers; the embarrassing departure, after only four months, of a top executive brought in to discipline AOL's freewheeling culture; another drastic restructuring of the corporate body and business plan; a restating of financial results that wiped out all the profits AOL had ever claimed it made; a shift in pricing that caused subscriptions to surge, but resulted in seriously blocked access for users; and one lawsuit after another over pricing, access, and stock value.

    Case, who had come to personify the company, had been called sleazy, a soap salesman, a liar, a fool.

    But he was still there. Case, in fact, had turned out to be the Rasputin of the Internet, with no one able to deliver the long-expected deathblow. All the nicknames AOL had acquired over the years had the exact same theme: the cockroach of cyberspace, the digital Dracula, the Lazarus of the online world.

    "Someday, the history of cyberspace will be written as a chronicle of the predictions of AOL's demise," Wired Magazine had written once. "From claims that America Online would fail because it wasn't 'open' to charges that it was inherently unreliable, the service has been a canary in the coal mine of cyberspace."

    By the spring of 1997, AOL's stock was up again to double its price during the summer and fall doldrums. Member numbers were moving slowly toward the golden 10 million mark, and the company had reported a small profit--a development that had taken off some of the pressure from Wall Street.

    But, as always, new rumblings were beginning to surface. With a new flat-rate pricing offering, AOL would not be able to attract advertisers who would yield the sustained profits needed to pay for its burgeoning costs. AOL would not be able to grow as fast as it needed to, because new consumers were becoming harder to find. AOL's proprietary design language would hinder its ability to attract much needed popular content that was flocking to the Web. And even this: AOL's new service head, MTV founder Bob Pittman, whom Case had recruited, was going to stage a corporate coup and displace Case at the top.

    AOL was nothing. AOL was history. AOL was dead.

    At the CEO conference that day, Bill Gates had talked of the importance of ensuring the excellence of a corporation's "digital nervous system."

    "The meetings, the paperwork, the way information workers are organized, the way information is stored--it's my thesis that, with the incredible advances in technology, it's now possible to have a dramatically more responsive nervous system," Gates had opined.

    If that was true, if you listened to all the noise, AOL's nervous system was suffering from an acute case of hypertension. But you couldn't tell that from Steve Case, a man whom his employees had taken to calling "The Wall" because of his ability to exude an otherworldly calm and have virtually no reaction to a wide variety of pressures. He was, in fact, a deeply shy man, not given to small talk and schmoozing--unusual traits, given that he was squarely at the forefront of the newest communications revolution. But his nonchalant style had given Case a reputation of aloofness and of haughty arrogance in the online world.

    But in Case's own head, another mantra had been playing for more than a decade, masking out all the cacophony of complaints.

    Over and over again; it said: AOL would be everywhere.

    Someday, somehow, Case dreamed, his service would be in America's dens, living rooms, kitchens, offices, and malls. And the elitists who ran most Internet companies--the doubters of this singular vision, the ones who told him he was going down so many times--they always had been wrong and they would be wrong once again.

    How did Case know all this?

    He didn't.

    Nobody did.

    But as he floated along on that sunny Pacific Northwest evening, the imperturbable Steve Case knew one thing for certain.

    The ride had just begun.

CHAPTER TWO

they came from nowhere

death and birth

    Bill Von Meister's mourners had no idea what Steve Case was talking about.

    Case had come to Great Falls, Virginia, on May 20, 1995, to pay his respects at an informal memorial service for Von Meister, who had died just six months after being diagnosed with a swift and vicious melanoma that had finally managed to bridle his unruly spirit.

    Von Meister's friends and family had invited anyone with a memory of him to speak. There were many memories to choose from because, in his half-century of hard living, Bill Von Meister had cut a capacious and kaleidoscopic swath through the world.

    Some talked of Von Meister's fondness for fast cars, fine wines, pretty women, and good times.

    Some recalled how his jovial personality never seemed to wane even as the cancer sucked the life out of his beefy frame.

    Some recalled his fervent zeal for starting new businesses, and the way his mind percolated with ideas for new technology and communications companies.

    And others could not help but refer to the darker side of Von Meister--the relentless drinking problem that had forced him into a rehab program years earlier and had never really been cured; the nagging restlessness of his life as he jumped from one project to the next; his inability to follow through in both his business and personal life.

    "He was the most human of human beings I ever knew," said Stu Segal, one of his business associates. "His flaws were never disguised--it was all there in full glory for everyone to see."

    The small crowd in the backyard of Von Meister's elaborate home nodded in agreement. That was the Bill they remembered and would probably never forget.

    Then Steve Case began to speak, stating something that few gathered there seemed to know. Without Bill Von Meister, there would have been no America Online.

    America Online? The very idea seemed bizarre to Von Meister's family, who thought that most of Bill's many business forays had ended in utter failure. Wasn't AOL now the world's biggest consumer online service, worth billions of dollars?

    But Bill Von Meister had died broke, with huge debts, including hefty medical bills and burgeoning mortgage demands, and very little to show for his itinerant journey from one hopeful start-up venture to the next.

    Indeed, his obituary that very day in The Washington Post, the local newspaper, had placed his notice fourth--buried on page four of the Metro section--behind death notices for a prominent doctor, a gallery owner, and a church leader.

    "William F. Von Meister, 53, a local communications entrepreneur, who had been founder and chief executive officer of a number of high-tech and consulting firms, died of cancer on May 18th at his home in Great Falls," it read in part.

    But not anywhere was there a mention of AOL.

    And so, Bill Von Meister was passing unnoticed into obscurity, except for the words of those gathered in a large circle in the garden on this sunny Saturday afternoon.

    The idea of it made Marc Seriff sad. He had also come to the service because, like Case, Seriff's life was inexorably changed because of Von Meister. He had brought them both to a company called Control Video Corporation (CVC) in the early 1980s. And CVC was the initial spark--after many iterations, a series of neardeaths, and more close calls than Seriff could count--from which AOL was ignited.

    But Seriff--who had become AOL's chief technologist--hadn't seen Bill for a long time. He lost touch after his mentor was forced out of CVC by its investors, whose fortunes had turned sour. Major market changes were surely to blame, but Von Meister shared the blame for nearly scuttling the whole enterprise with his pie-in-the-sky dreams, profligate spending, and characteristic disregard for the detail work that is the foundation of any long-lasting business.

    Von Meister had moved onto new projects--as usual, optimistic as ever. And, though both Seriff and Case became multimillionaires many times over from the company that had sprung out of the ashes of CVC, Von Meister had never said anything negative about not benefiting from the riches AOL threw off to his proteges in time. Von Meister had always played the start-up game for the sake of the fun, and CVC was just another stop on his trip.

    Seriff had heard that Von Meister was sick several months before, but he thought it was just another obstacle that Bill was likely to overcome with a smile. There would be another idea, another fast car, and another long laugh. So, the swiftness of Bill's demise surprised Seriff.

    While others memorialized Von Meister's effects on their lives, Seriff found himself deeply upset because the service made him realize the depth of gratitude he owed the man. Von Meister had saved him from losing himself inside a big company and had taught him that he didn't have to choose between enjoying what he did for a living and being successful.

    Although Von Meister had left long before AOL grew large, Seriff saw that the path to glory--not just the technical evolution, but the core team that had managed AOL for so many years--led directly from companies started by Von Meister.

    Did anyone assembled here, aside from himself and Steve Case, realize that?

    Not far away, even as the memorial service was taking place, AOL was holding an annual picnic for its 1,800 employees, who were now working for a company with almost three million customers across the United States. And Seriff--who had stopped going to the gatherings because the company had grown so large--knew that few there even knew the name of the person he considered the "spiritual father" of AOL.

    He declared this at the memorial service, echoing Case's sentiments. But Seriff expected that if he were to say Von Meister's name to the average AOL employee now attending the picnic, he would be greeted mostly with blank and uncomprehending stares.

    Indeed, Bill Von Meister was almost like a doppelganger--the ghostly double of all those who were now living and breathing AOL, the invisible spirit who could never be seen.

    This much was certain: it was in a tiny ember of the soul of Bill Von Meister that AOL was born.

billy's beginnings

    His father, F. W. Von Meister, was the godson of Kaiser Wilhelm II, and his mother, Eleanora Colloredo-Mannsfeld, was a countess. And--in a delicious irony for some, since Bill Von Meister later presided over a lot of business disasters--one of his father's first jobs in the United States was as a representative of the German company that built the ill-fated Hindenburg zeppelin.

    "Billy," the eldest of his family, was born in New York on February 21, 1942. His father became an entrepreneur of sorts; when his job with the zeppelin company literally blew up with the crash of the Hindenburg in the late 1930s, F. W. Von Meister moved from project to project and finally founded a chemicals company.

    The business proved a success and allowed F. W. to raise his growing family in modest wealth in the leafy suburbs of New Jersey. Billy was an indulged child who displayed an early interest in tinkering. In high school, he formulated the name for a company he would continue to operate throughout his life: Creative Associates.

    And Billy seemed to be very creative.

    One Christmas, for example, he devised a complex system of strings and pulleys that would result in the opening of his bedroom door if triggered by the arrival of Santa Claus through the front door.

    Another electronic device, called "Papa's Tea Tutor," sat atop the refrigerator in the Von Meisters' kitchen. A signaling unit placed in F. W. Von Meister's car would set off a red light and a bell as he neared home, giving the household a warning to prepare the tea service in time for the patriarch's arrival.

    In contrast to his father's stiffer European demeanor, Billy was known as the family's Peter Pan--a boy who delighted in toys and gadgets and fun. Early on, he got hooked on racecars and adventure sports. But tragedy came during the early teens of Billy's life, with the death of his mother from breast cancer. "It hit Billy harder than he let on," recalled his sister Nora. "I think sometimes his very upbeat personality was a reaction to the pain--acting like nothing was ever wrong and everything was great--in order to mask a lot of hurt caused by mother's death."

    After high school at Middlesex Academy in Massachusetts and a post-boarding-school stint at a finishing school in Switzerland, where he spent much of his time racing cars and skiing, Von Meister attended Georgetown University in Washington, DC. Once again known for his pranks and party image, he didn't ever finish at Georgetown, though he persuaded nearby American University to enroll him in its master's program for business. He told his younger brother Peter that he was onto big things.

    "I'm going to make a mark," said Billy Von Meister. "Just you watch."