Stephen M. Case, the Internet Age icon who built America Online Inc. (TWX) and then plunged into one of the most disastrous mergers of the century with Time Warner Inc. (TWX), certainly didn't walk away from the company unscathed. But if he suffers any lingering anxieties about initiating the deal with Gerald M. Levin that eventually caused the stock to lose $135 billion in market value, fear of failure isn't one of them. He gave up his position as chairman in May, 2003, amid much recrimination and no small amount of frustration and disappointment. Many thought that someone whose empire had so dramatically imploded would, or should, live in self-imposed exile for a while. But Case, then only 44, was wealthy enough and ambitious enough to think he could start anew.
Within days of his departure, Case began talking with his former chief of staff, Donn M. Davis, about putting together a venture that would keep him a safe distance from the world in which his failures were still all too evident. Now, nearly two years later, Case has unveiled to BusinessWeek the details of his new company, Revolution, which he will officially launch on Apr. 4. Revolution is a private holding company that Case is funding with $500 million of his estimated $825 million fortune and that will invest in health care, wellness, and resorts.
Wellness -- the New Age buzzword for everything from spa treatments to organic food -- and resorts because Case believes in the next two decades they will move from the province of the elite to the mainstream, as aging baby boomers seek their comforts; health care because when his older brother, Daniel Case III, was diagnosed with what proved to be a fatal brain cancer, he saw for himself just how difficult it is for even the privileged to make well-informed decisions about their care. Case will spend about half of that $500 million on companies that help patients take a more active role in their treatment. He is interested in those that provide online data about the price and quality of doctors and those that make available electronic medical records; he's considering everything from high-end personalized health coaching services to clinics housed in Target stores. As he says: "Health care is monumentally complex, confusing, inefficient, and inconvenient. Meanwhile it's the biggest industry in the country, and everybody hates it."
That the very private Case is even seeking a high-profile comeback in business suggests that he, at least, has put behind him the very public drubbing he took at Time Warner, where he came to stand for the vilified tech industry that snookered so many. As Warren G. Bennis, distinguished professor of business administration at University of Southern California, says: "I know a lot of people who were badly hurt by that merger and will never forgive Steve Case for what he has done." The controversy over AOL continues to this day, and Case's legal troubles are not over. On Mar. 21, Time Warner settled Securities & Exchange Commission allegations of accounting violations at AOL, after having resolved Justice Dept. criminal charges last year, without admitting or denying wrongdoing; the total settlement comes to $510 million. But the investigations are ongoing. Case, who remains a Time Warner board member, as well as other directors and executives may be on the hook for multimillion-dollar damages in a pending shareholder class action.
Now, in the most extensive set of interviews since he stepped down, a relaxed and sanguine Case talks about what he learned from the AOL-Time Warner fiasco and from Dan's death in 2002. Revolution is very much a reflection of those two life-altering experiences. And while Case doesn't regard this new business as a way to vindicate himself, it's hard not to see this as an expensive effort to rehabilitate his reputation. What Case will acknowledge is the very real possibility that this endeavor may amount to little. "Maybe 10 years from now, we'll be a horrible failure," he says. "But I'm willing to put my money where my mouth is."
With that, Case throws his lot in with any number of impassioned serial entrepreneurs. Those who succeed, such as Craig McCaw, Steve Jobs, and Marc Andreessen, are rare. "Track record is not a good predictor, particularly when you go outside the industry you know so well," says Raffi Amit, professor of entrepreneurship at the Wharton School. Yet in some quarters, Case is still recognized for his ability to tap into the consumer zeitgeist. "He has created one incredible business, and I wouldn't be surprised if he goes on to create another," says Virgin Group Ltd. Chairman Richard Branson. Case consulted with Branson, as well as Berkshire Hathaway Inc.'s (BRK) Warren E. Buffett and real estate mogul Philip Anschutz, before finalizing plans for Revolution. As for Case's own assessment of his reputation, he says: "There are lots of cycles to markets -- boom and bust -- and also in perceptions of people. The conventional wisdom of Steve Case as genius or fool was highly cyclical. The truth was always in the middle."
At his new venture, Case wants to avoid the mistakes he made as a corporate chieftain and return to his entrepreneurial roots. "I was a better builder than manager," he says. "I actually liked the first 10 years more than the second -- and the second 10 years is where the fame and fortune came. When it went from being a little company on a crusade to a big company, I was less good at it. I was less effective." And then, with unusual candor, he says: "Maybe I was inept and ham-handed. Maybe I didn't understand the complexities of the businesses, the different cultures, and the emotional intelligence of things."
It is Case's opinion, though, that his failure at Time Warner was not all his own doing: He was a chairman without a portfolio, a strategic thinker with little influence on strategy. To forestall that kind of situation this time around he intends to buy a majority interest in any company he invests in and to put in place executives who will allow him to stay out of the daily fray. "My new companies may fail, but at least I have control of my destiny," he says.
But the idea behind Revolution, a name he chose because it was "a little bold, a little edgy," also reveals some of Case's more personal concerns. After the death of his brother, chairman and CEO of J.P. Morgan Hambrecht & Quist, at age 44, it comes as no surprise to those who know Case that the most ambitious of his goals is to give patients more control over their health care. The brothers, just 13 months apart, grew up in a close-knit family with two other siblings in Honolulu; their father was a lawyer, their mother a schoolteacher. It was Dan who, in 1982, helped his younger brother get a job at the company that became AOL. Case says the travails at Time Warner, including AOL's slowing growth rate and allegations of fraud, were merely "frustrating" in comparison to that loss. His brother's death, he says, "was harder to deal with than any criticism of the company. It helps keep things in perspective." Case puts it another way: "I believe fame and fortune are nice, but family and faith are really more at the core of what makes people happy and fulfilled."
Health care is, of course, a wildly complicated area for a newcomer to delve into. Doctors, hospitals, employers, and insurers all operate with different imperatives, and helping to fix the system, as Case says he wants to do, could well be an ambition that eludes him. Nonetheless, with health care a cause of mounting national concern, it could be a time of great opportunity. For example, the advent of health savings accounts, which allow workers to contribute about $5,000 a year to tax-free medical accounts that they can spend as they wish, has raised hopes that consumers' new purchasing power might finally give them a greater stake in the industry. The expectation is that when patients pay their own bills they will want more control over their care and will shop more widely for the services they need.
Case has been circumspect about specific companies he's considering acquiring but does expect to complete a few deals by late spring. One prospect may be Minneapolis-based Minute Clinic. Founded in 2002, the company runs 22 clinics in Maryland and Minnesota, many housed in Target stores. For an average of $44 per visit, patients can receive treatment from nurse practitioners for specific ailments, such as strep throat and ear infections.
STUMBLING UPON WELLNESS
Though improving health care is now central to Case's ambitions, Revolution really began as a rich man's whimsy. And because of that it is in some ways an awkward collection of companies. Soon after resigning from Time Warner, Case had lunch with Donn Davis at the California Pizza Kitchen (CPKI) near the Case Foundation in Washington. Over barbecued chicken pizza, Case, who at the time owned three "second homes" that he rarely used, mused with Davis about finding a better way to vacation. Through a Web search, he discovered Denver-based Exclusive Resorts LLC, started in 2002 by brothers Brad and Brent Handler. The club offered just 42 members access to two dozen luxury homes in glamorous locales around the world. Case e-mailed the Handlers on May 23, they met three days later in San Diego, and over the next weekend, Case and his wife stayed at ER's property in Los Cabos, Mexico. On July 9, Case bought 50% of the company, and on Nov. 22, 2004, he increased his stake to 80% and installed Davis as CEO.
Exclusive Resorts is hardly revolutionary, but Case says the company does seek to break established business models in its own elite market by becoming, well, slightly less elite. Since Case took over ER, membership has grown to 1,200, and Case wants it to be 10 times that size in seven years -- for better or worse, an aggressive strategy reminiscent of AOL's drive to sign up its first million subscribers. Today, full members pay a one-time $375,000 deposit and annual dues of about $25,000 to stay 60 days a year at any of 180 homes, each worth close to $2.5 million. Case suggested a lower-tier membership, launched on Mar. 1, to reach more customers. These affiliate members pay an $185,000 deposit and $9,500 in annual dues for 15 days at the same properties. Case created the ad tagline: "We promise you 15 perfect days a year. What you do with the other 350 is up to you." Eventually, ER plans to offer less costly membership for a group of less pricey homes.
The notion of this kind of vacation club, though, is so new that no one, except maybe Case and his executives, can say with confidence that it will prove to be more than a fad. Vacation clubs "haven't withstood the test of time," says J.W. Marriott Jr., chief executive officer of Marriott International Inc., which has no plans to get into the business. And by opening up membership, Case may undermine the club's snob appeal or find himself with more ready travelers than the company can accommodate.
As Case became involved with Exclusive Resorts, which was building villas at the Miraval spa in Tucson, he came to believe that the "wellness" business, a $400 billion industry that is expected to grow to $1 trillion by 2020, would be a natural complement to his interest in health care. And, in true Steve Case style, he felt it was in sore need of some brand-name power. Those already in the business heartily disagree. "We currently own this industry," says Kevin M. Kelly, president of Canyon Ranch Management LLC, which was founded in 1979 and includes resorts and day spas around the country, condo communities that promote their kind of healthy living, beauty products, and books.
Case, in fact, was impressed enough with Canyon Ranch to make an offer for a controlling stake in the company in early 2004. When they couldn't come to terms on a deal, Case contacted Miraval, which offers programs ranging from massage to addiction recovery to the Equine Experience, where horse therapist Wyatt Webb helps guests develop mental focus by persuading a horse to offer its hoof. On Friday, Feb. 20, Case phoned Bill O'Donnell and George Ruff, Miraval's co-owners, and offered to take them to Tucson in his Gulfstream jet on Tuesday. The talks that day went nowhere, but the next morning in the limo on the way to the airport, the owners relented and sold Case 70% of their company. Case now plans to build Miraval spas in Hawaii, Mexico, and the East Coast; in a decade, he envisions local "wellness" centers in 100 communities across America, all offering Miraval programs. And on Mar. 18, Case purchased Wisdom, the only cable channel devoted to the genre, with 6.5 million subscribers.
So far Case has spent about $125 million to start Revolution. No one doubts that he'll put up the full half a billion dollars he has promised. But can he create a new empire? Even Case says he could be embarrassed a decade from now, having wasted a lot of time and a lot of money trying to fix health care. Good thing Case has plenty of both. He'll need them.
By Catherine Yang
With Kerry Capell in London