The Man Who Put America On The Internet
Founder of America Online
"We want to be the Coca-Cola of the online world."-Steve Case
If anyone ever earned the right to say "I told you so," it's America Online (AOL) founder Steve Case. Almost from the very day it was launched, industry pundits, business experts and market analysts have been predicting the demise of AOL. True, the company and Case have experienced roller coaster ups and downs (at one point, Case's own board members considered firing him). But Case has ridden them out with the grace and style you might expect from a Hawaiian-born body surfer. By faithfully following his conviction that easier is better, Case has out-maneuvered his competitors, silenced his critics, and made AOL the number-one online service provider in the world.
Case's entrepreneurial talents developed early. As a child growing up in Honolulu, he and his brother, Dan, embarked on a series of business ventures. Through these early business experiences, Case developed a fascination with marketing. Unfortunately, his college of choice, Williams College (his father's alma mater) in Williamstown, Massachusetts, didn't offer a marketing degree, so Case majored in political science because, he said, "it was the closest thing to marketing." After graduation, the future online tycoon landed a marketing position at Proctor & Gamble (P&G). Although Case admits he learned much of what he knows about marketing during his stint at P&G, he chafed under the constraints of mainstream corporate America.
Deciding that managing a mature business was not for him, Case left P&G and accepted a position with Pizza Hut. As manager of new development, his job entailed traveling around the country in search of new ideas for pizza toppings. While he chewed his way through several pies a day, Case spent his evenings exploring the then infant Internet on a clunky Kaypro computer and 300-baud modem. Though the computer was difficult to use and the modem snail-slow, Case was awed by the wonders he discovered through early online services such as The Source. "I remember it being frustrating," Case told Time in a 1997 interview, "but there was something magical about the notion of sitting in Wichita and talking to people from all over the world."
Enraptured by the Internet, Case began looking for ways to turn his hobby into a lucrative business. In 1982, he hit upon the idea of starting an Atari video game subscription club, similar to the Book-of-the-Month Club. According to a 1997 article in Gentlemen's Quarterly, when Case turned to his brother, Dan, for his input, the elder Case bluntly replied, "It's a bad idea. You're going to get your ass kicked." It wouldn't be the first time someone would tell Case that, but this was one of the few times he would listen.
A year later the brothers came across the business plan for Control Video¬-a start-up that planned to charge Atari owners $1 to download a video game over the phone. After one play, the software would no longer work. Dan suggested his firm, venture capitalists Hambrecht & Quist, invest in the company. Steve wanted in on the deal as well. But it wasn't the video game angle that intrigued him. It was the idea that once computers were hooked up to phone lines, they could be used for other things, such as e-mail.
Steve wrangled an introduction with the founder of Control Video and was immediately offered a position in the company. Once again, Dan told his brother he was making a mistake. Dan argued that even though the start-up's founder was brilliant, he wasn't good with money. This time, Steve chose to ignore his brother's advice, and he packed up and headed to Northern Virginia to join Control Video. Two weeks after he arrived, the firm's capital dried up.
But Case wasn't about to give up. From the rubble of Control Video, he created Quantum Computer Services, an online bulletin board for owners of Commodore 64 computers, the most popular home computer at the time. It was a small market, but he felt it might have potential. He was right. Over the next six years, Quantum membership grew from 24 members on its first night to more than 100,000.
In 1991, Case made a decision that would forever change the online world. He renamed his company America Online, and with 110,000 members, launched an attack on the two largest online service providers-CompuServe, whose membership was around 800,000, and the IBM-Sears joint venture Prodigy, which boasted a membership of 1.1 million. Everyone, including his mother, thought Case was insane. Critics said AOL would never last. How could Case possibly hope to compete with IBM and Sears?
But Case had a plan.several, actually. First, he had spotted a flaw in IBM and CompuServe's online strategies that he felt he could use to his advantage. Both online giants believed that the best way to lure in customers was with lots of fancy, high-tech features. But based on his experience at Pizza Hut, where he'd seen dozens of complex pizzas fail miserably, Case concluded that what America really wanted in an online service was, as one writer put it, "cheese, tomato sauce and occasionally some pepperoni." With this in mind, Case set out to make AOL as simple and easy-to-use as possible. In fact, it was Case who introduced the first graphical interface to the online world, allowing users to point-and-click their way to wherever they wanted to go on the Internet.
Second, Case knew that if he was going to beat IBM and CompuServe at their own game, he would have to gain subscribers and market share-and fast. To accomplish this, he drew on his P&G marketing training and began giving away free samples¬-bundling AOL floppy disks with popular computer magazines and offering 10 hours of free use. It worked so well that Case was soon flooding the mail with free diskettes, a practice that still remains at the core of AOL's marketing strategy.
With literally tens of millions of AOL disks floating around, membership grew at light speed. From 200,000 members in 1992, AOL surged to 4.7 million by 1995, and to more than 10.7 million by 1997. As AOL soared to the top, it passed CompuServe and Prodigy on the way down. (In fact, AOL bought CompuServe in 1997.)
But the news wasn't all good. By 1997, AOL had so many members that it couldn't keep up with subscriber demand. Its network was often overloaded, users regularly experienced busy signals for hours at a time, and when they were able to log on, their connections were frequently cut off for no apparent reason. Infuriated subscribers began canceling their memberships at an alarming rate, causing AOL to suffer a $350 million loss.
Once again, the soothsayers of the online world predicted AOL's demise. And once again, Case proved them wrong. To silence the busy signals and keep customers online, Case paid $35 million for his own data network, erected a $50 million network facility next to AOL's Dulles, Virginia, headquarters, and spent $300 million to add modems from Florida to Alaska. The result? At the end of 1998, AOL hauled in $98.1 million in net income from revenue of $2.6 billion.
By mid-1999, AOL-which just two years earlier had been declared by Internet insiders "an idea whose time had come and gone"-was boasting more than 17.6 million subscribers and had become the undisputed champ of the online world. But as his company looks to the new millennium, Case realizes he cannot rest on his laurels. "Even though we've been at it for over a decade, this is like the second inning in terms of the development of this medium," Case says in a 1999 Time magazine interview. "The online business is about to become the most competitive market in the world."
How does Case plan to stay ahead of the competition? By embracing the latest technology while continuing to give his customers what they want-cheese, tomato sauce and occasionally some pepperoni. "We plan to offer the most magical service possible," Case explains. "Our strength is to use the latest technology while hiding its complexity. We'll use the technology as a means to an end, but we've gotten here because we figure out what the customers want, not what the technologists think."
Steve Case claims he was always meant to be an entrepreneur. In fact, he's been involved in one moneymaking scheme or another since the age of 6. Steve opened his first business with his brother, Dan¬-a roadside stand where they sold lemonade made from lemons they'd picked in their backyard. They charged two cents a cup, but many of their customers gave them a nickel and let them keep the change. "We learned early the value of high margins," Dan later told Businessweek.
A few year later, the two boys formed Case Enterprises, an international mail order business that sold everything from seeds to greeting cards by mail and door to door. Somehow, Case Enterprises won the exclusive local rights to sell a brand of Swiss watch. They didn't sell a single watch. But that didn't faze them. They kept moving ahead, creating an affiliate, Aloha Sales Co., which sold ad circulars. They even shared a newspaper route. The duo never made much money. But then, according to Steve, that wasn't why they were doing it. "It was the challenge," he later told Businessweek, "the pursuit of the idea."
Between 1992 and 1999, AOL added more than 13 million new subscribers. That's more new subscribers than The New York Times and The Washington Post together have added in the past 50 years.