Steve Case

Steve Case (born 1958) is the co-founder of America Online, an Internet provider service that boasted its own unique content as well. It was instrumental in leading a vast number of people onto the "information superhighway." The company experienced rapid growth early on, and despite some stumbles, continues to be the most popular of its kind in the industry, capturing roughly 60 percent of the world market after its acquisition of CompuServe in 1998.

Before the rise in online services, the Internet could be a confusing technological jumble to most users. Generally, only the savvy "computer geeks" were accessing its communicative powers, using modems to reach other users. However, companies soon began tapping into this unknown territory, and began offering computer users a logical, easier-to-use interface through which they could send e-mail and access information via the Internet. In 1985, Steve Case was one of the leaders of this drive to make the Internet understandable, founding a company that later became America Online. There were other firms in the same business, such as CompuServe (the oldest online service) and Prodigy, but Case's design was more successful in the long run. With his user-friendly graphics and innovative marketing strategies, he made the Internet easy and fun. The number of users who logged on to hear a clear, pleasant voice inform them, "You've got mail!" increased exponentially throughout the 1990s. "The geeks don't like us," Case told Time in 1997. "They want as much technology as possible, while AOL's entire objective is to simplify."

Case was born in Honolulu, Hawaii, on August 21, 1958. His father is a corporate lawyer and his mother a teacher. Case has an older brother named Dan, an older sister, Carin, and a younger brother, Jeff. At the age of six, Case and his brother Dan opened a juice stand. They charged two cents a cup, but many of their customers gave them a nickel and let them keep the change. Several years later the two boys started a mail order company, selling a variety of products by mail and door-to-door. They then started an affiliated company which sold ad circulars. In addition, the two shared a newspaper route. So Case's hard-driving entrepreneurial spirit surfaced at an early age.

When Case attended Williams College, he majored in political science. "It was the closest thing to marketing," he told Business Week. While there he became the lead singer in two rock groups. One, The Vans, was an imitation of The Cars. The other, The The, was influenced by The Knack, whose one and only hit was "My Sharona." After graduating in 1980, Case landed a marketing position at Proctor & Gamble. One of the products he worked on was Lilt, the home hair permanent kit. He left the company after two years. Case then joined the Pizza Hut unit of PepsiCo. There he was manager of new pizza development. The job required much travel, looking for new ideas for toppings. His evenings out on the road provided the time to explore a new technological development, the personal computer (PC). He purchased a Kaypro portable computer and subscribed to an early online service called The Source. "I remember it being frustrating, but actually magical when you first got into the system and got access to information and were able to talk to people all over the world," Case recounted to Michael Dresser of the Baltimore Sun.

Formed Prototype Online Service

In 1983, Case's brother Dan, who became the CEO of an investment firm, introduced him to the founders of Control Video Corporation. The company was starting an online gaming service for Atari computer-game machine users. Case was offered a job as a marketing assistant and he accepted. Unfortunately, as Case told Steve Lohr of the New York Times, "I arrived there just in time for the death of the video game business." The company went broke and the board fired the existing management team and brought in Jim Kimsey as chief executive officer. Kimsey and Case sought out venture capital and, in 1985, they co-founded Quantum Computer Services Inc. The company was an online service for users of Commodore computers, then a leading brand.

Quantum soon expanded to serve other computer users. Case made a deal with Apple Computer in 1987. Software packages were developed for the Apple II and Macintosh. Tandy Corporation quickly followed and a package was developed for the Tandy computer. Packages were also introduced for the DOS and Windows operating systems. By 1990, management decided to bring all of its segmented services together into one overall service and in 1991 the company was renamed America Online, or AOL for short. A year later AOL went public, raising money for further expansion. Case was named CEO shortly thereafter.

When he took over as CEO, Case saw his company lag behind CompuServe and Prodigy, the two major online services at the time. AOL had only 200,000 subscribers. Case developed a maximum growth strategy and put it in place. In early 1993, AOL cut its prices well below those of CompuServe and Prodigy. Massive numbers of diskettes were mailed out offering free trials. After this, membership grew at an accelerated rate. By the end of the year, AOL had trouble handling the huge influx of new subscribers. Users would get abruptly disconnected and in a real-time chat it would take minutes to post a message. Getting on the service during peak hours could actually take an hour. Numerous complaints led Case to send a letter of apology to subscribers, promising technical improvements.

AOL Branched Out

Case signed deals to bring a number of content providers to AOL, including the New York Times, NBC, Time, Hachette magazines, and the financial services company Morningstar Inc. In August of 1994, AOL purchased Redgate Communications, bringing in multimedia expertise. In November of that year, it bought ANS, creator of the Internet network, gaining high-speed network capacity. In December, AOL acquired Booklink Technologies, which provided the service with a World Wide Web browser. Case also developed partnerships with cable companies such as General Instrument, Comcast, and Viacom. Cable provides the opportunity for a "high-bandwidth conduit, which will allow us to offer our customers much more engaging, multimedia-rich kinds of services," Case said to Kent Gibbons of Multichannel News.

Also in 1994, AOL announced a corporate reorganization, creating four new divisions. One aim was to pursue "a global strategy," the Wall Street Journal reported, seeking out business partners in Europe and Japan. John L. Davies, former senior vice president, was named president of AOL International. Case himself became head of the Internet Services division, in addition to his duties as president and CEO of the parent company. Michael Connors, another former senior vice president, was appointed president of AOL Technologies, to develop technology for the company. Ted Leonsis, president of recently-acquired Redgate Communications, was made president of the AOL Services division, overseeing the company's basic services and their development. Allyson Pooley, a securities analyst for Chicago Corporation, told the Wall Street Journal that the reorganization was a "positive move that will allow the company to better focus on areas where it sees growth." Commenting on the new structure to Jeffrey D. Zbar of Advertising Age, Case said, "We want to be the No. 1 consumer online service. We want to be the leader in the Internet. We want to be the leader internationally. We want to be the leading technology innovator."

A move by the giant Microsoft Corporation, headed by Bill Gates, caused some consternation for Case. The Microsoft Network, which was announced in 1994 and introduced the following year, bundled with Microsoft's Windows 95 operating system software. Integrating the network with the next generation of its widely used Windows software would be an "unfair advantage," competitors argued to the Justice Department. The government pursued a case against Microsoft, charging unfair business practices.

To strengthen its international presence, early in 1995 AOL formed a joint venture with Bertelsmann, a major German media company. In June of 1995, the Global Network Navigator (GNN) service was purchased. Originally an online magazine, AOL reworked it into an Internet access company and launched it in October 1995. Case told Robert Hertzberg of Web Week that the service was introduced "with more local dial-up numbers than any other national Internet access company." As to why AOL would want a second strictly-Internet service, Case remarked to Cathi Schuler of CeePrompt! Computer Connection, "People who are sophisticated users of the Internet and are seeking a full-featured Internet-only offering will likely opt for our new GNN brand. People who want a simple and affordable package that provides them with access to the widest possible range of content-included but not limited to Internet content-are likely to continue to opt for our flagship AOL brand."

By 1995, AOL had over three million subscribers and was still climbing fast. Business Week noted that, since 1993, "naysayers have predicted that Case would falter and AOL spin out of control," but both continued to forge ahead. Late in 1995, Case was elected chairman of AOL. In February of 1996, AOL bought Johnson-Grace, a data compression software maker, to help speed the transfer of text and image files. That same month Case brought in William Razzouk from FedEx as chief operating officer, a new position. Razzouk was to manage day-to-day operations. In March, Case put together several major deals to greatly expand AOL's reach. The company announced a deal with Netscape; it would now offer the popular Netscape Navigator browser for use with GNN. It announced a pact with Microsoft; AOL would now integrate Microsoft's Internet Explorer into its online software. Microsoft, in turn, would include AOL in its Windows 95 operating system. A partnership with Apple Computer would put the AOL software on that system. Also, AT&T agreed to promote AOL and make it available on its WorldNet Internet access service.

AOL Led Despite Troubles

AOL had five million subscribers by 1996 and had become "the nation's leading online service and single largest Internet access provider," reported John Simons of U.S. News & World Report. The company had kept up its momentum, Case told Simon, "because we embrace new technology, then mask its complexity." Not all was going smoothly for Case, though. In June of 1996, William Razzouk resigned after just four months with the company. Case was to resume the duties that had been assigned to Razzouk. The Wall Street Journal reported that Razzouk's departure came about because "insiders say he came across as a button-down, command-and-control executive in a company so casual it hosts on-site beer bashes."

Critics were also attacking AOL's accounting practices. Abraham Briloff, emeritus professor of accounting at City University of New York, called the company's methods "in-your-face arrogance." Briloff questioned AOL's accounting for the costs of acquisitions and also its deferral of marketing expenses for attracting new subscribers. With marketing expenses, for example, the typical company charges expenses against profits as it spends the dollars. AOL was spreading its costs over 24 months, increasing short-term profitability. Briloff argued that by applying more rigorous accounting principles, AOL would break even. "Push the pencil a little more," he added, "and it comes out negative." Allan Sloan in Newsweek noted that AOL has had to battle a rising turnover rate among subscribers. In the March 1996 quarter, "AOL added 2.2 million new customers, but lost 1.3 million old customers," Sloan related. The Wall Street Journal wrote that while some analysts think its turnover rate is "alarmingly high," others do not view it as excessive for the industry.

Case continued to make deals, establishing a Japanese joint venture with Mitsui and Nikkei. On July 1, 1996, AOL announced its new 3.0 software for Windows. A company press release said the new software would give its users "a faster and more convenient online experience, easier navigation, enhanced communication, and personalization of AOL to fit individual member's needs." In a July 19, 1996 statement, Case said that the company ended the June quarter with 6.2 million subscribers worldwide. He declared that the company was aiming for 10 million by the middle of 1997, a figure he reached by the fall of that year.

On August 1, 1996, the company announced that it was filing for a listing on the New York Stock Exchange. It had been traded on NASDAQ. A few days later AOL announced the purchase of the ImagiNation Network, a multiplayer games company, from AT&T. According to the press release, this would "dramatically expand AOL's online games offerings." August 7, 1996, however, was to become AOL's day of infamy. While conducting routine software maintenance early that morning, the company ran into problems and had a nationwide outage which lasted for 19 hours. The blackout was frustrating for users and embarrassing for the company. Newspapers across the country reported it. "All day long and long after AOL was A-OK, the press painted a grim portrait of Webbies all wired up with no place to go," remarked George Vernadakis of Inter@ctive Week. Case issued an apology to subscribers, Peter Coy of Business Week noted, but he added, "I would like to be able to tell you that this sort of thing will never happen again, but frankly, I can't make that commitment."

The next day, AOL announced that revenues for the fiscal year ending June 30, 1996 had passed the billion-dollar mark, almost triple that of fiscal 1995. Late in 1996, a huge number of new customers came on board when the company began offering a flat rate of $19.95 a month, as opposed to its previous practice of charging hourly rates. However, by 1997 some pundits again were predicting a decline because AOL was not providing enough access numbers for its ballooning customer base, causing a legion of frustrated users who could not connect due to busy signals. In addition to AOL having to wipe from the books every dime of profit, some individuals filed lawsuits against them for breach of contract, and 36 states threatened action over billing practices as well. In January of that year AOL began offering refunds to customers who could not enter the service due to user overload, and its stock took a tumble.

CompuServe Folded into AOL

AOL experienced an upswing in 1997 when the announcement was made that it was purchasing rival Compu-Serve, which would operate separately but allow AOL to dominate the market, adequately fending off the Microsoft Network. Counting roughly 60 percent of all online users as customers, its stock rose 600 percent in 1998. By the end of that year, AOL had its best fiscal quarter ever and boasted about 17 million total customers worldwide, 15 million on AOL and the other 2 million on CompuServe. Its 1998 revenue was $2.6 billion, with a net profit of $92 million. Even though it raised its price in 1998, to $21.95 per month, subscribers did not flinch, because the service had established itself as more than just a gateway to the Internet: It was a "portal," with a distinct brand identity.

Late in 1998, AOL began an aggressive course of expansion and agreed to purchase a number of Internet-related businesses. First, it announced it was acquiring Netscape, the browser company that had seen its market share plummet from about 80 percent to roughly 40 percent due to competition from Microsoft's Internet Explorer. (This was also an issue in the U.S. Justice Department court case looking into Microsoft's business practices.) After this deal, Netscape cofounder Marc Andreesen joined the ranks at AOL, as chief technology officer. In early 1999, the company announced it was also buying Moviefone, the telephone service that provides local film listings and offers ticket sales. It also had plans for AOL TV, a service for accessing the Internet through a television instead of a computer (other firms, such as some phone and cable companies, were simultaneously working on this as well). AOL projected that it would see $300 million in net profits by mid-year.

Throughout AOL's skyrocketing success, Case has received high praise. He is determined to make the online world of AOL an attractive, entertaining, and informative place for the masses.

Further Reading on Steve Case

Advertising Age, September 12, 1994.

Baltimore Sun, March 6, 1994, p. 1D.

Business Week, January 11, 1999, p. 65.

Capital Times (Madison, WI), January 28, 1997, p. 6C.

Computerworld, November 4, 1996, p. 2.

Dallas Morning News, April 27, 1998, p. 1D.

Detroit News, November 15, 1994, p. 3E; January 1, 1996, p. B1;April 10, 1996, p. C1.

Forbes, January 11, 1999, p. 152.

Fortune, February 19, 1996, p. 58; February 15, 1999, p. 69.

Internet Business Report, May 1996, p. 3.

Multichannel News, June 13, 1994, pp. 3, 44.

Newsweek, May 27, 1996, p. 48.

New York Times, August 14, 1995, p. D1; February 2, 1999.

PC World, January 1997, p. 51; April 1998, p. 55.

Red Herring, April/May 1994.

San Francisco Chronicle, January 26, 1999.

Time, September 22, 1997, p. 46; December 7, 1998.

United Press International, January 27, 1999.

U.S. News & World Report, March 25, 1996, p. 53.

Wall Street Journal, September 8, 1994, p. B12; March 22, 1996, p. B1; August 8, 1996, p. B1; July 9, 1998, p. B4.

America Online press releases, July 19, 1996; August 1, 1996;August 6, 1996; August 8, 1996. Available at http://www.aol.com.

CeePrompt! Computer Connection, January 1, 1996. Available at http://www.ceeprompt.com.

Hoover's Online, March 2, 1999. Available at http://www.hoovers.com.

HotWired, June 19, 1996. Available at www.hotwired.com.

Inter@ctive Week, August 21, 1996. Available at http://www.zdnet.com.

Next Generation Online, March 14, 1996. Available at http://www.next-generation.com.

Web Week, December 1, 1995. Available at http://www.webweek.com .

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