Editor’s note: Russ McGuire is the online director of Business Reform Magazine. Each issue of Business Reform features practical advice on operating successfully in business while glorifying God.

Steve Case, the vilified leader of the America Online empire, resigned from his post this past weekend, and many are wondering where the Internet will go from here.

Steve Case and AOL, for many, represented all that was good about the new networked world. His downfall, and the impending doom hanging over the America Online business, signal dark times ahead for the company’s online customers.

Case’s rise to power attested to the value of innovation, creativity, and entrepreneurism as the forces that power our society and economy. Certainly, he was helped by the lies that inflated the Internet bubble, but before most had even heard of “the Net,” Case and AOL had already vanquished well-funded competitors Prodigy (backed by Sears and IBM) and Compuserve (backed by H&R Block). These early victories were built on the same three basic characteristics that carried the company to its heights and eventually led to its current decline: a primary focus on customers’ real needs, effective consumer marketing, and an aggressive culture. AOL, in fact, came to exemplify these attributes.

Although customers could always find something to complain about, America Online made the Internet a friendly place for tens of millions of consumers who, today, look online first for finding answers to questions, connecting with family and friends, and shopping. Since you have turned here to WorldNetDaily and BizNetDaily for your daily news fix, I can safely assume that you are part of the majority of Americans who have benefited from the true transformation of our culture that has occurred since the Internet burst upon our collective conscience less than 10 years ago. And AOL deserves much of the credit for focusing on customer needs and making the benefits of the Net accessible to everyday Americans.

Of course, America Online has been the brunt of many jokes concerning its aggressive marketing campaigns. From a flood of free computer disks appearing everywhere you turned, to that ubiquitous phrase “You’ve Got Mail” that was catchy enough to become the basis for a hit movie, America Online pioneered marketing gimmicks that have left many marveling at their surprising effectiveness. This marketing not only led to the company’s immense market share lead, but also drove the incredible stock valuation that allowed Case to acquire the huge Time Warner conglomerate.

Similarly, the company’s aggressive culture drove many successes. A can-do, “no mountain is unassailable” attitude led to incredible victories over Prodigy, Compuserve, and even the most formidable of opponents, Microsoft. However, this aggressiveness bled over into areas that would eventually lead to Case’s downfall. From its earliest days, America Online struggled with cash flow. Unreasonably optimistic accounting practices allowed the company to raise funding required to keep the doors open. A young, innovative startup can hardly hope to survive without being aggressive, but it is possible to be bold while operating with integrity, and this is an area where AOL seems to have let down their guard.

So, if America Online was such a great entrepreneurial company, why is Steve Case now updating his resume?

Three fundamental issues finally brought down Mr. Case. First, and most importantly, the lies and deceit upon which AOL’s accounting had been based finally caught up with the company. Second, Case believed his own hype. He failed to recognize that the economy really hadn’t shifted to a new set of rules, and he failed to temper his vision for the future with the realities of today.

Finally, AOL investors, led by their favorite cheerleader, failed to understand the concept of division of labor. America Online is one of the best at one thing – making the online experience comfortable for consumers. Time Warner is one of the best at a completely different thing – creating and distributing media programming to audiences around the world. The forced marriage of those two distinct functions may have produced some efficiencies, but those gains were more than offset by the damage done to each component’s ability to partner with new competitors (Time Warner’s ability to partner with AOL’s competitors and vice versa) and the compromise and confusion bred by trying to manage two distinct business models within one unnaturally-constructed body. This Frankenstein beast was ugly, unwieldy, and incapable of operating productively in an environment that eventually recognized it for what it was.

So, where do we go from here? Many are predicting that the new Time Warner management team will move quickly to jettison the America Online appendage. This is a wise move, but it may be fatal to AOL. The timing couldn’t be worse. The online advertising market has yet to recover, the FCC isn’t inclined to sustain regulations that could help companies like AOL ride on the Bell companies’ nickel to a broadband future, and the company has become the kind of bureaucratic monster that AOL once was so adept at making extinct.

If America Online dies, will the American online culture die with it? Probably not. But for tens of millions of AOL customers, the eager voice announcing new email has taken on dolorous undertones.



Russ McGuire is Online Director for Business Reform. Prior to joining Business
Reform, Mr. McGuire spent over a dozen years in the telecom industry, serving as Chief Strategy Officer for TeleChoice and Vice President of Strategic Development for Williams Communications, among many other roles. Mr. McGuire is currently focused on helping businesspeople apply God’s eternal truths to their real-world business challenges through
Business Reform’s online services.

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