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Summary:

Steve Case, the founder of AOL and architect of the disastrous merger with media giant Time Warner in 2000, has been using the question-and-answer site Quora to respond to critics of that deal, and also to share his thoughts about the new AOL.

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Steve Case, the founder of America Online and the architect of the most disastrous technology merger of all time — the $165-billion combination of AOL and Time Warner in January 2000 — has made it clear at various points over the years that he thinks the merger was a great idea, and that the media giant screwed things up, leading to the loss of hundreds of billions of dollars in market value. Now, the AOL founder seems to have found a new platform for his defense of AOL and the Time Warner deal: Quora, the question-and-answer service that has been adding new users at a tremendous pace of late.

Maybe it was all the free time the AOL founder had over the Christmas vacation, but Case has responded to almost a dozen questions on Quora over the past 10 days. Some are relatively innocuous, such as the one about the Stanford women’s soccer team and their chances for the playoffs, or the question that asked for Case’s top five pieces of advice for aspiring entrepreneurs (in which he linked to a speech he recently gave). But the ones that are most interesting are about AOL and its strategies during the boom, and the failed merger with Time Warner. One question asks why, after AOL-Time Warner lost over $100 billion in market value, “the mantra about building a large number of users is still accepted without question as an acceptable business strategy.”

In his response, Case notes that before the merger, AOL was “the most valuable Internet company and one of the most valuable companies in the world,” and that this market value allowed it to merge with Time Warner “in a deal that gave AOL shareholders 55 percent ownership of a company that had nearly $40 billion in revenue and almost $10 billion in EBITDA” or free cash flow. So why did the merged company later collapse and obliterate so many billions? Case leaves no doubt about where he thinks the blame lies:

The management of the combined AOL Time Warner was unable to capitalize on the opportunities that existed to innovate and build more value. As Marlon Brando said in On The Waterfront, it could’ve been a contender! But as Thomas Edison noted a century ago, vision without execution is hallucination. That, sadly, is the AOL/Time Warner merger in a nutshell.

Case doesn’t name names, but the chief executive of AOL Time Warner after the merger was Gerald Levin, who was then replaced in 2002 by Richard Parsons. Case himself was chairman of the combined company, a position he stepped down from in 2003 — the year the merged entity recorded an annual loss of $99 billion, which at the time was the largest corporate loss in U.S. history. CNN founder Ted Turner, who at one point was vice-chairman of the company, said later that he personally lost as much as $8 billion as a result of the merger, and during an interview with fellow billionaire Richard Branson at the recent World Climate Summit compared the experience to “going down with the Titanic.”

Case wrote an op-ed piece for the Washington Post in 2005 arguing that the two companies should be separated, something that finally happened in late 2009 when Time Warner spun AOL off as a separate company.

And what does Case think about the new AOL? He answered that too, in a question about what his initial vision of the company was and what he thinks of it now, saying:

I feel great about what our team accomplished — indeed we achieved all those goals, as well as others. Obviously the past decade has been more challenging — and the merger with Time Warner very disappointing — but I am cautiously optimistic that the “new” AOL is on a much better trajectory. Go AOL!

Other questions the AOL founder has answered on Quora include one about why the company made it so hard to cancel an account with the online service — in which Case admitted that “as AOL got bigger it became more of a hassle to cancel, and that probably was a mistake,” and added that “a few years ago I remember hearing audio of a conversation somebody had with AOL when they were trying to cancel, and was mortified by the runaround they got,” which appears to be a reference to this legendary incident.

If nothing else, Case’s responsiveness to questions on Quora — even if the answers seem somewhat defensive and/or self-aggrandizing — shows a willingness to discuss those kinds of issues in a public forum, something very few senior tech-industry players do on any kind of regular basis. And it’s also a sign that Quora’s strategy of building the kind of positive community that can attract such people is paying off, although it remains to be seen how much longer it can maintain that kind of control as its growth starts to accelerate.

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Post and thumbnail photo courtesy of Flickr user TEDxMidAtlantic

  1. What Steve Case can’t say publicly, of course, is that the AOL-Time Warner deal was a smashing success – for AOL shareholders, who were successfully hedged against the predictable popping of the Internet bubble buy converting their inflated AOL stock into stock of a dowdy but substantial company with valuable assets.

    Levin stands out as the chump of the century, and Ted Turner was against the deal, but powerless to stop it, in another indictment of what passes for corporate governance in America.

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    1. That’s a good point, Fazal — AOL shareholders made out far better than Time Warner investors did (or those who bought shares after the merger), which probably helps explain the difference between Steve’s perspective on the deal and Ted Turner’s viewpoint :-) Thanks for the comment.

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  2. Brendan Lane Larson Monday, January 3, 2011

    Matthew,

    Is it now vogue and sporty to put Steve Case on the stand, with opening prose such as yours of “… the architect of the most disastrous technology merger of all time …”? While it appears nice of you to later point out that Steve is answering questions publicly on Quora, as “…an award-winning journalist who has spent the past 15 years writing about business, technology and new media…” [1], your negative bias is a disservice to readers of GigaOm whose target audience is “global technology innovators” [2], particularly new or formative younthful readers who might be budding entrepreneurs and innovators.

    In preparation for this article, did you first listen and view the publicly available conversation with Steve Case, recorded live in Honolulu, Hawaii on November 1, 2010 as part of the University of Hawaii’s Kipapa i ke Ala lecture with Steve Case ?

    Steve Case is one of the world’s great entrepreneurs. In his recent conversation, besides speaking about the ups, downs, trials and tribulations of AOL, he also provided valuable wisdom and inspiration to his audience comprised substantially of students and faculty. Besides, Steve continues to make contributions to funding brain cancer research and persists as a philanthropist. You pointed out none of these positives. How would you have performed during the multitude of mission critical decisions that were required, given the past uncertainties, if you were in Steve’s shoes? What about calling some attention to Steve’s vision and the risk he incurred as an entrepreneur, and how AOL progressively moved the world forward? Its lazy journalism to focus mostly on the rear view mirror with second guessing.

    One of the important themes of entrepreneurship, especially when mentoring, is to help budding entrepreneurs get past fear of failure and fear of trying. Your biased article about Steve regrettablly reinforces and reintroduces a destructive “failure” meme that is anti-entrepreneurship, anti-innovator and the anti-thesis of GigaOm. For your future articles I hope you dig further in your research, reflect on your drafts and run them by an editor, and reconsider before publishing.

    Sincerely,

    -Brendan Lane Larson
    Meteorologist and seasoned entrepreneur

    [1] http://gigaom.com/author/mathewingram/
    [2] http://gigaom.com/about/

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    1. Brendan, this post wasn’t designed to be an exhaustive analysis of Steve Case’s contributions to technology. I agree that he has done — and is doing — many worthwhile things. This was simply a snapshot of some of his thoughts, that’s all. And whatever the intention, the Time Warner merger was a massive failure, and he was the one who pushed for it and drove it forward. Thanks for the comment.

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  3. Hi,

    Steve Case always came across as a cocky arrogant shite, but, he was right, and did have a vision.

    The merger was a success, putting strategic companies together; it was the nuts-and-bolts of actual integration and administrative execution that failed.

    You just have to look at the likes of Google, Twitter, Hulu, Youtube, Comcast, CBS/cnet, Facebook, Onlive, and the oncomming future to see how ahead of the times they were.

    Much like the stories of the meetings between IBM and Microsoft in the early days of jeans and suits, and then combined with the territorial ego’s traditional of the media industry, it was more important which “side” had the upper hand, then to creating an agile behemoth.

    Combine the current Aol with Hulu and the wide deployment of DSL; Apple/Disney, or what Facebook will become, or the many cumulative initiatives of Google, and what do you have, but what Steve Case initially laid out, of what Aol Time-Warner was to become.

    If TWCable would have absorbed the dial-up and brand of Aol. All the proprietary video initiative from HBO-down, and Time-Life that Aol2.0 had to build almost from scratch for its content/ad engine/factory – How was it wrong?

    Finally, as the Ceo of Aol, his duty was to its shareholders, and in protecting the downside of the coldest winter that effected stocks after 2000, let alone tech. he also did his job.

    Now, will the likes of Facebook and Twitter learn that most important lesson?

    Yours kindly,

    Shakir Razak

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    1. Thanks for the comment, Shakir. Could the merger have succeeded? Possibly. But it did not. Does Steve Case bear the blame for that? No — not solely at least. But it was his deal.

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  4. On another note, it’s worth making a point about Quora itself. The quality of its community has made it into an arena where folks like Steve Case and others are comfortable participating and sharing their views. Its becoming a fascinating service full of insight.

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    1. I agree, Kevin — it will be interesting to see whether that remains the case as the service grows.

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  5. [...] Ingram over at GigaOM discusses Steve Case‘s use of Quora as a soapbox to defend AOL. Steve Case, the founder of America Online and the architect of the most disastrous [...]

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  6. [...] such as Netscape founder and VC Marc Andreessen, Facebook co-founder Dustin Moskovitz, and even AOL founder Steve Case. In an interview with me in November, Charlie Cheever talked about the kind of community Quora was [...]

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