Transcript
David Brown (0:00)
This is Business War's Flipping the Bird. Episodes will drop Wednesday, Thursday and Friday. For the next two weeks, Wondery subscribers can binge the entire season of Business Wars Flipping the Bird. Right now, start your free trial in the Wondery app or on Apple Podcasts. It's July 2000, and in Atlanta, Georgia, the forces of old and new media are about to collide. Because inside the CNN center, the directors of Time Warner and AOL are holding their first joint board meeting. Time Warner is the world's biggest media company. Its holdings include cnn, cable tv, movies, music labels, Fortune magazine, HBO and more. Its leaders are gray and grizzled and used to striking deals over expensive meals. Their counterparts at AOL couldn't be more different. They built the Internet service provider that's the toast of the dot com boom. They're rowdy, newly rich and munching Cheetos. And six months ago, they decided to buy Time Warner for $182 billion. It's the biggest merger in US history, or will be once the government approves it. To prepare for that day, the two companies are using this board meeting to learn how to work together. But they're already struggling. At the front of the room, AOL president Bob Pittman is delivering a presentation. He used to work at Time Warner until he got fired by its CEO Jerry Levin. Now, thanks to AOL's high priced stock, Pittman's on the Forbes 400 rich list. While time Warner's executives flew commercial to be here, he arrived on his private jet. And now the tables have turned. Pittman's telling Levin how it's gonna be. AOL is delivering $2 billion in ad and commerce sales. In five years time, we'll be delivering 7 billion. One AOL executive shouts out. And that's a conservative estimate. But while the AOL crew is pumped, the Time Warner team is poker faced. To them, board meetings are serious affairs, not free for alls, where people yell out and snack like they're at the movies. Not sure anyone's ever run the numbers on this, but here's a pretty safe bet. Culture clashes have probably killed more deals than bad math. Put Cheetos next to caviar and I'm thinking someone's gonna choke. Pitman hauls a large piece of cardboard onto a stand. It's a graph where a thick line swoops towards the heavens. It's AOL's revenue projections. Our trajectory is clear. Revenues will reach $40 billion. In the audience, Time Inc. Boss Don Logan can't believe what he's seeing he thinks Pittman's projections are are nonsense. His numbers assume AOL's growth will never slow, and that's nearly impossible. You know, there's a law of gravity in business. The bigger a company gets, the harder it is to keep growth high. It's easy to double sales when you're only making a buck. But to double sales from 1 to 2 million, that's far tougher. On top of that, new markets mature in the year 2000. Internet use is still growing. Only half of Americans are online. But one day everyone who wants to be online will be, and the entire market's growth will inevitably slow. But Pittman's talking as if AOL's immune to that. The Time Warner executive next to Logan leans over. I want what he's smoking. Logan would smirk, but this is no laughing matter. AOL is about to take control of Time Warner, and what he and most of the Time Warner crew still can't wrap their heads around is how did a company as big and storied as they are end up prey for these computer freaks? You know, hiring used to mean endless resumes, missed connections, precious time wasted. Then, indeed, change the game. Here's the thing about Indeed. It's not just another job site. It's your complete hiring solution. Imagine your job post actually reaching the right people instead of disappearing into the digital void. That's what Indeed's Sponsored Jobs do. They push your listing to the top of the search results, putting it right in front of qualified candidates who match what you're looking for. And the numbers? Well, they speak for themselves. Indeed's data shows that sponsored jobs gets 45% more applications than standard listings. That's nearly double your chances of finding the right person fast. There's no need to wait any longer. Speed up your hiring right now with Indeed and Business wars, listeners will get a $75 sponsored job credit. To get your jobs more visibility@inn Indeed.com BW, just go to Indeed.com BW right now and support Business wars by saying you heard about Indeed Right here on this podcast. That's indeed.com terms and conditions apply. So you hiring Indeed is all you need. After telling hundreds of stories about business battles throughout history, I've learned one constant truth. Having the right support systems in place can make or break a new venture. Trust me, it was a battle even I faced on my business journey. That's why AT&T business makes so much sense for entrepreneurs today. When you're building something from scratch, or even just at the point where you're ready to grow, you need a provider that makes things easy. With AT and T business, you can have reliable, protected Internet connection you can count on, so you do not miss a beat. Building your dream might take time and a lot of work, but that doesn't mean it can't be a little easier. Wake up to the power of AT and T business and turn your vision into reality. Business.att.com from wondering I'm David Brown, and this is Business Wars. In this season, we're going to explore why the biggest merger in US history turned into a corporate catastrophe in the year 2000. The merger of AOL and Time Warner seemed like the moment power shifted from offline to online medium. But the mega merger went off script fast. Infighting cookbooks and incompatible corporate cultures would turn it into a marriage from hell, one that would scar both companies. But before any of that could happen, AOL had to overcome the odds to take America online. This is episode one you've got mail. It's January 1983, and at the Consumer Electronics show in Las Vegas, two scantily clad showgirls are leading a store buyer away from the exhibition hall and slot machines. They drop him off at a hotel suite that's home to the Control Video Corporation, CVC for short. CVC is a startup and too cheap to buy at Exhibition Stand, so it's luring buyers here with showgirls and the chance to win a gold bar. CVC founder Bill Von Meister bounds over to the buyer, all handshakes and smiles. He thrusts a champagne glass into the buyer's hand and gets him to drop a business card into the prize draw bowl. Then he guides him to the gadget CVC wants to get into stores. It's something called Gameline, and it's resting on a pedestal in the middle of the room. It's not impressive, just a small block of black plastic. Von Meister wraps an arm around the buyer and tells him he's looking at the future. Game line is a modem. It plugs into a regular Atari game console. For a monthly fee, it lets users download games through their home phone line. Yeah, I know today downloading games is no big deal, but this is 1983. The Internet's barely a week old, at least in terms of consumer use. Only defense contractors can use it, or have been able to so far. Von Meister pulls the buyer closer and tells him Gameline will sell a million of its modems this year. The buyer believes him. Games are red hot. Kids are wild for Donkey Kong, Frogger, and Pac Man Then Von Meister drops another doozy. Games are just the start. CBC's tech will soon let people download music, book hotels and check stock prices. The buyer places an order and leaves, excited. On the way out, he hands his empty glass to a young CVC employee with a prominent chin. The buyer doesn't give the guy a second look, but he should have. Because that 24 year old is Steve Case. And he's the man who will turn CVC into AOL. One year later, 1984. In a hotel conference room in Palo Alto, California, CVC's board is meeting and the mood is gloomy. The video game boom's gone bust and taken CVC down with it. Stores have canceled their game line orders. CVC spent $9 million launching it and sold fewer than 3,000 units. CVC is now debt ridden and nearly bankrupt. Hey, listen. You can have a visionary founder and a world changing idea, but if you burn through money faster than it comes in, the lights go out. It's that simple. Let me put it another way. Startups don't usually die from competition. They die from cash flow. The board sidelines Von Meister. A visionary isn't what the company needs now. In his place, they parachute in. Jim Kim, an airborne ranger turned management consultant. Kimzy's first step is to reduce headcount from 100 people to around 10. He works through the list of employees, striking out names, including everyone in marketing. One of the survivors is Steve Case, mainly because he's cheap. Case is the runt of the marketing department, barely more than an internal. But Kimzi also sees more in Case than cheap labor. No, he's not the most experienced or charming employee, but he is the most driven. He's a bit like the Terminator. He brute forces his way through problems and doesn't do downtime. He shows few emotions, shares little about himself. He listens to what colleagues tell him, but rarely reveals his own thoughts. It's why they call him the wall behind his back. Let me tell you something. Many long time managers already know this. But let's get it on the record. Sometimes your quietest hire is your biggest and best bet. Steve Case wasn't the loudest guy in the room, but he got things done when everyone else was panicking. Execution beats charisma. Keep an eye on the ones who show up early, stay late, and never stop learning. Case burns with ambition. He grew up in Hawaii, but left because he felt becoming the most successful person on the island wouldn't be enough for him. For Kimzy, Case's relentlessness is an asset. CBC is small and in critical condition. It's a real shot in the arm to have someone like Case who gets things done and does the work of three people for the price of one. The two men become brothers in arms. Kimzy mentors Case. Case becomes Kimzy's go to guy. Together, they fight to save the company from its suburban office in Vienna, Virginia. The first priority is to stop CVC's creditors from sending in the sheriff. Kimsey tackles this by threatening to declare CVC bankrupt. It's a serious threat. CVC has few assets. If it goes bankrupt, the creditors get nothing. The threat works. Those creditors back down fast, realizing that the only way they'll ever get paid is if they let CVC get back on its feet. With its creditors corralled, CVC focuses on the one thing it does have. The ability to operate. An online computer Service. In the mid-80s, online services seem like a business full of promise. Fewer than 1 in 10 owns a computer in 1985. But that number is creeping up. So while there are established rivals like CompuServe, there's plenty of room for growth. CVC decides it will build an online service for the market leading personal computer of the day. The Commodore 64. And in May 1985, they marked this new direction by adopting a new name. Quantum Computer Services. Oh, you thought they were about to become aol, huh? Well, not yet, but that moment's coming. But what exactly is an online service in 1985? We're not talking about the Internet here, let alone the World Wide Web. That's. That's years away. In 1985, the online universe is made up of competing subscription services. They offer the stuff we take for granted nowadays. Email, chat, shopping, and News. But in 1985, each service is separate and self contained. For instance, CompuServe users can't email Quantum users, and vice versa. And online services are slow. So slow. How slow? Well, when CBC became Quantum Simple Minds, don't yout Forget About Me. Remember that song that was at the top of the Billboard Hot 100? You know, it was the song from the Breakfast Club movie. Say you wanted to download that song as an MP3 on a mid-80s modem. You'll have that file downloaded in about three days. But it gets worse. Being online in the 80s is expensive. Quantum's Q Link service charges a monthly subscription fee of $9.95, plus another 6 cents for every minute spent online. That's $3.80 an hour. Back when the average hourly wage was less than 9. So downloading that Simple Minds MP3 will cost you more than $270. Just as well no one had invented MP3s yet. The long and short of it is this. It's cheaper, quicker and easier to go to Tower Records. So going online is very niche. Something for the geeks. But that's okay with Quantum, because that's exactly who it's built the Q Link Service for. At 6pm on November 1, 1985, Q link goes live. Connect to the Quantum Link network and suddenly a diverse new interactive world of easy to use services is right at your fingertips. Beginning with People Connection, the social center of Quantum Link, where people from across the nation converse, exchange information, share ideas and participate in informative lectures. Ah, just smell that digital idealism. People are going to get online and take part in informative lectures. They're definitely not going to doom scroll cat videos and argue like overtired toddlers. But chat isn't all that Q Link offers. There's email, sports reports from USA Today, breaking news from Reuters. In games like Hangman and Blackjack, there's even rock and roll news, so you'll always know what Phil Collins is up to. By early 1986, 10,000 people are signed up with Q Link. It's not enough to make it profitable, but it is enough to attract investment and get Quantum on firmer financial footing. But there's a problem. Commodore computers are losing market share. So Quantum moves to bring its online services to other computers, starting with Apple in 1986. Apple isn't the giant it is now. Its Apple II computers are past their prime and Macintosh sales are weak. Even so, there are millions of Apple owners out there, all potential subscribers to Quantum services. But Case doesn't just want to put Quantum on Apple computers. He wants a marketing partnership with Apple to help attract subscribers. So he temporarily uproots to San Francisco and spends three months lobbying Apple employees non stop. Eventually, his relentlessness pays off when one department agrees to a deal. Case returns to the Quantum head office in Virginia a hero and gets promoted to executive vice president in 1988. Quantum's Apple link service goes live. Soon after, it launches a service for PC owners. But Case is worried the services feel faceless. He wants them to feel friendly. Quantum's mission is to make getting online easier. So one afternoon in 1989, he floats the idea of adding a voice to the service. Right now, all users hear when logging on are the strange buzzes and chirps of their computer Connecting with a service which sounds like, Case tells his colleagues. These sounds aren't welcoming. He wants users to be greeted when they log on and told when they get an email. The discussion is overheard by Quantum customer service rep Karen Edwards. She tells Case her husband is a voice actor. And so Elwood Edwards lands the job. He records the lines on a cassette deck at home. Quantum pays him $200 and then adds his tones to the service.