The Datapro Interview:
America Online President Steve
Case
Datapro:
It's been an exciting year for America
Online, with all the recent acquisitions, not to mention the astounding growth
of the subscriber base. Where do you see the service going next?
Case:
We really haven't changed, we're
just doing more of it. Our view for ten years has been that what's happening here
is the emergence of a new medium; it'll be more interactive and more participatory,
and someday, hopefully soon, we'll reach millions of people. And we want to be
the leader defining that medium. So any new content alliances, any new technologies,
any new anything that's supportive of that overall strategy is something we're
interested in.
So for example, last
year we did think there were a lot of exciting things happening on the multimedia
side, and on the Internet side, from a technology standpoint. So some of that
we developed inhouse, some of that, we said, "well, this company, these people,
know it better than we do or they have better technologies than we do, or something,
and if we accquire them and join forces we can move even faster." So it's really
kind of business as usual, but at an accelerated pace, because there is more
and more interest now in these services among consumers as well as potential
providers. Within the last year or so it just kind of broke into the open, went
on the radar screen of lots of big companies, media companies, financial services
companies, who recognize it's now large enough, growing fast enough, that it's
something they really need to get in front of, take advantage of in terms of
building their business, and on the consumer side too, there's been a flurry
of interest in these kind of services, and AOL is now nicely positioned as the
service most likely to be recommended by people who know what they're talking
about. There's a lot of momentum on that side as well.
Datapro:
In the consumer market, there's also
this identification of AOL and the other online services as the equivalent of
the Internet. They think the two of them are closely aligned.
Case:
Well, I think it's a reasonable way
to look at it. From a technology view, and particularly an Internet technology
view, of course, it's not really true. AOL and the Internet are different things
but the way consumers see it is what really matters. They don't and won't, I don't
think, make subtle distinctions between particular technologies. For example,
they really don't care whether they're coming into our service through an X.25
network or a TCP/IP network. That's really not particularly relevant to them.
They really don't care whether the content they access is stored in our format
or HTML format. What they care about is the overall experience. They care about
accessing a wide range of content in an engaging way. So the presentation, navigation,
personalization, what we call context is all very important to them. They care
about community, really feeling a part of the service, being a member of it, not
just a subscriber to it. They really care that the pricing is simple and affordable
and predictable, and that there aren't all these extra charges depending on what
you use. That's what they care about. That's what we try to focus our business
on.
To a large extent, the
worlds of commercial online services, the Internet, and multimedia/CD-ROM publishing
are blurring quite rapidly, and part of the reason for some of our acquisitions
is we're trying to accelerate the blurring, because we think that as those come
together, that's really the making of a broadbased medium that can reach tens
of millions of people. So anything we can do to speed up that process, we're
interested in. Over time, the experience, the services, the overall "package"
offering is what I think is going to drive this to the mainstream audience.
We ask ourselves why 93 percent of households don't subscribe to online services,
and it seems to us that it's viewed by them as still too complicated or still
to expensive or still too threatening or still not interesting or something
like that. They still haven't been pushed over the fence. So our efforts are
focused on making it easier, making it faster, making it more affordable...and
most of the people entering the market-- particularly people who are coming
to it from a purely Internet-centric perspective-- tend to be complicating things,
they tend to believe that the market is more sophisticated than we think it
is, the overall market. So it is a common view out there that the Internet will
speed this intermediation and everybody will pick the browser they want and
the transport they want and then surf the net and subscribe a la carte to the
content they want . And some WILL do that. But it seems to us it's more likely
to be a subset of the existing 7% using it, kind of like a power user, as opposed
to the 93% that are not out there yet. What we're tring to do with AOL is be
that service that tens of millions of people can trust, have mainstream appeal,
be for "everyman," and still have a bit of an image, an edge, kind of a hipness
to us so that it's not completely mass-marketized, and yet is something that's
broadly accessible. Then we'll launch Global Network Navigator as a second brand.
Datapro:
When do you forecast that?
Case:
It's in beta test now and from what
I can tell, it's been going pretty well, so I think we're in pretty good shape.
That's a smaller market than people realize and the best way to look at it is
that the dominant Internet access provider is Netcom and they have 200,000 subscribers.
We've added 200,000 subscribers in the last 3 weeks. It's just a different scale.
Datapro:
Perhaps they don't have quite as
many free disks out there as you do...
Case:
Well, that's part of it, marketing
is part of it, but I think a lot of it is product quality and acceptance The question
is how many consumers would rather pay $20 a month, which is what Netcom is, to
have essentially an onramp onto the Internet.. you know, here are the keys, and
good luck, and how many people would rather pay $10 a month and have that plus
guidance to the best sites on the Web plus a whole sea of services that aren't
even on the Internet, whether they be content or community. The Web still is content.
It lacks, to a large extent, context, and it's completely devoid of community.
We think community is pretty important, not just pulling up data, whether it be
text or multimedia. People want to talk to each other, and we've learned that
in the last 10 years and we want to bring that aspect to the Web too.
Datapro:
That brings up an interesting point.
Everybody says, well, this is going to empower the individual to be a publisher,
a content provider, and people won't need an expensive printing press in order
to publish whatever they want. Don't you think there could be a kind of growth
of "boutique" providers? For example, the Well recently signed a deal to open
a whole bunch of POPs all over the country.
Case:
Well, that's different. I think there
will be a lot of this. This is kind of the second generation of special interest
publishing. In the last 25 years we went from basically three television networks
and a handful of general circulation magazines to a few hundred television networks--mostly
cable-- and 12,000 special interest magazines. These technologies further lowering
the barriers are going to result in 12,000 being 12 million or something. So there
will be diversity out there. That's diversity of content and creation.
I actually think that there probably won't be that many major global providers
in terms of the services consumers rely on to get them to where they want to go.
I think AOL, the Microsofts, the AT&Ts, the Compuserves, there won't be as many
of those, and that's the way most consumers will end up connecting to all this
stuff. So there'll be very low barriers to entry in terms of content creation.
There won't be this battle that's there today, particularly with television, but
to some extent even with the magazines, to get distribution, to get channel capacity
with cable, but to also get newstand placement of magazines and all. It'll be
easier to get distribution; the battle will be getting your content promoted.
If there's a sea of millions
of options, I think the ability to find your stuff will become more important.
I don't know if there will be a lot of boutique network system service providers
like the Well creating a lot of POPs... I'm not sure how big a market that is.
I would tend to think it's not as big as people think because the momentum on
the system operators side is in favor of a handful of providers. We've seen
this just in the last year, that now that we have the three and a half million
customers it's a lot easier for us to attract content than two years ago when
we had 300,000 or 400,000 subscribers. People with content would rather reach
a broad audience, so we get more content, so the service gets more interesting,
so we can reach a wider range of people. Reach a wide range of people and we
generate more revenue, and we can spend more on marketing and spend more on
technology to make it better known and better. We reach a wider audience and
then we can start building from that wider audience other sources of revenue,
like interactive advertising and transactions and so forth. So there are economies
of scale on the cost and there are also economies of scale in terms of critical
mass that I think will result in a handful of major providers. There'll always
be room for specialization, but I think in terms of ... if you look at publishing,
for example, it's fairly fragmented in terms of providers but fairly concentrated
in terms of dominance of Time-Warner or ViaCom or whatever, it may be the same
way here, although there'll be many, many companies, there'll be few major companies.
Datapro:
What about Microsoft Network and
AT&T's foray into the Internet? And Compuserve as well? What are your thoughts
about that competition, particularly Microsoft?
Case:
Well, we always run scared, and our
strategy is to kind of overestimate, particularly overestimate Microsoft. We know
over time they'll be great, because with their history... 1.0, 2.0, 3.0... wham!
That said, the Microsoft Network today is not nearly as good as I thought it would
be. I think they made a serious mistake in the architecture of it by presuming
high-speed access. Some of the things we do in terms of caching graphics are critical
in a 14.4 world, critical in a 28.8 world. They basically have designed a service
that seems to me to minimally require ISDN and really require a cable modem. It's
a serious tactical mistake. And I think that although we're doing a lot with cable
modems and ISDN, it's going to take a while before broadband is embraced. So over
the next couple of years we'll see a battle that's going to be fought in the narrow
band world-- 14.4 and, increasingly, 28.8, and I think they missed that.
We're trying to make
ours more engaging and give it mass appeal I also think that although they brag
about the navigation being like Windows 95, I'm not sure that's a great metaphor
for designing an online service because it's boring and techie. It's a little
hard to find things and the content today is not great. We know that Blackbird
is good but it's delayed and whether it's another three months or another six
months or another nine months or another year, nobody knows exactly when it'll
be out. But when it's out, there'll be more content, and presumably, the content
will be more engaging, actually exacerbating the speed problem. So you have
to step back and say well, here are the facts: they control Windows 95 and they're
bundling with Windows 95, which gives them a marketing advantage. Over time,
they're a company that tends to get it right. So one has to presume that two
or three years from now they will be a major force in the market, even though
today it's a surprisingly modest first at bat.
Datapro:
What about AT&T? In contrast to Microsoft.
Case:
Well, this is a company that astonishes
me, frankly. I mean, they've got a great brand, 60 million customers, I've always
expected them to do better. Two years ago in our annual report I wrote "in the
long run, our major competitors will be AT&T and Microsoft." They still aren't
in the market! Interchange is essentially dead, Imagination Network has only 60,000
or 70,000 subscribers after five years, so I think they're probably putting most
of their faith into becoming an Internet access provider. I suspect they'll be
pretty aggressive in that market, but it's a company that hasn't executed very
well in these markets, so until you actually see the product and see how they're
going to market it and how they're going to price it, it's hard to know. I wouldn't
be surprised to see them being pretty aggressive, but at the same time... MCI
a year ago-- actually a year and a half ago-- started running Internet MCI/Network
MCI ads on television. I don't even know if they shipped a product yet! A year
ago they licensed Netscape and started advertising it and if they have, they've
done it very subtly, and they have a few thousand customers, and they're not there
yet. So there is a tendency in this business for people to put out press releases
and do big alliances-- MCI, Murdoch, and so forth. And they all sound good. But
all that matters is what's on the screen. Are consumers going to fall in love
with it and tell their friends about it? Now, alliances can be a way to do that.
We've done alliances, obviously, and technology licensing is a way to do that.
But there's gotta be a "there" there, and with some of these companies, there
isn't yet, and I think there SHOULD be, I think everybody is going to be a service
provider. Every cable company, every local phone company, every long distance
company.