Prodigy was also conceived as an advertising medium. It was organized into magazine-like sections of interest focused on promoting or selling products. Every screen had a three-line graphic advertisement at the bottom.2 The imprimatur of Sears and IBM attracted commerce partners such as Neiman-Marcus, Levi Strauss, Ford, Columbia Records and even Sears’s archrival J. C. Penney. Prodigy hoped to make the bulk of its money via advertising fees or by taking a share of product sales.
Though the focus on ads and commerce never quite went away, Prodigy’s commercial efforts quickly proved to be a bust. It turned out that when people went online what they really wanted to do was interact with each other. Prodigy’s bulletin boards and email services were limited and archaic, and these systems quickly became overwhelmed. Prodigy attempted to compensate for the resulting bandwidth issues by actually discouraging users from using the service so much. The introduction of a 25-cent surcharge for each email a user sent over an allotted thirty emails a month led to a member revolt. Prodigy was forced to reverse course and refocus its offerings on user-created content like message boards and forums, but even then, the stodgy corporate culture of Sears/IBM was not comfortable leaving users to their own devices. “We did not think [member-to-member] communications was going to be a big part of what we were doing,” Prodigy CEO Ross Glatzer told Wired magazine.3 Esther Dyson, the technology analyst, summed up Prodigy’s conundrum this way: “They thought they’d make revenues from people making purchases. But they discovered people were less interested in shopping on the service than communicating. And they didn’t know how to charge for communications.”4
Despite all the efforts of these pioneers, online services were still a niche business, even among computer users. By 1995, Prodigy could boast only about 1.35 million members, and that was behind CompuServe’s 1.6 million accounts.5 The company that would truly take online services mainstream was another early online pioneer that would concentrate almost religiously on allowing users to interact with each other in whatever way they wished.
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AMERICA ONLINE ACTUALLY HAD its origins in another of the early online services, The Source, which was a competitor to CompuServe, launching in 1979. Through a convoluted series of business pivots, the company that would become AOL also shared its DNA with Control Video Corporation, a company that produced an online game service for the Atari 2600 video game console. After the video game business temporarily collapsed in the mid-eighties, the company evolved into Quantum Computer Services to produce a dedicated online service for Commodore 64 and Commodore 128 computers. It also built online services for Apple, IBM and Tandy and in 1989 evolved all these offerings into an online service called America Online, or AOL.6
AOL was one of the first online services to focus on Windows users, which made good business sense because it was able to ride the coattails of user adoption as Windows came into its own as the inheritor of the DOS operating system throne. This strategy also positioned the service as the most mainstream and user-friendly in the industry. AOL was built from the ground up to feature clean, dynamic modern graphics—actual pictures, not the digital line drawings of Prodigy. And first and foremost, AOL fixated on building a sense of community among its membership. AOL users were encouraged to email, argue, play and above all chat.
“From the early days, we recognized that communications—a combination of chat and e-mail—were critical building blocks,” AOL CEO Steve Case would later say. “So our bias was on creating tools, empowering people, and letting them use them in any way they thought appropriate—sort of ‘Let a thousand flowers bloom.’ ”7
AOL’s installation process was simple. You put a disc—and later, a CD—into your computer, installed a program, clicked the icon that appeared on your desktop, and five minutes later you were online. Like CompuServe and Prodigy, the process of getting online meant using a modem to “dial in” via a phone line to an AOL computer that would serve the content to your machine. This was literally a phone call to a local number, so all the online services maintained a network of local modems for people to dial in to and avoid paying long-distance charges. While you were online, the phone line you were using was occupied, so anyone trying to call your number would get a busy signal. A monthly fee entitled users to a fixed number of usage hours per month. If a user went over the monthly limit, they were charged by the hour. On AOL, $9.95 a month got you five hours of unlimited access; each additional hour cost $2.95.8 Once you hung up, the connection was terminated.
The sounds of first a phone number being dialed, and then the harsh crackle and hiss of the modem making a connection to the network, became a ubiquitous noise across America in the 1990s. To this sound, America Online added friendly touches: “Welcome,” “You’ve Got Mail,” and when the connection was terminated, “Goodbye.” The voice was that of Elwood Edwards, a broadcaster and the operations manager of WFTY-TV in Washington, D.C., who was paid $100 for his trouble. Americans heard Edwards’s friendly voice billions of times as they logged in to AOL over the course of the 1990s and early 2000s.
AOL allowed users to create screen names, or online personas that served as their identity as they surfed AOL’s offerings. When you played games or posted to forums on AOL, your screen name was your calling card. Your screen name was also your email address. But most important, when you entered AOL’s famous chat rooms, your screen name was your name tag.
The house of AOL was built on chat. There were public chat rooms organized by topic or theme. Then there were user-created chat rooms that were dedicated to any topic under the sun. Both of these public types of chat rooms were nominally overseen by AOL staff and/or volunteer member-monitors. It was possible to get yourself kicked out of a chat room if you misbehaved. But in addition to these, there were also private chat rooms that were invite-only and monitored by no one. In the private chat rooms, it was very much anything goes. It’s a well-established notion in business theory that sex often drives the lifecycle of new technology adoption, the most famous example being the way porn movies brought VCRs into America’s living rooms. It’s safe to say that the popularity and growth of AOL was driven by sexy chat. Lots and lots of sexy chat.
For one thing, it was easy to attach and send photos to other users in chat rooms; trading of pornography was a common pastime. But the anonymity of the screen name meant you could be anything or anyone you wanted. Paraphrasing the famous New Yorker cartoon (“On the Internet, nobody knows you’re a dog”), in AOL chat rooms, nobody knew if you were a twenty-two-year-old blonde with a pinup’s body or a fifty-five-year-old divorced guy with a beer belly. Americans by the millions took to AOL chat rooms to talk dirty, role-play, and act out sexual fantasies. The company didn’t like to publicize it, but chat was AOL’s bread and butter. The more chat, email and picture trading users did, the more money AOL made. Some users spent hours in chat, racking up monthly overage costs running into the hundreds of dollars. An October 1996 article in Rolling Stone estimated that half of all AOL’s chat was sexually oriented and, given the hourly fees, such adult chat netted the company $7 million a month.9 CompuServe was too serious an operation for such lewdness, and conservative, corporate Prodigy absolutely fled screaming from any hint of unwholesome behavior on their service. By the time Prodigy started experimenting with chat rooms in earnest, AOL basically had the market cornered.
AOL has often been described as training wheels for the Internet. The nickname is apt. For millions of Americans, their aol.com address was their first experience with email, and thus, their first introduction to the myriad ways that networked computing could change their lives. Suddenly, you didn’t have to exchange letters or phone calls with relatives across the country. When you wanted to say something to a distant loved one, you could just shoot them an email. And it was free! And you could attach pictures! AOL was also where people discovered communities centered around interests that heretofore had been isolated or obscure. If you were into breeding miniature dachshunds, suddenly you cou
ld connect with everyone in America who shared your interest. AOL was where Americans first wrestled with concepts of anonymity and identity in an online world. All of those dirty chatters on AOL chat rooms were at the vanguard of learning what it was like to live life in cyberspace.
In a way, AOL embodied that most American of dichotomies: wholesome, friendly, mainstream on the outside, with all sorts of prurient stuff going on behind closed doors. AOL’s chief executive, Steve Case, fit at least the wholesome part of that narrative. A native of Hawaii, prone to wearing Hawaiian shirts, Case seemed like the classic middle-class baby boomer, the guy with two kids who lived next door and loved Jimmy Buffett. With his quiet, calmly earnest demeanor, Case still looked like the Procter & Gamble assistant brand manager he once was. With America Online attempting to entice users from market leaders CompuServe and Prodigy, Case put himself forward as the friendly leader of the AOL “community.” Case appeared in AOL ads and would roam AOL chat rooms to personally interact with members or solve customer service issues. He sent folksy, service-wide letters to AOL users signed simply, “Steve.” In the late nineties, he appeared in Gap ads modeling his trademark khakis.
Perennially the number-three online service behind the deeper pockets of Prodigy and the greater experience of CompuServe, AOL scrambled for members and struggled with mountains of red ink throughout the early 1990s. AOL was arguably the first IPO of the online era; going public on March 19, 1992, it had only done so as a part of its never-ending struggle to raise enough money to remain solvent. Shortly after its IPO, AOL could boast only 200,000 paying subscribers.10
Slowly but surely, however, AOL’s user-friendliness paid off. Members fed up with Prodigy’s heavy-handed censorship and nickel and diming over email jumped ship. And mainstream users increasingly preferred AOL’s pictures and graphics over CompuServe’s continued text-only environment. The previously mentioned focus on Windows users was also a major strategic coup. AOL surpassed the 500,000-subscriber mark for the first time in December of 1993.11
Chronically in need of fresh infusions of capital, and because it was the only independent company in the online service game, AOL had several run-ins with larger players attempting to take it over. The closest AOL came to assimilation was when Microsoft was first considering an entrance in the online services market. AOL’s Windows-centric philosophy seemed like a good match, and so a Microsoft approach to AOL was made. At the very first meeting between executive teams of the two companies, Bill Gates led off by musing to Steve Case, “I can buy 20 percent of you or I can buy all of you. Or I can go into this business myself and bury you.”12 Microsoft would later assert that Gates was just thinking out loud, stating the obvious realities of the situation in a sort of philosophical manner. But that wasn’t how AOL saw it. The AOL executives saw Gates’s “musing” as a threat.
“We didn’t trust Microsoft’s motives, because we knew they could emerge as a major competitor,” Case later said. “At one point in the meeting, [Russell] Siegelman [a Microsoft executive who eventually ran MSN] proposed a 50-50 joint venture, but from our point of view, it was ‘OK, we’ll help you build it, teach you all about it, then just when it gets interesting, you’ll shoot us.”13 As another AOL executive put it, AOL was offered an unappealing choice: become “a footnote on Bill Gates’ resume,” or stand and fight and maybe become “the king of the online industry.”14
AOL chose to stand and fight. It would be one of the smartest business decisions of the decade, because AOL would soon embark on a period of growth that would leave the rest of the industry in the dust.
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AOL’S TRIUMPH CAME in large part thanks to one of the greatest marketing campaigns in consumer history. Jan Brandt had a background in educational publishing and insurance sales before she was hired as AOL’s vice president of marketing in 1993. Tasked with growing the user base, Brandt had an intuition that online services weren’t a typical consumer product when it came to marketing. Selling consumers on the virtue of one online service over another was not as important as educating consumers on just what an online service was. It was during market research that she realized she needed to go back to basics. According to Brandt, during a focus-group study, “Someone took a computer mouse and started pointing it at the computer like a remote control. And one person put it on the floor and tried to use it like a sewing machine pedal.”15
Brandt realized she just needed to get users to try the service. If she could somehow get the AOL experience into people’s homes, the service would sell itself. Brandt approached Steve Case and requested $250,000 to mass-produce thousands of AOL trial discs to hand out to consumers for free. “It was a lot of money for us at the time,” Brandt admits. But, building off her background in direct mail campaigns, she sent out her first shotgun blast of diskettes, around 200,000 pieces, in the spring and summer of 1993.16
The results were immediate and startling. The response rate to the first campaign was a staggering 10%, an unheard-of percentage for direct marketing. “And remember,” Brandt says, “this isn’t people who are saying, ‘I think I want this.’ These are people who are taking the disc, putting it into the computer, signing up, and giving us a credit card. When I saw that, honestly, it was better than sex.”17
Brandt immediately doubled and then quadrupled down on the strategy. The idea was to get an AOL disc offering a free trial into the hands of every person who might conceivably get close to a computer at some point in their lives. AOL discs began arriving in Americans’ mailboxes seemingly daily. Almost every computer maker shipped an AOL disc with a new computer. There were AOL discs given away with movie rentals at Blockbuster. There were AOL discs left on seats at football games. At one point, Brandt even tested whether or not discs could survive flash freezing so that she could give away AOL discs with Omaha Steaks. Once CD-ROM players became common in computers, it almost felt like there wasn’t a magazine or newspaper in the country that didn’t have an AOL CD inside it.
Over the next half decade, AOL would spend billions of dollars on its “carpet bombing” marketing campaign. At one point, 50% of the CDs produced worldwide had AOL logos printed on them.18 Brandt lived in fear that competitors like Prodigy or Microsoft would copy her technique. At one point, a CompuServe executive struck up a conversation with one of Brandt’s AOL colleagues at a conference. “You guys are crazy,” the CompuServe exec said, referring to the CD carpet bombing and the money it had to be costing. When the AOL executive reported the conversation to Brandt, she retorted: “ ‘Next time someone says that, agree that I’m a dumb broad, and that you’ve been trying to get me fired from the company for a long time.’ And the reason for that, really, was, I couldn’t believe that they weren’t trying it!”19
Prior to Brandt’s marketing campaign, AOL was languishing around the 500,000-member mark. Post-Brandt campaign, AOL was signing up 70,000 new members monthly.20 AOL passed the million-member mark in August of 1994, tripling in size in one year.21 It hit 2 million subscribers a mere six months later and proceeded to blow past both CompuServe and Prodigy to become far and away the largest online service.22 In May 1996, AOL surpassed 5 million subscribers, ten times the number of subscribers AOL had when Jan Brandt started shoving trial discs into packages of Omaha Steaks.
But then came Windows 95 and the MSN service that launched with it. The outlook for AOL seemed precarious. A research firm predicted that between 11 million and 19 million users would sign up for MSN in its first year, based on sales projections for Windows 95. There was a grand total of only 10 million users of online services at the time.23 Microsoft, Case insisted, should offer all online service options as part of a level playing field. “The fact that Microsoft has an 85 percent market share . . . and wants to hardwire their own service into it in an anticompetitive way is not a good thing,” he told Wired.24 The AOL CEO even appeared at a joint press conference with the CEOs of CompuServe and Prodigy to release an open letter to Bill Gates, demanding the unbundling of MSN from Wi
ndows 95.
But in the end, MSN never exactly took off. Even though a reported 190,000 users signed up in the first week after MSN launched in August 1995, it had only around 375,000 users by that November. This was during a time period when AOL was bringing in 250,000 new members every month, thanks to its avalanche of free discs.25 And then came the deal to make Internet Explorer the default browser for AOL users. After that, both AOL and the market at large knew that Microsoft’s heart wasn’t really in the online services business. Bill Gates had ceded de facto control of online services to AOL. If Microsoft wanted to neuter its own online offering, who was Steve Case to look a gift horse in the mouth? He threw Netscape under the bus and put AOL firmly on the road to dominance of the online services arena.
AOL would succeed in branding itself as “America, online,” and neither MSN nor anyone else was ever able to challenge this. What Bill Gates didn’t really appreciate at the time was how powerful being the “training wheels” for the Internet Era would eventually become.
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JUST AT THE MOMENT that AOL was successfully fending off MSN, it faced perhaps an even greater existential threat. The web was something that online users were clamoring for by 1995–96. To be sure, more than a few unsophisticated users had no idea that AOL wasn’t the web. Everything “online” seemed the same to them. But other users began to forgo AOL’s curated content for the freedom of the web. For AOL, this was troubling. The company had spent the better part of a decade and hundreds of millions of dollars building out its content offerings. Suddenly, it faced the prospect of users fleeing its online Eden.
How the Internet Happened Page 7