by Kara Swisher
THERE MUST
BE A PONY
IN HERE
SOMEWHERE
The AOL TIME WARNER Debacle
and the Quest for a Digital Future
KARA SWISHER
WITH LISA DICKEY
CONTENTS
Title Page
Dedication
Author’s Note
Half Title Page
Prologue
WHAT IS THE SOUND OF
ONE DOOR SLAMMING?
Chapter One
THE TRUTH, THE WHOLE TRUTH, AND
NOTHING BUT THE TRUTH
(or something like it)
Chapter Two
THE PERILS OF PAULINE
Chapter Three
NOTHING LEFT TO LOSE
EXCEPT EVERYTHING
Chapter Four
THE $10 MILLION NAPKIN
Chapter Five
PURSUING THE PUTZ
Chapter Six
WAY, WAY AFTER THE GOLD RUSH
Chapter Seven
THE END OF THE BEGINNING
Epilogue
A PORTFOLIO OF PERSPECTIVE
Also by Kara Swisher
Copyright
To Louie and Megan
and
To Shar
THERE MUST BE A PONY
IN HERE SOMEWHERE
AUTHOR’S NOTE
Of the myriad problems plaguing the AOL Time Warner merger, perhaps one of the bigger problems was the lack of disclosure among the many players about motives, business prospects, and simple emotions. Save for the legendary entrepreneur Ted Turner, who became the voluble weathervane of the deal, very few in this story were as forthright as they needed to be to make the merger a success.
With that in mind, I thought that some of the first words to the reader of this book should be about disclosing things about myself. Thus, I think the reader must be made aware that my partner—Megan Smith—had been a top executive at a dot-com company called PlanetOut, which has had a longtime investment from AOL. AOL made its initial investment long before I met her, although—as is the typical practice with startups—it continued to invest in follow-on rounds after we met. I obviously had no involvement in these investments, and Megan no longer has an operating role at the company. Finally, she also worked briefly at a nonprofit literacy organization created by an AOL Time Warner board member, but is no longer employed there.
Second, I based most of this book on my own reporting and on interviews I conducted in 2002 and 2003 with a plethora of key sources from both companies, as well as throughout the Internet and media industries. I also used my own reporting from my first book, aol.com, for the early chapters on the history of AOL. But, for background research, I also relied on several books, magazines, and newspaper and online accounts. I have tried to include noting these sources wherever pertinent in the text of the book itself, instead of buried in footnotes, so I could give proper credit where it was due.
But I would be lax if I did not mention a few in particular here. Among books, I would give special credit to the incredible work done in: Ted Turner: It Ain’t As Easy As It Looks by Porter Bibb; Master of the Game by Connie Bruck; Burn Rate by Michael Wolff; and Bamboozled at the Revolution by John Motavalli. Among newspapers, magazines, and online sources, I would especially point out: Wall Street Journal, New York Times, Washington Post, Business Week, Time, Fortune, Wired, Industry Standard, New York, New Yorker, News.com, and the Dow Jones News Service.
And now to the really important part of any book-writing proj-ect—thanking those who have helped me pull this off once again. Here, I must give the most appreciation to Megan Smith, who has endured this endeavor with the equanimity that is her hallmark and the kindness that is at the heart of her nature. From being encouraging while I complained to being wise when I was foolish to being quiet when I ranted, she has been the perfect partner, most especially for her loving care of our son. Thanks too to Louie, whose ever-present smiles and laughter have become like oxygen to me and whose life is a constant reminder of what truly counts.
My mother, Lucretia Carney, who clipped out every story on AOL Time Warner she could find, provided the kind of support and love that never waned. And thanks too to the rest of my wonderful family, as well as my extended one, including my very best friend Joe Brown, Ed Daly, Mark Clark, Silvia Rivera, Cosmo, and, sigh, my dear departed Bo.
Huge kudos and much credit for this book must go to Lisa Dickey, who apparently lost her mind temporarily when she agreed to take on both AOL and me for a second time. She has been an invaluable sounding board, an honest voice, an excellent editor, and the finest of friends.
At the Wall Street Journal, I could not have done this project without the support of Steve Yoder, Dan Hertzberg, Paul Steiger, Gordon Crovitz, and many others. Of everyone at that august newspaper, though, Walt Mossberg has been my mentor and friend in so many important ways. Leslie Walker and Laura Blumenfeld of the Washington Post have also been valued colleagues and friends.
Thanks to all at AOL Time Warner and throughout the online and media sectors who agreed to talk to me for this book. I extend particular appreciation to those who spoke on the record, since doing so was so uncommon in this complex story. For those who wanted to remain nameless, I thank you for the information, but I still wish you had gone on the record. I also would be remiss if I did not thank those at AOL Time Warner whom I bugged for an entire year with annoying fact-checking queries and endless requests for interviews and information, especially John Buckley, Kathy Bushkin, Trish Primrose, and Ed Adler. I promise you all, I will never again write a book on AOL. (Well, unless something even more newsworthy happens in the future.)
And this book would have never occurred without the help of my agent Flip Brophy, my aol.com editor Jon Karp, and Crown publisher Steve Ross.
Finally and especially, I extend the warmest thanks to my editor, Annik LaFarge. There is no such thing as a great reporter without a spectacular editor, so any credit I get for this book goes to her too. Any criticism, of course, is all mine.
KARA SWISHER
I’d like to thank Kara Swisher, who gave me my start in books by hiring me to help her with aol.com in early 1997. Thanks also to my many clients since then—you know who you are, and I appreciate your entrusting your books to me. To Barbara Feinman, Deborah Grosvenor, and Laura Einstein, thank you for your advice and help over the years. To my parents, my brother David, and my Uncle Pitt—you can’t pick your family, but if you could, I’d certainly have picked you all. Finally, to Shar Taylor, thank you for all the help, loyalty, and love you’ve given me over the past five years. Your support has meant everything to me.
LISA DICKEY
We are all at a wonderful party, and by the rules of the game we know that at some point the Black Horsemen will burst through the great terrace doors to cut down the revelers; those who leave early may be saved, but the music and wines are so seductive that we do not want to leave, but we do ask, “What time is it? What time is it?” Only none of the clocks have any hands.
ADAM SMITH, The Money Game
Prologue
WHAT IS THE SOUND OF ONE DOOR SLAMMING?
When the door slammed in my face from 3,000 miles away, I knew Steve Case had actually managed to pull off the heist of the very new century.
Luckily for me, it wasn’t a heavy wooden door, but a virtual one. Many virtual ones, in fact, being banged shut by different high-level executives at America Online Inc. almost immediately after I pinged them electronically. I had done so because an unusual number of them were logged on to the online service in the wee hours of Monday, January 10, 2000.
How did I know thi
s? The digital footprints were unmistakable, right there on my “Buddy List”—an electronic who’s-where on AOL that allows you to keep track of anyone on the service. Once you see that someone is online, you can send an email or, more immediately, an instant message—or IM, as it had come to be known—that pops up directly on the recipient’s screen. As a helpful feature, when someone on your list logs in, there is a sound of a door opening. And, when he or she leaves, there is, naturally, the sound of a slamming door.
It’s all very silly and very AOL, mostly used by teens, one tool of an elaborate digital social scene that had made the service incredibly popular with them in a few short years. IM’ing had also become widely employed by its legions of users who like to participate in a bit of racy online sex chat every now and then, yet another massive and loyal audience AOL had used to transform itself into a Wall Street wunderkind. But I assumed it was not for some electronic after-hours party that a bulk of AOL’s management hierarchy had gathered in the digital ether in the dead of night.
I wasn’t AOL exec-fishing just for fun. I had signed on immediately after getting a call near midnight at my house in San Francisco from a fellow reporter at the Wall Street Journal. Peter Gumbel of the Los Angeles bureau had just gotten a killer tip, when a stunned source had called him late at night and told him that the giant entertainment behemoth Time Warner was merging with AOL. This was an unbelievable piece of news, both for the massive financial numbers it would surely involve and the enormous reverberations it would have throughout the media and Internet world.
More important, Peter’s source had told him that AOL and not Time Warner was going to hold the majority stake in the new company. This would be the clearest signal that the online upstarts—which had burst on the scene in the late 1990s and whose market valuations had climbed to incredible heights—had reached the apogee of power and influence. Even in the midst of what turned out to be the Internet’s frothiest moment, this was still a jaw-dropping idea. Time Warner was one of the world’s most important media companies, with such wide-ranging and iconic properties as People magazine, Bugs Bunny, and CNN. Despite its hot stock, AOL had only a single dial-up online access business. As I would later write, a company without assets was buying a company without a clue.
Nonetheless, it was exactly this kind of “transformational” deal that had been a long-held dream of AOL’s chairman and chief executive, Steve Case. He had, in fact, told me as much when I had first met him in 1995 as a technology reporter for the Washington Post. In a drab office in a nondescript building behind a car dealership in Vienna, Virginia, the peculiarly calm and unusually baby-faced Case declared that his near-term goal was to be one of the biggest and most powerful media and communications companies in the world—and very, very soon.
My first thought—since he did not appear to be an egomaniac, like so many executives I had interviewed—was that he might actually be insane. At the time, though, I only nodded politely and, as he chattered on, began to calculate how soon his perpetually rickety company would declare bankruptcy. At the time, most people thought that would be the ultimate fate of AOL, given its precarious financial state for much of its volatile history.
Still, I soon learned that Case had been spinning his impossible scenario to many visitors, which was why most reporters who covered AOL considered him a bit of a crank. Besides predicting the inevitability of world domination by his tiny business, he also never seemed to let up on endless pie-in-the-sky speeches, mixing in references to “convergence” and “interactive” and all sorts of other computing hoo-ha and linking it with the future of all mass media. From a cruddy little office, far from any canyons of power and influence, this seemingly out-of-his-league businessboy had decided he was going to be the king of the world. You might excuse anyone for being skeptical.
In fact, the company had found itself at the edge of disaster so frequently that one of its first executives, a brassy Vietnam veteran and restaurateur named Jim Kimsey, had taken the punch line of an old joke popularized by Ronald Reagan and made it into an unlikely mantra for AOL. It concerned a very optimistic young boy who happened upon a huge pile of horse manure and began digging excitedly. When someone asked him what he was doing covered in muck, the foolish boy answered brightly, “There must be a pony in here somewhere!”
Kimsey’s version was a bit earthier. “C’mon, there must be a pony somewhere in this shit,” he had crowed when times got particularly tough in 1984 to egg on his dispirited corporate troops. They were justifiably dubious, given that the online services offered by the company weren’t selling, it had burned through most of its cash, and creditors were poised to snap up what little was left. Such crises would become a familiar refrain for AOL over the years—a history that was punctuated by a lot of shoveling of a lot of manure.
But had AOL finally found the pony?
If one of these Internet highfliers was actually able to buy what was considered the finest traditional media company on the planet, this was an incredible scoop. So, Peter Gumbel had called reporters in various cities at the paper to get a critical second and third confirmation that such major stories required. I had tried making calls to AOL people I knew at first, but no one answered. This was not surprising since most of my relationships at the company took place online. So I dialed into the AOL service to see if I could email someone.
I quickly began to type in the online monikers of any executives I knew from my years of covering the company and from later writing a book, aol.com, about its turbulent history. Thankfully, unlike other big company executives and their legions of public relations obstacle-creators, many online business leaders loved kibitzing back and forth with reporters via email in what I can only guess were efforts to charm us into loving them for their accessibility. Frankly, it worked a lot of the time, so they freely handed out their email addresses and were always very easy to locate instantly. It was true that night, too. It soon became clear that pretty much everyone in any position of power at AOL was signed on to the service.
“We know,” I wrote in a flurry of initial instant messages, attempting to be as vague as possible. “Tell all.” I hoped this would produce a response of some kind from someone, especially since instant messages were hard to trace and had always been an easy way to make first contact with company sources. Instead, I got a very unusual reaction.
Slam. Slam. Slam. Slam.
The people I had IM’ed were signing off the service as soon as the little message bombs I sent had exploded onto their screens. Moreover, many started to actually block my messages, which can also be done to those on your Buddy List you want to avoid. The technique was usually used by those who needed a tool to deflect creepy online chatters, which I now seemed to have become to the top rank of AOL executives. But since several of my missives had gotten through before being declined, their belated door slamming seemed like the online equivalent of some poor sap running away from pursuing TV cameras. I couldn’t imagine they could be quite this dumb, but the online names skittered off my Buddy List as fast as I could hit the return key to send more messages. It appeared as if I had them digitally nailed!
But I didn’t really. Their skittishness only proved they were up to something, which might not involve a multibillion-dollar deal. They could be putting the finishing touches on some hyped-up advertising shakedown that was de rigueur for AOL in the boom years, as they plucked all the low-hanging venture capital investments from newbie Web startups dying to go public and needing to punch their AOL-deal ticket to get there. Or perhaps AOL was rearranging its management structure, which the company did regularly over the years, shifting from one chameleon color to another in order to please investors. They could even be acquiring some lesser company like eBay, a deal that had been rumored for a while, in an effort to keep up their fast-paced growth that was always at risk of faltering and bringing down the whole breathless show. Lord help us, Steve Case may have decided to run for president, for all I knew.
Gumbel ca
lled back, wanting to know if I had gotten a confirmation. Um, no, not yet, I replied. But, I ventured, they’re all online, slamming doors on me right and left and even blocking my electronic missives! Barred virtual entrances? Bounced emails? Gumbel was justifiably frustrated, since this was not what one of the finest business newspapers in the world could rely on to confirm such a major story. Imagine explaining this to the top editors at the New York headquarters: Well, we couldn’t get a second source, but there was that curious rash of online door slamming and email blockage. New-economy companies might be able to suspend the basic rules of their business, but new-economy reporters could not.
For a story this big, as the Washington Post’s Ben Bradlee used to say, I hadn’t got it. Thank goodness for better and faster reporters than I. Our media reporter in New York, Martin Peers, had reached someone from Time Warner by phone. Not given to lurking online at all hours, the source had confirmed to him that the deal was indeed happening and added more details. And with that, a 228-word story on the stock-for-stock merger was then raced onto the Wall Street Journal’s Web site and the Dow Jones news wires, since it was too late to actually print the news in the flagship Wall Street Journal.
This was a little ironic. Just the Friday before, Peers himself had asked Time Warner’s spokesman Ed Adler if such a deal was even a possibility, after a Los Angeles Times year-end retrospective had included a widespread Wall Street rumor that AOL had recently tried to make a hostile bid for his company. Adler actually had no idea what his boss, Time Warner CEO Gerald Levin, was up to even though the deal had nearly been struck. Naturally, he had dismissed the notion as bogus to Peers.
I had, too, even though it was completely possible because of AOL’s gigantic market cap. At the end of trading on January 7, 2000, it stood at a remarkable $164 billion—almost twice the $83 billion value of Time Warner. That absurd number had even caused me 10 days earlier to suggest—in an annual column I did for the Journal’s Marketplace section prognosticating what would happen in the year ahead for the online world—that AOL should buy anything it could get its hands on. After talking over the possibilities with Silicon Valley venture capitalist Stewart Alsop, a longtime AOL watcher, I wrote on December 30, 1999: