by Kara Swisher
Watching from the back of the room as Von Meister laid out his GameLine vision, 24-year-old Steve Case was entranced. Dan Case had invited his younger brother to the show just for fun, but Steve ended up deep in conversation later at a dinner with Von Meister, who in turn was impressed with the young marketing man’s insights. A bit drunk and always spontaneous, Von Meister approached Dan in the men’s room and asked if it would be all right to hire Steve as a consultant for CVC. “Go ahead,” said Dan. “But since I’m his brother, just leave me out of it.” Giving a job to the brother of a major investor was not a bad move, so Steve Case began his career with the company he’d one day turn into the behemoth of the media and entertainment world.
In those early days, however, in its small headquarters in northern Virginia, it seemed more likely that tiny CVC would simply go bust. Despite all the hype and excitement in Las Vegas, GameLine soon proved to be an expensive dud when the Atari comet flamed out as the video games market peaked. By the time Case made plans to go full-time with the company, GameLine sales were abysmal and CVC was burning cash at an unsustainable rate. The venture sold only 2,400 modules out of the 75,000 manufactured—and had spent $9 million doing so. “You’d think [customers] would have shoplifted more,” grumbled Caufield.
The increasingly dire situation at CVC made Case’s jump from his traditional company job look like a poor choice. Both his father and his brother advised him not to take a full-time position at CVC. “Job hoppers don’t wind up anywhere,” his father warned him, “and this new job seems a little crazy.” But Case, who had a stubborn streak, was adamant. He joined the company full-time in August of 1983—just in time for the meltdown.
Over that winter, the CVC investors took a hard look at where the company was headed. Turnaround executive Bob Cross, brought in to assess the company’s chances, quickly dubbed it “Out-of-Control Video” after getting a look at the numbers. Trying to get spending under control, the company laid off all but a dozen employees. Case was kept simply because he was paid the least among the marketing team and he worked hard. Soon enough, the profligate Von Meister would also lose his job. He was effectively sacked after ordering himself a brand-new luxury car, then having it delivered to the office parking lot at the same time angry creditors were due to arrive for negotiations.
Over the next decade, as his protégé Steve Case transformed himself from green young marketer to an online icon, Bill Von Meister took a few more “runs around the rosebush” with various new products. But after the CVC debacle, he always had trouble getting sizable investments, and he never managed to hit the big time with any of his ideas. In the mid-1990s, he was diagnosed with an aggressive cancer. Irrepressible even in illness, he suggested new business ideas to his doctors in the middle of his treatment.
Bill Von Meister died in May of 1995, practically broke and all but forgotten. His brief obituary in the Washington Post made no mention of his having founded the company that became AOL. And when Steve Case spoke at his funeral, saying that without Von Meister, there would have been no AOL, even Von Meister’s children had no idea what he was talking about.
Looking back at Von Meister’s life, no one could have blamed him if he’d watched the ascent of AOL and Steve Case with some bitterness. But one of his business collaborators, John Kerr, later told me the opposite was true.
“He left behind a series of miserable SOBs who benefited from his ideas,” Kerr said. “And yet he was always looking forward to tomorrow’s sunshine in the middle of a monsoon.”
Backing the Wrong Horse
If Von Meister found sunshine everywhere, Jim Kimsey, the man who replaced him at CVC’s helm, saw something darker. To him, the company had no clear product and no apparent market. Creditors hovered, its backers were tapped out, and the dispirited employees questioned its very viability.
But Kimsey liked a good fight. A West Point graduate and Vietnam veteran who’d started a second career as a successful bar owner, Kimsey was a man of a certain breed. Handsome and self-confident, he was at home in power-lunch steak houses. His deep voice was resonant of the tawny timbre of expensive cigars and cognac, and his reputation as a ladies’ man was well established. In fact, he was usually the one who talked that up, often in the highly ribald terms he used to describe pretty much everything about himself.
Kimsey was, in short, a throwback—a classic man’s man. And in 1984, he was determined not to have his good reputation sullied by the crash and burn of this little business he’d been talked into trying to save. Kimsey had gotten involved with CVC at the request of his fellow West Point grad and close friend Frank Caufield, a venture capitalist who thought the company needed a sterner hand. But with the company teetering on the brink of bankruptcy, Kimsey realized what a mess he’d gotten into. CVC was like “Br’er Rabbit and the Tar Baby,” he said. And now that he’d gotten his hands sticky, he couldn’t see a way to get free of it.
There were not many options, although the team tried to put up a good front in a corporate outline in July 1984 that described a broader new service to push to the consumer entertainment, education, home productivity, and interactive home services. It was still GameLine, but dressed up into a new set of costumes and redubbed MasterLine.
What followed was a series of just-in-time deals that barely kept CVC solvent. As it would end up doing so often in its history, the company tried desperately to leap from one teetering ice floe to another to save itself from sinking. In one deal, CVC burned through $5 million of Bell South’s money in a failed bid to create an at-home subscription service. The next deal was to help create a private-label online service for Commodore International Ltd., maker of the Commodore 64 computer. More important, Commodore was also the largest manufacturer of modems, which would be critical to any MasterLine rollout.
Both deals allowed CVC to keep hanging in there, but the company continued to be dogged by its less-than-stellar reputation and massive debts. So Bob Cross quietly arranged to phase out CVC, which would in turn be replaced by a new company untainted by the failures of the past. Quantum Computer Services Inc. was incorporated in May of 1985, and over the coming months, CVC was allowed simply to wither as its business was transferred to Quantum. “We put it in a drawer and it just disappeared, poof,” Kimsey confided to me in 1997 in a conspiratorial whisper that made him seem like a Mafia don who had ordered a hit.
In homage to the company’s new name, the online service developed for Commodore was dubbed Q-Link. It would cost $9.95 a month (plus 6 cents a minute in premium areas), and would offer news, games, and even a rudimentary chat area called People Connection. The service would run only at night, so programmers could fix ever-present glitches during the day.
On November 1, 1985, at 6 P.M., Q-Link went live. That night, 24 users got online—a rousing success that the staff toasted with cheap champagne. But soon after that, Q-Link suffered its first service outage, on a night when 60 users logged on simultaneously. The outage marked the beginning of the long battle for scalability, a techie term for getting a service to work without problems as the numbers of users increase. That struggle would continue long after Quantum’s successor company—America Online—had millions more customers than anyone would ever have dreamed.
Q-Link continued to add members, reaching 10,000 by January of 1986, but its growth was too slow to satisfy Commodore. Worried that Quantum’s fate was too closely linked to Commodore’s whims, Case insisted that the company explore new partnerships. He wanted to start with Apple Computer. The problem was that Apple already had a deal with General Electric Information Services (GEIS) for its dealer network online service. It also had its own Apple II areas on the granddaddy of all online services, CompuServe, which had been founded as a computer time-sharing company in 1969.
Nonetheless, in late 1986, Case moved to Cupertino, California, where Apple was headquartered, so he could harass the company in person every day. He approached several divisions simultaneously, figuring if he could get in good wi
th one, he’d have the foothold he needed. He even somehow finagled himself a desk in the Apple headquarters, then posted a sign above it that read, “Steve Held Hostage.” For three months, he parked himself at Apple, trying to beg, cajole, annoy, or charm his way into a deal.
Apple’s customer service division finally gave in, offering Quantum the opportunity to build AppleLink Personal Edition, a private consumer online service for its Apple II computer. With that, Case had landed the biggest deal of his life. He then rushed straight to rival computer maker Tandy, using the Commodore and Apple deals to convince them to take on Quantum as well.
Quantum’s success was short-lived. Within less than two years, the partnership with Apple soured, because the two companies had vastly different ideas about how to develop and market the service. Apple executives, for example, were aghast at AOL’s suggestion that the software be distributed for free to get people on the service. And Quantum was unable to afford the kind of fancy features and elegant marketing that Apple envisioned as being important to maintaining its brand.
Case felt he had to put up with the problems, since his aim had always been to win the ultimate prize of becoming the partner for the online service that would be linked to Apple’s new flagship Macintosh computer. But given the friction and the middling results from AppleLink, it soon became clear that Quantum wouldn’t be getting the Macintosh deal. And when results were unimpressive for the Tandy and Commodore platforms as well, things began to look very grim once again.
The failure of these partnerships prompted a few Quantum board members to push Kimsey to fire Steve Case. He’d taken the company out on this limb, they argued, and now everyone was paying for it. But Kimsey refused. He’d developed a kind of paternal feeling toward Case. Later, they would tangle for control—with Kimsey carping as Case rose higher and higher, and Case chafing over Kimsey’s tendency to take too much credit for AOL’s success. But at the time, Kimsey rightly understood that he and Case had complementary skills, and he knew the company would need both of them in order to succeed.
So he convinced the investors to give Case another chance. In characteristically colorful terms, he told them, “You don’t take a twenty-five-pound turkey out of the oven and throw it away before it’s done.”
It was clear that Quantum’s partnership with Apple was ending. But in an unusual stroke of luck, a paragraph buried in the original agreement gave Quantum the rights to use the Apple logo for its online service. If Apple wanted to create another online service with another partner, it could do so—but Quantum could legally stop the company from using its own Apple logo.
Naturally, Apple wanted its precious logo back. So Kimsey offered it to them—for $2.5 million. Apple was forced to pay up, and with this cash infusion, Quantum was once again barely saved from the ash heap of history.
Such middling muddling was far away from the power canyons of New York and Time Inc., where Jerry Levin had enjoyed huge success at popularizing a new pay cable station called Home Box Office, or HBO, which went live in November of 1972. He was now busy trying to push the staid media company to even greater heights, by involving it in fledgling online efforts such as an interactive news delivery product called teletext. He’d also begun noodling on the idea of how to create a massive “entertainment-oriented communications company.” Tiny Quantum was nowhere on his radar screen.
A-O-Hell
In fact, by the end of the 1980s, it was a minor miracle that Quantum was still alive. But what would the company do? It had made hash of its partnerships, its ability to use the AppleLink name was coming to an end, and it still had no real identity of its own. The company was like a starving parasite, latching on to bigger companies and hoping to fill up before being flicked rudely away.
But the end of the Apple partnership also offered the perfect opportunity to establish a new business direction. Quantum would continue running the online service it had built—but it would no longer carry the AppleLink name. So in October 1989, Case announced a company contest: What should Quantum rename its online service? The suggestions that came in—Crossroads, Explore, and Infinity—sounded like drug-treatment programs or new car brands. Dismissing them all, Case offered a bland creation of his own: America Online. Other staffers understandably derided it as hokey, but Case voted his suggestion the winner anyway.
Case also wanted to add a friendly, more personalized touch to the service. “We wanted people to think they were members and not customers,” he explained. “That was important, because we needed to be different than big, faceless services.”
He also hit on the idea of attaching voice files to the software with cheery little sound bites that would make the service feel homey. The team settled on four phrases: “Welcome,” “You’ve got mail,” “File’s done,” and “Good-bye.” A customer service representative named Karen Edwards had mentioned that her husband, Elwood, was a professional broadcaster, so for testing purposes, Case asked if Elwood might read those four phrases into a cassette tape. The test tape was put into use, and now Elwood Edwards, quite by chance, has one of the most listened-to voices on the planet.
By the beginning of 1990, Case had, in effect, been running the company for several years. But it wasn’t until January of 1991, nearly eight years after he’d joined the company, that Case was officially named its president. Now in his early thirties, he was maturing into a confident young executive, and America Online, having recently broken the 100,000-user mark, was maturing as well. Quantum had also recently signed a lucrative deal with IBM to run their private online service. It seemed that the growing little company had managed to right itself.
Not surprisingly, suitors soon came calling. Jim Kimsey had already fielded a few queries from potential buyers, including Prodigy and AT&T. But now, in the late winter of 1991, he received a more serious offer from the then-Goliath of the online world: CompuServe. For $50 million, CompuServe said it would take the Tar Baby off Kimsey’s hands. By just about any standard, CompuServe’s offer was generous; with fewer than 150,000 users, revenues of only about $20 million, and negligible profits, Quantum couldn’t reasonably expect a bigger price tag. Kimsey was leaning toward accepting the offer, a sensible move that would achieve decent, though not spectacular, returns for the investors.
But Steve Case had no interest in cashing out and going merrily on to whatever the next project might be, because he had turned from a quiet worker bee into an online evangelist. Online services and AOL in particular, he believed, could change the very nature of how people communicated. Case thought selling out at the very beginning of this revolution would be more than just a missed opportunity—it would be a travesty. He told Kimsey that he’d quit if the company was sold to CompuServe. Many of the staffers, now loyal acolytes to Case and his lofty dream, threatened to do the same.
Kimsey still wanted to sell, but he knew the $50 million offer—as generous as it was—was simply not enough to beat Case’s arguments with the board. At that amount, the investors would get some money back, but not very much. Reluctantly, he turned down the offer. “We stayed open for business this long,” he said he thought to himself. “So, why not go just a little further?” If CompuServe had upped its offer to $60 million, Kimsey would tell me in 1996, the deal would have been done. Instead, Quantum would now push on toward the next level independently.
But it wouldn’t get there as Quantum. At trade shows, Quantum’s executives kept finding that no one had heard of the company, until they mentioned they were the ones who ran America Online. Pretty soon, it made more sense to introduce themselves as being from AOL rather than Quantum. So in October of 1991, the company officially changed its name to America Online Inc. It was a critical juncture in the company’s history—finally deciding to go it alone and create a new brand name.
The company would use its new name when it went public in March of 1992, a time when there was no World Wide Web, no “Internet economy,” and no hint of the market madness soon to come. So it’s perhaps no
t surprising that AOL had trouble finding an investment firm willing to take it on. While only a few years later a youthful face and an ability to lose money hand over fist was the formula for success, Steve Case had to contend with a market that frowned on concept companies like AOL.
And Case’s youth was a real problem for AOL’s public offering. To boost the company’s chances, the board decided AOL needed to present a more “mature” face to the firms. So even though Case had been made CEO in late 1991, the board decided to strip his title and install the suave and graying Kimsey in his place. Kimsey was tasked with breaking the news, which he did over lunch at a restaurant called Clyde’s.
“Steve had an Elmer Fudd expression on his face,” Kimsey recalled, in a demeaning quote he delighted in repeating frequently over the years. “He could have quit over it, but he handled it perfectly.” It was a classic example of a trait Case has always shown in abundance: His uncanny ability to ignore the slights, unpleasantness, and criticism of the moment by keeping his focus on the ultimate goal. Though others in the company, angry at the demotion, urged him to fight or even quit, Case refused and simply swallowed the insult.
After initially taking a pass, investment firm Alex. Brown & Sons eventually agreed to take AOL public. On March 19, 1992, the company offered two million shares on the NASDAQ stock market, at $11.50 a share. By the close of the market, nearly all of AOL’s 116 employees were rich. Jim Kimsey’s shares alone were worth more than $3.2 million, and Steve Case’s stock was worth $2 million. With that, the wild ride of AOL stock had begun. Over the next seven years, the share price would soar as the stock split multiple times.