Burn Rate

by Michael Wolff

  It was only Jesse who met every glance coldly and maintained a sort of cell-block expression. He had a certain sort of gratuitous hardness. He had a nasty flair for it.

  “Some water?” Alison indicated the carafe on the sideboard.

  “Yeah, it’s water. At least she understands that,” he said, to no one in particular.

  For a second, I almost reacted. It was the first time in a business context I ever felt a spousal defend-and-protect reflex. It threw me.

  “Let’s get to it. We’d like to keep this as short as possible,” Jesse said. “Some of us here have other things to do. Would the chairman of the company like to call the meeting to order?”

  I had a physical response to someone else taking over, a flush that began in my mouth and rolled down to my stomach. Remorse and regret followed for having taken someone else’s money in the first place. Investors. Venture capital. I looked around the room at the wood and glass and granite. How could I have been so stupid? So greedy? What could I have possibly been thinking? Obviously, this was going to end in tears.

  “Let the meeting come to order,” said Rubin. “Housekeeping issues first.”

  What a schoolteacherish word, I thought, with contempt.

  “I’d like to move,” Rubin said affably, “that Alison be replaced as board secretary.”

  Alison, who had already begun taking the minutes of the meeting, stopped, or froze, and, caught so unaware, flushed from the neck.

  It was so moved, and the technology advisor thereupon became the board’s secretary.

  Alison pushed aside her notebook.

  “I move,” Rubin said, comfortably, in control, “that Jesse Meer become the counsel to the company and that Alison be directed to prepare a memo itemizing all prior and ongoing matters.”

  Alison faltered slightly but then said, “There are matters, because I have acted in both a business and legal capacity, that it will be hard for me to disengage from—”

  “I don’t think the board will have any problem with you continuing to work on these matters, reporting to and under the supervision of Jesse Meer and his colleagues,” said Rubin.

  If the company was taken away from me, I realized, I had a certain amount of recourse. I could fairly say, and it might even be believed, that I had been robbed. But Alison was in a much less certain position. There was really no company without her. She had acted as the free lawyer, deal maker, CFO, COO, personnel director, health plan administrator. Without official position, salary, or ownership interest, she had built the company. What’s more, she couldn’t walk away. I had no company if she walked away. The leverage of my need for her was being used here to reduce her to Jesse Meer’s underling.

  “Many of these matters . . . I have been personally—”

  “Work them out with Jesse, Alison.”

  “I’m not sure, Jon, that you appreciate the way we have worked the legal and business affairs functions of the company,” she said slowly.

  He looked at his watch. “Discuss it with Jesse. Are you comfortable with that?” He turned to Jesse.

  “Give me a memo,” he shrugged.

  “I am not going to—this is not how we’ve been working. How do you propose even to compensate me?”

  “What’s our arrangement now?” Rubin asked, shifting papers, impatient.

  “It’s only been a minimal—”

  “Fine. We’ll continue that. Let’s move on.”

  “Jon . . . this company . . . you don’t understand . . . my relationship . . . I’m sorry,” Alison said, turning to me as the tears started to roll down her cheeks.

  I have played this moment over a thousand times. Even in the all-powerfulness of my imagination, I don’t know how to respond. I even find myself feeling bad for Jesse and Jon, who looked caught out and ashamed of themselves.

  We were all saved by the factotum’s cell phone.

  “The Washington Post Company,” he said, “wants to proceed with an acquisition or investment. They’ll come up with a team early next week.”

  Jon briefly conferred with Jesse. “Why don’t we adjourn the meeting then?”

  So I was still, it appeared, running my company.

  Chapter Eight

  The Twenty-First-Century Corporation

  In November 1996, a little before Thanksgiving, Jon Rubin found himself holding the missing piece. He was sure he had masterminded the salvation of our business. It changed him, too. It was as though we had never been antagonists. It was not only the renewed promise of great wealth that spread this sudden good cheer (although that will do it every time) but a personal satisfaction that he wanted other people to share. He was proud of himself. Rightly. He was about to do it. He was on the verge of putting it together. So he needed harmony, he needed an audience. He wanted everyone to appreciate the neat trick, this bit of matchmaking, that he was about to pull off: he was getting us into bed in a serious way with AOL.

  I had been here many times before, without Rubin’s help. Who in cyberspace hadn’t? “Where are you with AOL?” was a question as prevalent in the Internet industry as “What’s your business model?” Against all odds, AOL, the most dysfunctional company in America (while everyone says that about their own company, the AOL pathology was something else again; it was comic book as much as textbook), had become the big cheese, the mightiest enchilada.

  Alan Patricof, who had been an early investor in America Online, back when it was a series of chat services—QLink for Commodore, PCLink for Tandy, AOL for Apple—was supposed to smooth our way to the highest levels in the AOL organization. But his entreaties got us nowhere.

  Through our own efforts and connections—impressive ones, too, I am told (“definitely a decision maker”)—we arranged meeting after meeting, approach upon approach, with the “right” people at AOL. But to no real avail.

  Rubin’s technology advisor, shortly after Rubin made his investment in our company, took me aside to tell me he knew the secret. The technology advisor had paid close attention to how Candace Carpenter, the CEO of iVillage, creators of Parent Soup, forged one of the most successful relationships of an entrepreneur with AOL, and, he said, he’d gained an intimate familiarity with the nuances of the way AOL really worked. The petitioner, the supplicant, the entrepreneur who needed AOL, had to supply the functionality, he explained in technology terms. Had to coordinate communications between AOL executives and fiefdoms. Had to route e-mail. Had to organize meetings in Vienna, Virginia, where AOL was located. Had to ghostwrite the internal memos justifying a deal. Petitioners had to put it together themselves, because there were no processes or procedures at AOL for, well, making a decision. You had to hand it to them all wrapped up. But, after months of trying, the technology advisor’s efforts and insights produced no results.

  We got plenty of advice from the many AOL content “partners” whom we talked to all the time and advice from AOL executives themselves. We followed it all. We showed up instead of calling. We sent instant messages (“IMed”) over AOL instead of sending e-mail (“Hello? Hello? Are you there?” I typed with no response. Nothing, nothing ever. “Well, if you’re reading this . . .”). We stayed on top of the change of business models. We got to know everyone whom anyone said we should get to know. We even considered golf (odd, but true, that this game of the 1950s corporation was the official pastime, even obsession, of this self-styled first corporation of the twenty-first century).

  It was as though you were dealing with an unstable government in a country with business customs incomprehensible to the Anglo-Saxon world.

  But several times a week, Rubin took the shuttle from National Airport in Washington to LaGuardia Airport in New York. In addition to the many politicians and national news stars, the shuttle now transported a new power elite: AOL executives, commuting between AOL’s Virginia offices and AOL’s Manhattan base of operations in the Seagram’s Building on Fifty-third Street and Park Avenue.

  On this trip up to LaGuardia, before Thanksgiving, Rubin sa
t next to one of the executives charged with transforming AOL from the many businesses it had been before—a software company, online service, information business, communications concern, shopping center—into a media empire.

  They were on passingly familiar terms. The AOL executive knew that Rubin had substantial investments in the Internet industry and that Rubin came from a wealthy politically prominent family. Rubin knew that the executive was an AOL star, a player on the AOL media team. In other words, it was a felicitous and serendipitous seating arrangement. Kismet. Two new media power guys at the end of the day humping it home to New York.

  So they talked and everything fell into place. Just like that. A little personal juice at the right levels.

  “Done. He’ll do a deal,” Rubin said to me, calling as soon as they parted. Rubin was cool, dispassionate, cynical almost. But then, in spite of his practiced hauteur and the near blood score between us, he lost it: “Really. He’ll do it. I’m not kidding! He loves it!” His excitement almost turned to joviality. It shocked me to hear him so buoyant on the phone, so charged up, so easily tossing off his corporate enmity. Perhaps business really isn’t personal, I thought.

  “What kind of deal? How did this come up? How did you cast it?” I pressed.

  “He knows about the company. He’s into it. He’s pissed off that you’ve been getting the runaround. He says the entire AOL organization is super fucked up. But he said he’ll do it, personally. He’ll shepherd it. If we can put a deal together, he guarantees he’ll get it done. He’s ready. He’ll come into the office and do it. So let’s do it. Let’s set it up. Now!”

  “Okay. Great. Yes. Wow. What else did he say?”

  “He said he’s got his coke problem under control, and now he’s working on his fidelity issues.”

  I never really wanted to do a deal with AOL. At best, AOL just watered down the experience of the Internet and network technology; at worst, it was in some other business—it was a direct marketing organization, infomercial shit.

  I never knew anybody who took AOL seriously as an Internet company.

  I never knew an AOL customer who didn’t feel seriously abused by AOL.

  I never knew an AOL information provider who didn’t feel that AOL was about to start turning the screws.

  I never knew an AOL executive who didn’t think he or she was playing a part in a very serious shell game that, ideally, would end in an acquisition of AOL by a reputable company.

  I never knew anybody who really wanted to work for AOL, located in true Nowheresville, Virginia.

  And yet AOL had become the most important company in the Internet business. It had moved into a nexus of the media and technology and communications businesses. AOL had emerged as an odd, unlikely alternative to both news organizations and communications companies. Certainly, the possibility of a deal with AOL would influence our negotiations with the Washington Post and with Ameritech. With a little critical interpretation, AOL was now the biggest newspaper in the nation. The real USA Today. What’s more, it had become the largest provider of Internet connections in the world. It was doing the straightforward hardware/technology connection job that Ameritech and the other RBOCs and long distance companies should have been doing.

  Of course, while it continued to take beachhead after beachhead in the American economy, it still had never made any money.

  It was a company, both AOL supporters and AOL critics said, in perpetual start-up mode. The former meant to say that AOL had the rare corporate ability to reinvent itself, overnight, if need be; the latter were saying, derisively, that it was a fraud, a pyramid scheme, that before people caught on to the fact that every business AOL had ever tried had failed, it was on to another one.

  Go back to 1992, say, when Patrick Spain, the CEO of Hoover’s, a small publishing company that had the idea to take the kind of business information that Dun & Bradstreet sold for thousands of dollars and make it available to ordinary consumers in $19.95 paperback books, first signed up with AOL. AOL had about 150,000 members then, $26 million in revenue. There were AOL and GEnie and Delphi, the not very meaningful players in the online game, and then there were Prodigy and CompuServe, at the million-member level, who were kings of the online world.

  On AOL you could get information from companies like Hoover’s and Nolo Press, which offered legal information to laymen, or you could read the Army Times or check out a database of country inns. You could not, of course, get information from companies like Time, Inc. or the New York Times or Dun & Bradstreet. How could—and why would—an information company, a real information company that made money from its information, make its wares, its content, available online cheaper than its customers could get it offline and do so with no advertising opportunities to boot?

  This was certainly not the way CompuServe worked or, for that matter, the important information database providers like Dialog or Lexis/Nexis. They charged users a premium price for getting the information in an efficient digital form, and this made it worthwhile for the information provider.

  So AOL went to off-brand and no-brand information. For the AOL customer it didn’t make much difference. You were paying the same amount for your time on AOL, anyway. You weren’t paying more for Hoover’s. It was, or seemed like, free information, as AOL kept saying. You were paying for connect time, according to AOL, but the information was free. It was a point of pride at AOL that it had no premium pricing plan. Chances were you were there to chat, anyway. AOL really was CB radio. Hey! Hey! Hello! What are you doing? Chillin. You? Yeah. Chillin too. So? What are you wearing? Information—content—was just gravy.

  AOL’s membership base began to expand at a faster rate than that of Delphi or GEnie. AOL had done a public offering as a technology company, which gave it lots of financial resources, but it was really operating like a magazine company. It hired Jan Brandt, who was a circulation specialist in the magazine business. She started building AOL’s audience the old-fashioned way: through the mail! A start-up magazine company would never have been able to go to the public market for funding. But AOL, ostensibly a technology company but one that would gain subscribers exactly as magazines do and, in addition, would offer magazine-derived content, could. And did.

  Jan Brandt sent out a billion disks. More than three disks for every American. It was pure magazine circulation strategy. Renting lists. Targeting groups. Measuring response rate. On an offer for a free ten hours a .002 percent sign-up is not acceptable; kill that list. A .004 percent sign-up is—but watch the conversion. How many from that list go into billable hours? How many from that list are still here in three months, six months, a year? Just like magazines do it. Mail. Blow-in cards. Everywhere you look, a dirt cheap offer. The AOL disk-blitz! The disks sit next to coffee cups in America’s kitchens, get jammed into the backs of people’s sock drawers. Even people who don’t have computers have found some use for an AOL disk.

  But AOL wasn’t a magazine company. Wasn’t small-time like that. Wasn’t constrained by a magazine company’s value (a one times multiple of revenues, whereas AOL was trading at thirty times revenues or need for profitability. It was a technology company!

  One of the things that AOL did, that software companies do, was assemble a board of well-connected and powerful friends.

  Alexander Haig sat on AOL’s board (his presence, plus the company’s roots in northern Virginia, helped spur continual speculation about AOL’s defense and intelligence industry connections). As did Doug Peabody, a venture capitalist who funded media companies. As did Chris Meigher, the second-in-command at Time Inc. (Meigher and Peabody are now in business together), which brings us back to the magazine business.

  AOL dramatically changed when it recruited Time magazine in 1994 as its first big-brand information headliner. Suddenly, AOL was a media enterprise.

  It became “media” at the expense of the media.

  Time entered into a peculiar economic relationship with AOL. It devalued its own product. For all practical p
urposes, it gave it away. And then, within the year, almost every other consumer information provider began to experiment with this new distribution method that, at least for the time being, offered no economic viability.

  While this did not immediately damage the traditional information providers, who continued to make money the old-fashioned way, by printing on paper, it had a profound debilitating effect on the high-priced providers of online information like CompuServe, Dialog, and Lexis/Nexis—the only companies, ironically, that had ever made any money in the online business. (Three years later, AOL would acquire CompuServe’s online service—Worldcom acquired CompuServe’s telecommunications network—in something near to a fire sale.)

  Then in 1994, Paul Allen, the cofounder of Microsoft, who had retired from the company in 1984, the second-richest man in the technology business and the only vaunted figure in the industry with enough leisure time to take an interest in the online world, expressed his interest in acquiring AOL. (He had been buying stock in the company since 1992, holding close to 25 percent of AOL by 1994.)

  Allen’s interest provided AOL with instant credibility in the technology community, which had never paid it much attention before (AOL, after all, was not really a technology company; it was no more a technology company than was any bulletin board service), and in the financial community, which had heretofore treated AOL as a money-losing mid-tier player in a niche business. Its share price soared.

  Even more importantly, there was an internal sea change. As AOL’s board debated the Allen offer, a consensus emerged that what had been, indeed, a niche play suddenly had a sky’s-the-limit potential.

  “We sat in the conference room in the AOL office in the Seagram’s Building and had to almost physically restrain Steve from jumping into Allen’s arms. You dumb son-of-a-bitch, we had to say, you don’t know what you’ve got on your hands,” recalled a board member.