Steve Case: I never doubted the promise of the Internet, but I doubted if AOL would survive to participate

By Michael Carney , written on April 3, 2014

From The News Desk

When most technology startups launch today, the big challenge is breaking through the noise and attracting user attention. The power of the PC, the power of the Web, and the power of mobile, have all long since been established. But when AOL launched in 1985, the idea of “getting America online” was a controversial one.

“Just 3 percent of America was online at that point, and the average user spent just 1 hour online per week,” former Chairman and CEO Steve Case said during tonight’s PandoMonthly fireside chat in New York.

When AOL went out to raise its first round of venture capital (and even seven years later when it IPO’d in 1992) most investors still believed that the idea the internet would be ubiquitous was crazy. Worse, the company was competing against behemoths in Compuserve (backed by H&R Block) and Prodigy (backed by IBM & Sears), who Case recalls were spending hundreds of millions of dollars on advertising. By all accounts, launching AOL was a crazy concept facing serious headwinds.

“It was really hard to raise money, the bar was pretty high,” Case says, adding that in that era, VC played more of a filtering role than they do today. “Now the battle is for attention, how do you get noticed?”

It wasn’t just that Americans weren’t sold on Internet access. Case explains that most consumers didn’t even own PCs and most PCs that were in homes and offices didn’t have modems built in. The challenges didn’t end with getting consumers online. Once they were there, the services and communities that existed online were primitive and often vacant. But despite these barriers, Case professes that his faith in the opportunity never wavered.

“I had my doubts about whether AOL would survive to be there when the market developed, but I never doubted that it would happen,” Case says. “It takes some time to put the foundation in place to let the revolution happen – revolutions happen in evolutionary ways. When it comes to big ideas – maybe you get lucky, but you probably don’t unless you are passionate about it.”

AOL’s success can be traced back to an early decision that the company made, according to Case, pointing to the central thesis that the Internet would be, first and foremost, about people, communities, and communication. AOL’s competitors made different bets: AT&T focused on connectivity, while Compuserve bet on commerce.

“The core of AOL when it launched was community.” Case says. “We just knew that the killer app of this new medium would be people. Our bet early on was people. We also had content, commerce – the 4 C’s – but our big bet was people.”

AOL may have been the Web’s first social network and certainly was its first ubiquitous messaging product. This foresight, combined with the company’s ability to strike strategic partnerships, including with early investors, hardware companies like Commodore and Intel, and content partners, allowed it to eventually grow to serve 50 percent of all internet traffic at its peak.

The conclusion of AOL’s story is still being written, but given its onetime highs, the company is a cautionary tale today. Its largest revenue source remains its legacy dial-up internet business, a service that continues to dwindle quarter over quarter. Its crazy bet-the-farm merger with Time Warner is viewed as a failure. Its market cap today of $3.8 billion is a far cry from its all-time peak of $222 billion in December 1999.

But given the early headwinds that AOL faced, the company’s success, short-lived and overstated as it may have been at its heights, defies all common logic at the time of its inception. There are a number of lessons about perseverance and forward-thinking in AOL’s journey that startups today can learn from.

As Elon Musk is fond of saying, entrepreneurship will always be about “staring off into the abyss, chewing on broken glass.” It was true in the ‘80’s, when AOL began, and it’s true today. It’s only the companies that can weather those storms that survive.