January 14, 2019 • 39 mins
What did the Atari 2600 have to do with the birth of America Online? We look at the company's origins and how it helped usher in the online age.
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Episode Transcript
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Speaker 1 (00:00):
Hey there, and welcome to Tech Stuff. I'm your host,
Jonathan Strickland. I'm an executive producer and I Heeart Radio
and I love all things tech. And there was a
company that was so closely tied to the idea of
connecting to the Internet that for some people it was
synonymous with the Internet. It show. I'm talking about America
(00:22):
Online or A O L, which is still around, but
we're talking about the early days, and A O L
grew into a giant force of a company. It was
part of a merger that many people have described in
the wake of that merger as being the worst deal
in the history of tech mergers. So we're gonna look
at the history of this company and where things are today.
(00:44):
So in this episode will look specifically at how that
company came to be and how it grew in the
early years. Our story concerns several co founders. Frequently, if
you look at stories about A O L, they'll talk
about one of these co found unders over all the others.
But they are very important, each and every one of them.
(01:05):
So first we have William F. Von Meister, who founded
a startup that would give birth to A O L.
He would not be part of a o L itself,
but a o L would grow out of a company
that Maister had built, and the co founders would include
three men who worked for this startup. UH. The startup
(01:28):
was called Control Video Corporation. Those three men were Steve case,
Mark Seraf and Jim Kimsey. William F. Von Meister was
born in New York City. He his father had worked
for the Zeppelin Company, infamous for being the company that
would build the Hindenburg airship, the one that burst into
(01:51):
flame and gave birth to the OH the Humanity Line.
Von Meister was born on February twenty, nineteen two. He
attended private schools and he went to Georgetown University, but
he never graduated. Despite that, he was able to enroll
in the master's degree program for business over at American University,
(02:12):
and upon graduating, he founded many startups, and one of
those was a tech company called Control Video Corporation, which
I'll get to in just a moment, but first let's
talk about some of these other founders. James Verlin Kimsey
was born on September nineteen thirty nine. That would make
him the oldest of the co founders who would create
(02:33):
a o l He also attended, but did not graduate
from Georgetown University, so he and Meister had that in common.
He completed his education at West Point Academy. However, he
became an airborne ranger, in fact a decorated one. He
served three combat tours, two of which were in Vietnam,
and after the war he began purchasing or opening bars
(02:57):
and restaurants in the Washington, d c. Area. Became a
very successful businessman, and he was brought over to Control
Video Corporation to serve as a manufacturing consultant during some
troubled times. Control Video Corporation did not have a long history,
but it's certainly had a colorful one. Mark Saraf who
(03:18):
was one of the other co founders. He was born
on May five, ninety eight in Austin, Texas. He attended
the University of Texas. At Austin, he earned degrees in
computer science and mathematics, and then he would go on
to enroll in graduate studies at m I T and
he earned a master's degree in electrical engineering and computer science.
In nineteen seventy four, he took a job at Telenet
(03:41):
Communications Corporation, which in nineteen seventy five would become the
first packet switched network available to the general public. You
can think of it as one of the early backbones
of the Internet. So he was in early, early on
on the days of the Internet, before most people even
knew what such a thing was, decades before they knew
(04:01):
about it, in fact, and this was in the era
when the protocols for data transmission across the Internet we're
still being hammered out. Sarah would work for several tech
companies over the next few years, eventually moving over to
Control Video Corporation. Steve Case was born in Honolulu, Hawaii,
in nineteen fifty eight. Steve and his brother Dan were
(04:23):
entrepreneurial lee minded even at a young age. There's stories
about him and his brother operating a little juice stand
in Hawaii or selling greeting cards or seeds door to
door as children. Steve would attend Williams College in the
late seventies and early eighties. He would graduate in nineteen
eighty one with a degree in political science. After graduation,
(04:45):
Steve worked in the marketing department of Procter and Gamble,
and he later went and worked for Pepsi Coo, specifically
working as a head of marketing over at Pizza Hut,
or at least an executive of marketing over at Pizza Hut.
But I've to that his brother Dan introduced him to
the founders of Control Video Corporation. Over at C E. S.
(05:07):
Steve landed a gig with Control Video Corporation, which was
doing something really interesting, a really interesting business model that
would actually set the stage for America Online many years later. Now,
another element I need to mention before I get into
what Control Video Corporation was doing was a book that
Steve Case had read when he was a college student.
(05:28):
He thinks it was sometime around nineteen seventy nine. Is
a book that was written by a guy named Alvin Toffler,
and it's called The Third Wave. In that book, Toffler
describes a world in which computers would form a new
communication platform, a new revolution, a technological revolution akin to
the Industrial revolution, and it would allow for new digitally
(05:51):
oriented communities. Essentially, he was talking about the sort of
thing we would see in various Internet communities like forums
and things. That Case did not have an engineering background
or a programming background, but he thought this idea was
really compelling and it would become an important part of
his vision once he joined this company. So we now
(06:14):
know our major players, which really comes down to Steve Case,
Jim Kimsey, and Mark. Seraf von Meister is important, but
he was not part of the trio that would go
on to found the company that becomes a O L.
So what the heck did this Control Video Corporation do? Well?
I didn't know very much about this when I started
(06:36):
my research for this, which is funny to me because
I've talked about Atari a lot, and their their business
was deeply tied to Atari. And yet somehow I had
never come across this, or if I had, I had
forgotten about it. Control Video Corporation had created a product
called game Line for the AD, and again I had
(06:57):
never heard of this thing. Game Line was a cartridge,
a very large, misshapen cartridge. It didn't look like the
video game cartridges you would typically get if you wanted
to play a game of Pac Man or Pitfall. But
you would plug this cartridge into a t and it
would extend far out of it because it was so big,
(07:19):
and it had a port in it in which you
could plug a phone line, an old hard lined phone
connection to so This cartridge was part modem and part
storage device. Uh so you would plug it through the
normal cartridge port. It also had a battery that you
had to plug in. They had to put a nine
(07:39):
volt battery into this game line cartridge itself and then
plug it into your phone line and at that point,
your ATAR twenty could dial into the game Line service.
Game Line customers would get an account. You would have
a little form that would come or a card that
would come with your game line cartridge that would include
(08:01):
your personal identification number for that cartridge. If you logged
into the service, you would get access to games that
were available on that service, and then you could actually
use the game line to download games to your cartridge
to play on your AT twenty SID. So this was
incredibly forward thinking. This was a service all the way
(08:24):
back in three where you could download games to a console. Now,
it took me a bit to get my mind wrapped
around this because I'm familiar with the Atari twenty s.
The cartridges for the atwy dred are ROMs. That means
they're read only memory. You can't change them, at least
(08:45):
not without physically changing the cartridge. The games themselves are
hard coded in circuitry on the cartridges themselves. So the
physical layout of the components on the cartridge are what
make the game. It's not digital information stored in a
volatile medium that you can erase and and right over. Instead,
(09:07):
it's stuff that's physically etched in this cartridge. But the
game line was a little different. It's still had a
cartridge part that would plug into the console, but the
information was stored on microchips. They could store these small
amounts of information, not really big files. UH technology just
wasn't there to hold a lot of information, But games
(09:29):
were super small back in the early nine so this
was not a problem. Also, you needed it to be
small anyway, because these are games that are going to
be transmitted over phone lines and the speed of a
modem back in three was pretty slow. So the cartridge
part of the game line would act as this interface
between the game line and the UH. But the contents
(09:53):
of the cartridge could be changed by wiping and overwriting
the memory on those microchips. Pretty darn cool. Now, you
would have a limited number of plays per title that
you would essentially rent from game line, so you would
have a membership fee, and there was a per download fee.
It was just a dollar per game. So in a
(10:13):
way you'd think, oh, well, that's not bad. I've just
been a dollar and I get I get a copy
of this game. But again, that copy wouldn't last forever.
It would actually expire, and then if you wanted to
play the game again, you would have to rent it again,
and you would have to do that over and over
until you lost interest in playing that particular game. I
guess the company had plans to create similar services that
(10:34):
would be operated over the phone, including banking services and
news feed services, so you would get cartridges for those
specific applications. You wouldn't use your game line to access
it necessarily. You would have a news line cartridge that
you would plug into your atari and then you'll be
able to read the news. So sort of a proto
internet service. Well, the idea was incredibly prescient. It was
(10:58):
all the sort of services that we would associate with
online service providers and later internet service and there were
only a couple of online service provider like businesses in
operation in the early eighties. Compu Serve, which we'll talk
about as well in these episodes was one of them,
but there weren't a lot, so this was pretty new stuff.
(11:22):
Game Line didn't take off in a huge way, probably
for quite a few reasons. One of the big ones
was that the service was not able to secure licensing
deals with the largest game publishers for the Atari twenty
six hundred, so they weren't able to land deals with
Atari or Activision, and that meant some of the biggest titles,
the most popular titles for those game consoles or for
(11:45):
the hundred specifically, just weren't available for game Line, so
that made it difficult. There were more than seventy games
available on game Line, but these were mostly you know,
third or four tier games. Some of them were only
available on game Line, but again, they weren't the big names.
(12:05):
It wasn't the Pitfalls or the River Raids. Then the
video game crash of nineteen eight three happened. This was
the other reason game Line wasn't able to take off,
because the entire industry crumbled. It imploded. It pretty much
wiped out the Atar as a console. You didn't have
anyone who could sell the darned things. Not to mention
(12:26):
other competing video game consoles and companies, they all started
to suffer. Anyone who was making a home video game
console ine was in serious trouble. Or whose business depended
upon making games for those consoles, they were in trouble too,
So in nine four and eight five, the Control Video
Corporation sort of fizzled. It disbanded, but then it coalesced
(12:51):
into a new company. Now at this point, von Meister
quietly bowed out. Once the Control Video Corporation was really
starting to fall apart because of the video game industry
going to pieces, he extracted himself. But the new business
that formed out of the ashes of Control Video Corporation
(13:13):
was called Quantum Computer Services. Only ten of the employees
from Control Video Corporation would still have a job with
this new company, So the CEO of Quantum Computer Services
was Jim Kimsey. Mark Saraph would serve as the chief
technology officer, and Steve kay still had a job too
as the head of marketing. But Kimsey also recognized case
(13:37):
while he wasn't a tech guy, he wasn't the guy
to engineer a system or program something. He really had
a good handle on the business side and the marketing
side of things, and so Kimsey thought, this is a
guy I need to groom to become the head of
the company once I'm ready to hand over control, and
(13:57):
that would be the case. I've got a lot were
to say about the early days of a o L,
but first let's take a quick break to thank our sponsor.
This new company, Quantum Computer Services, took a lot of
inspiration from the strategy they used with the Atari twenty hundred,
(14:21):
but obviously they weren't going to be able to cater
to that audience that had imploded. So instead they started
to look at the burgeoning personal computer industry and they
targeted the Commodore sixty four community. Personal computers were succeeding
where video game consoles had failed. On May one, Quantum
Computer Services launched q link are sometimes called Quantum Link,
(14:45):
which was essentially an online bulletin board service. And I've
talked about bulletin board services or bbs is in the past,
but here's a super quick refresher. With the BBS, you
have somebody who is acting as host. They have a
computer eader, and they install software on that computer to
let it be a host for other machines. This computer
(15:07):
holds all the files that visitors to the BBS will
be able to interact with, whether they're just reading things,
or they can download stuff or upload stuff. This computer
is the home for all of that. Users can direct
their own personal computers to visit this BBS. They run
user interface software, a special program that allows them to
(15:29):
do this, and that also involves dialing a phone number
connected to the BBS using a dial up modem. So
the BBS is essentially answering a phone call from another computer,
and then those two computers have a conversation, just like
two humans would acceptance data instead of voice or sound.
This is on a very small scale, similar to what
(15:50):
happens on the Internet, but this represents a direct connection
between one computer and another, a client computer and the
sir for a computer, there's no network there, so the
connections only passing through the circuits of the phone system
and otherwise it's a direct connect from computer A to
computer b so q Link was a service in which
(16:12):
Commodore sixty four users could subscribe and access various features,
which included stuff like an electronic mail system that other
users could participate in, chat features, some file sharing capabilities,
and some networked games. You were restricted to other Commodore
sixty four owners who were also using the service. You
(16:34):
could not use q link to connect with people who
are using competing services. There was no inner connectivity. It
cost about ten dollars a month to subscribe to this service,
and if you wanted to use most of the features,
there was an additional charge of several cents per minute,
like six to eight cents per minute after the first
hour of use each month. So if you subscribed, you
(16:56):
would typically get sixty minutes of uh plus service is
what they called it, wrapped up in that and beyond
sixty minutes he would have to start paying per minute
of use. Steve Case would work super hard in his
division to promote que link and get more Commodore sixty
four users on board. Eventually the company would have about
(17:17):
a hundred thousand subscribers using Commonore sixty four accounts. Now,
for the next few bits of information, the next few
dates I'm going to talk about, there's somewhat muddled. I
went through a lot of different sources while researching these episodes,
and the problem is that there are a lot of
sources that have slightly different dates for when things happened.
(17:39):
So rather than say definitively that X happened on Y date,
I'm going to do my best but keep in mind
some of these could be off by a year one
way or another, because no one seems to agree on
when everything actually happened. So circa n Quantum Services, Quantum
Computers Services expanded by creating similar products called PC link
(18:05):
and apple Link. They had essentially the same sort of
features as q link did for a Commodore sixty fours,
but these were for Apple and IBM compatible computers. They
also created a service for Tandy computer owners to take
advantage of the same sort of stuff that q link
customers had been using. However, these were not interoperable. You
(18:27):
couldn't use the computer on Apple Link and communicate with
someone on pc link, so these were all independent services.
You could communicate with anyone else who was on that service,
just not with on one of the other services. So
this again was not the Internet, but rather centralized servers
that customers were dialing into in order to access these features.
(18:51):
Sometime around the company launched its first instant messaging service,
a precursor to what would become a O L Instant
Messenger or AIM. I'll talk about AIM more later on
in this series of episodes. One other super important moment
happened around nine nine. According to the official A O.
(19:12):
L History, that's when the You've got mail alert debuted.
So if you've ever heard that phrase, it comes from
A O L. And specifically it comes from nine. The
phrase would become iconic in the early days of the Internet.
It became a bit of a cultural meme. Folks would
mimic the notification or they would use it as a
punchline to a joke. Later on, when people had smartphones
(19:37):
that can actually play sound bites, that would become some
people's message alert system, you've got mail. The man whose
voice says You've got mail for A O L is
Lwood Edwards. Now Edwards. His wife, who was a customer
service representative for Quantum Computer Services, had overheard Steve Case
(19:58):
say he really will that they could have a voice
component to the online service interfaces, that the company had
something to differentiate their service from other products. So she
came home and she told her husband, Elwood about this.
And Elwood was a voiceover performer as well as a broadcaster.
(20:19):
He had a history in this kind of thing. So he,
according to the story, went into his living room and
he got a cassette player, which was a thing back
in those days. And a cassette tape and he recorded
himself saying several phrases including welcome and you've got mail,
and lots of others, and then they sent it off
(20:39):
to Steve Case and he got the gig. He's obviously
done lots of other work. Like I said, he's had
a long history in broadcasting. But Steve Case liked it.
He said, this is the tone and the technique we want,
and they went with it. So the phrase would become
intrinsically linked with A O L Services In those days.
It was famous enough to become the title of a
(21:02):
romantic comedy film in n starring Tom Hanks and Meg Ryan.
A O L got a lot of mileage out of
those phrases. As for Elwood, in two thousand and sixteen,
he popped up in online culture after a woman named
Brandy Barker uploaded a video of Elwood cheerfully reprising his
famous line he was driving her around because Elwood had
(21:25):
sort of retired from broadcasting but was working part time
as an uber driver in Ohio. It's actually a sweet
little video if you look it up, and that's pretty
much everywhere online. By the leadership of Quantum Computer Services,
felt that the company needed a rebranding to better reflect
what it did what its products were. So Steve Case
(21:48):
held a contest internally to rename the company, and employees
got to vote on the various nominees, and the name
that went out over all the others was America Online,
and so Quantum Services Quantum Computer Services ditched its name
for a o L. That happened in nineteen Now a
o L was not the first online service provider, as
(22:10):
I said, the first of those came out more or
less in nineteen seventy nine. These dates are also kind
of fuzzy because it really depends upon when you would
consider the beginning of the service. There was some limited
services in nineteen seventy eight when you could call into
computers after a certain time because the computers during the
(22:31):
day would be used for one purpose, but in the
evening they could, when they would otherwise be idle, they
could be put to use for this kind of stuff.
Seventy nine was really when things were starting to take effect,
and one of those early services was compu Serve. One
of these days, I'm gonna have to do a full
episode just about compu Serve. Another one was called the source. Now,
(22:52):
those services may have been what convinced William von Meister
to launch Control Video Corporation in the first place in
ninety three. Might have thought, I want to do the
same thing that they're doing with computers, but I'm going
to do it for home video game consoles because that
market is red hot. So copy serving the source. We're
pretty simple dial up services. Users could connect using a
(23:14):
dial up modem to a computer. Sometimes they might even
have to lift a telephone off of its cradle and
put it into a special other cradle that's connected to
the computer they're using. People who have used old modems
know what I'm talking about. The interfaces were text based.
They were not graphic user interfaces, both because computers weren't
(23:36):
really capable of displaying complex images, and also because it
cut down on how much data needed to go across
those phone lines and those modems. Because, like I said,
early modems had really limited data transfer capacities. You didn't
want to try and send a big file it would
take forever. Since the early days, the basic services were
(23:56):
pretty much what you would find if you had been
a que link user. Typically you'd have some sort of
electronic mail service bulletin boards or forums for discussion, news feeds,
that kind of thing. You were limited to communicating again
with the people who used the same service you did.
With some minor exceptions, there were some third parties that
offered up some cross service communication tools that would work
(24:19):
on services that had similar architectures. But for the most part,
you were limited to just your own community. You couldn't
chat with people who used other ones. The online service
providers might operate a network themselves, but that was an
internal network that you would connect to. They weren't interconnected
to other networks like the Internet is, so at least
(24:39):
at first, this wasn't about connecting to the Internet. It
was about connecting to a specific online service providers network.
So online service providers, you could argue, fit somewhere between
bulletin board services and the Internet. In scale, in a
o L held its initial public offering, That is, the
(25:00):
company made the change from being a privately owned company
to a publicly traded company. The first day of trading
on the Nasdaq Exchange was on March nineteenth two. The
opening price for a share of stock in a o
L was eleven dollars fifty cents. By the end of
that day, the stock price had closed at fourteen dollars
(25:21):
seventy five cents. That's an increase of twenty eight point
three percent, which isn't bad, and the number of shares
sold meant that A o L was able to raise
more than sixty million dollars in that process. A O
L and other online service providers like Prodigy since that
a more mainstream awareness of the Internet was right around
the corner, so they were preparing for this. They were
(25:44):
getting ready for what they envisioned as being an explosion
of interest in their services, and as it turns out,
A o L ended up being a little too modest
as far as expectations go. They would not scale up
to the size that they needed to, but they wouldn't
know that till later in according to time and they
(26:05):
should know more on that. In our next episode, A
o L introduced a new service in its suite. Users
could click on an option to access something pretty phenomenal,
and that would be the Internet. It would go from
being an online service provider that operated only its own
services to one that was a gateway to the information
(26:26):
super Highway. I have more to say about that, but
let's take another quick break to thank our sponsor. Now,
the Internet as a thing that the general public could
readily access has been around for nearly thirty years, but
(26:48):
before that it was a network that only a relatively
small number of people knew about, let alone had access to.
If you were on the Internet before, let's say, you
were likely a college student didn't and most likely, if
you were a college student on the Internet, you were
probably enrolled in at least one computer science class. An
employee at a research facility might have access to the Internet.
(27:11):
People in the military had access to the Internet. They
also had access to millnet, the military specific network that
is built on the same architecture. So there were a
few ways that you might have access to the Internet,
but just a few. It was just it was not
readily accessible to the average person. Then you had these
(27:32):
online service providers go beyond their own internal networks to
connect to the network of networks. The reaction was not
overwhelmingly positive on for the people who were already on
the Internet. That is, veterans online were greeted by a
flood of new users who had no inkling of how
things would work on the Internet. They hadn't been part
(27:54):
of the culture that had been forming. They didn't know
the lingo. There were nubes, in other words, and the
veterans weren't necessarily kind to the nubs. They resented this
flood of the uninformed, who were way worse than the
annual introduction of college freshmen. Those were bad enough. These
people were even worse. There was a bit of an
(28:14):
online culture war. But then again, while I call this
a culture war, you have to remember at most this
effected maybe a million and a half two million people.
A o L didn't even have two thousand subscribers yet,
so most of the mainstream world had not dipped a
toe in the Internet and viewed the whole thing as
a big fuss with computer nerds, and I guess it
(28:37):
mostly was. But A o L was trying to expand
beyond that narrow niche of computer enthusiasts. They were trying
to encourage adoption of this, and to do it, the
company took on a new marketing strategy that became about
as famous as that You've Got mail line. A o
L began to produce c d s, compact discs that
(28:59):
could in all the A o L interface onto a computer,
and then they began to send those CDs out, They
put them in magazines and they would mail them directly
to home addresses, and it got a little out of hand.
Anyone who owned a computer, and some people who didn't
began to accumulate collections of A O L compact discs.
(29:21):
There were jokes about using them as Christmas decorations, or
coasters or Frisbees. They were everywhere. The strategy was pervasive,
it was annoying, and it was effective. In Jim Kimsey
retired as CEO, he stayed on board as the Chairman
of the board for A O L for a couple
(29:42):
more years. Steve Case became the new CEO. He had
proven his worth numerous times by positioning the company's services
in a way that appealed to the end user. One
of the big differentiators in the A o L service
compared to competitors like Prodigy and compu Serve, is that
A o L's folk was on the ability to create
communities online. That tied back to that book I talked
(30:06):
about earlier, the one that inspired Case. When he was
in his twenties. He had worked to make sure that
A o L services included features that made it easy
for users to connect with one another beyond superficial messages.
By comparison prodigies, services were mostly centered around shopping for
one thing. The service was largely funded by seers, and
(30:28):
copy Serve was viewed as more of a tool for
real tech heads, people who were deeply tied to the
world of information. It was considered the more geeky of
the various online service providers. A o L was marketed
as more user friendly, the service that the average person
could get hold of and understand in. A o L
(30:50):
established its own homepage on the Internet. It was an
online service provider, but the home page did not exist
till a o L dot com. So, as Steve Case
at the Helm, another big change was around the corner
that in retrospect seemed to presage a o l's meteoric rise,
and this was a change in how the company build customers.
(31:12):
It was all in pricing up to nineteen six, The
general approach was to charge users according to the amount
of time they spent on the service. The longer you
were on the service, the more you paid, so you're
paying by the minute. In nineteen ninety six, a o
L changed its pricing model to a flat fee of
(31:34):
nineteen dollars n cents for a month of service, so
it's twenty bucks a month, and you could go online
as much as you liked, for as long as you liked,
as many times as you liked within that month. That
definitely had an impact. At the end of nineteen, a
o L had grown to one million subscribers after introducing
(31:55):
this new pricing model. By the end of ninety six,
they were at five million users, an enormous jump. Such
a big jump in fact, that A o L's servers
had trouble with this increase in traffic. On August seven,
which was a Wednesday, in case you're curious, the service
crashed and it remained offline for about nineteen hours. It
(32:18):
was big enough to make the news. CBS News correspondent
Peter Van Sante called it quote the silence of the
techno nerds end quote harsh words Van sent now. According
to A O L, the cause of the problem officially
was that they were doing regular maintenance on A o
(32:40):
L servers and something went wrong and it took a
while to fix. But CBS News cited an unnamed analyst
with Jupiter Communications who alleged the real reason was that
A O L had failed to scale up operations and
keep pace with the increase in the number of users,
and so it was user overload that caused the problem.
(33:01):
If that's the case, it's a great problem to have,
because it's better to have to scramble to meet demand
than to have to hustle to get enough customers. Too.
Straight by, you want the problem of having more demand
than you have supply. Kimsey had stepped down in in
Mark Seraf, the other co founder, would resign his position
(33:23):
of senior vice president with the company and leave to
go do other stuff, which meant that out of the
three co founders, only Steve Case remained, although to be fair,
Kimsey was on the board of directors for a little bit.
In Bolstered by a growing customer base and a solid
performance in the stock market, A o L began to
(33:43):
stretch out a bit and made a move on one
of its major competitors, a company that had been around
much longer than a O L had It moved to
acquire compu Serve. The two companies had been competing fiercely
over customers for years. Sometimes one would offer special deals
to lure people away from the other service, then the
(34:03):
other service would do the same, and it went back
and forth year over year over year between the two companies.
AOL had the larger number of customers by far by
which is when this acquisition would become final. A o
L had around eleven million subscribers and compu Serve was
closer to two and a half million. The acquisition was
(34:25):
a little bit on the long and winding side. In
other words, it got complicated. So let's explain, because it's
one of those fascinating corporate maneuvers that as a person
who loves tech and has a history in liberal arts education,
this was new to me. So before the acquisition, copy
(34:49):
Serve was part of H and R Block, the tax
preparation company. H and R Block purchased compu Serve back
in nineteen eighty for like twenty million dollar ers. By
n seven, H and R Block was going through some
major changes at the executive level. They were having real issues,
(35:09):
which is a fascinating story in itself, and I can't
really tell it on tech stuff because it doesn't really
tie into tech, but maybe I'll tell it on the
brink one day because I think it's a fascinating story. Anyway,
they were going through some stuff. It got complicated Facebook style,
and so the board of directors for H and R
Block decided one of the things the company needed to
(35:31):
do in order to streamline stuff was divest itself of
Copy Serve. A L expressed interest right away, saying, we
would very much like to take that off your hands,
and we will make an offer, and they offered to
purchase the company with shares of a O L stock,
But the board rejected this offer. They didn't feel that
(35:53):
a O L stock was valuable enough for this to
make sense. They would prefer to either have stocks were
more um stable, more established, I guess is a good
way of putting it than a O L. Or they
wanted to do it in cash. A couldn't do it
in cash. But then a third company came into the picture.
(36:15):
This third company was World Calm, which is another company
I'm going to have to cover at some future point.
World Calm had an offer for both H and R
Block and A O L. World Colm offered to buy
Copy Serve from H and R. In exchange, World Calm
would give up some of its stock. That stock was
seen as being more stable and more valuable than a
(36:38):
O L stock, and H and R thought, well, we
can turn that around and sell it right away and
get the money we want. So the H and R
Block board agreed to that term, and Company Serve was
sold to World Calm for one point to billion dollars
worth of World Calm shares, which H and R Block
then sold the very next day. After this exchange between
(37:01):
world Common H and R world Coms sold part of
compu Serve to a o L. Specifically, it's sold the
information services part of compu Serve, and it retained compu
serves network services business because that's the business that World
com is in, is in network technologies. In addition, a
(37:22):
o L sold to World Calm its own Advanced Network
Services division. So World Colm gets the network parts of
compu Serve and a O L. A o L gets
compu Serves information systems divisions. World Colm gets a lot
more of the market share for its business, a O
L gets more dominant position for its business, and H
(37:46):
and R Block can count a whole lot of money,
which is what I understand they're quite good at doing.
So pretty interesting. Plus, I mean, if you look at
H and R Block, they made a heck of a deal.
They had paid twenty million dollars for compu Serve in
nineteen Then two decades later they sell it for one
(38:09):
point to billion dollars and compu Serve had been making
profits in those years in between. So incredible deal for
H and R. Block A o L. Had secured its place,
or so it seemed. It had eclipsed a former competitor,
and it had even brought that company to heal. Sure,
(38:29):
there were some compu Serve customers who weren't crazy about
the whole thing, but the future was bright. The rapid
rise of the company was guaranteed to continue, wasn't it.
We'll find out in our next episode. If you guys
have any suggestions for future episodes of tech Stuff, whether
it's a company, a technology person in tech, maybe there's
(38:52):
just a moment in tech history you would really like
me to focus on. Let me know. Send me an email.
The address is tech Stuff at how stuff works dot com,
or head on over to our website that's tech Stuff
Podcast dot com. There you're gonna find other ways to
contact us, like through social media. Also, don't forget to
pop on over to our merchandise store that's over at
(39:13):
t public dot com. Slash tech Stuff every purchase you
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for more on this and thousands of other topics. Is
that how stuff works dot com
Hey there, and welcome to Tech Stuff. I'm your host,
Jonathan Strickland. I'm an executive producer and I Heeart Radio
and I love all things tech. And there was a
company that was so closely tied to the idea of
connecting to the Internet that for some people it was
synonymous with the Internet. It show. I'm talking about America
(00:22):
Online or A O L, which is still around, but
we're talking about the early days, and A O L
grew into a giant force of a company. It was
part of a merger that many people have described in
the wake of that merger as being the worst deal
in the history of tech mergers. So we're gonna look
at the history of this company and where things are today.
(00:44):
So in this episode will look specifically at how that
company came to be and how it grew in the
early years. Our story concerns several co founders. Frequently, if
you look at stories about A O L, they'll talk
about one of these co found unders over all the others.
But they are very important, each and every one of them.
(01:05):
So first we have William F. Von Meister, who founded
a startup that would give birth to A O L.
He would not be part of a o L itself,
but a o L would grow out of a company
that Maister had built, and the co founders would include
three men who worked for this startup. UH. The startup
(01:28):
was called Control Video Corporation. Those three men were Steve case,
Mark Seraf and Jim Kimsey. William F. Von Meister was
born in New York City. He his father had worked
for the Zeppelin Company, infamous for being the company that
would build the Hindenburg airship, the one that burst into
(01:51):
flame and gave birth to the OH the Humanity Line.
Von Meister was born on February twenty, nineteen two. He
attended private schools and he went to Georgetown University, but
he never graduated. Despite that, he was able to enroll
in the master's degree program for business over at American University,
(02:12):
and upon graduating, he founded many startups, and one of
those was a tech company called Control Video Corporation, which
I'll get to in just a moment, but first let's
talk about some of these other founders. James Verlin Kimsey
was born on September nineteen thirty nine. That would make
him the oldest of the co founders who would create
(02:33):
a o l He also attended, but did not graduate
from Georgetown University, so he and Meister had that in common.
He completed his education at West Point Academy. However, he
became an airborne ranger, in fact a decorated one. He
served three combat tours, two of which were in Vietnam,
and after the war he began purchasing or opening bars
(02:57):
and restaurants in the Washington, d c. Area. Became a
very successful businessman, and he was brought over to Control
Video Corporation to serve as a manufacturing consultant during some
troubled times. Control Video Corporation did not have a long history,
but it's certainly had a colorful one. Mark Saraf who
(03:18):
was one of the other co founders. He was born
on May five, ninety eight in Austin, Texas. He attended
the University of Texas. At Austin, he earned degrees in
computer science and mathematics, and then he would go on
to enroll in graduate studies at m I T and
he earned a master's degree in electrical engineering and computer science.
In nineteen seventy four, he took a job at Telenet
(03:41):
Communications Corporation, which in nineteen seventy five would become the
first packet switched network available to the general public. You
can think of it as one of the early backbones
of the Internet. So he was in early, early on
on the days of the Internet, before most people even
knew what such a thing was, decades before they knew
(04:01):
about it, in fact, and this was in the era
when the protocols for data transmission across the Internet we're
still being hammered out. Sarah would work for several tech
companies over the next few years, eventually moving over to
Control Video Corporation. Steve Case was born in Honolulu, Hawaii,
in nineteen fifty eight. Steve and his brother Dan were
(04:23):
entrepreneurial lee minded even at a young age. There's stories
about him and his brother operating a little juice stand
in Hawaii or selling greeting cards or seeds door to
door as children. Steve would attend Williams College in the
late seventies and early eighties. He would graduate in nineteen
eighty one with a degree in political science. After graduation,
(04:45):
Steve worked in the marketing department of Procter and Gamble,
and he later went and worked for Pepsi Coo, specifically
working as a head of marketing over at Pizza Hut,
or at least an executive of marketing over at Pizza Hut.
But I've to that his brother Dan introduced him to
the founders of Control Video Corporation. Over at C E. S.
(05:07):
Steve landed a gig with Control Video Corporation, which was
doing something really interesting, a really interesting business model that
would actually set the stage for America Online many years later. Now,
another element I need to mention before I get into
what Control Video Corporation was doing was a book that
Steve Case had read when he was a college student.
(05:28):
He thinks it was sometime around nineteen seventy nine. Is
a book that was written by a guy named Alvin Toffler,
and it's called The Third Wave. In that book, Toffler
describes a world in which computers would form a new
communication platform, a new revolution, a technological revolution akin to
the Industrial revolution, and it would allow for new digitally
(05:51):
oriented communities. Essentially, he was talking about the sort of
thing we would see in various Internet communities like forums
and things. That Case did not have an engineering background
or a programming background, but he thought this idea was
really compelling and it would become an important part of
his vision once he joined this company. So we now
(06:14):
know our major players, which really comes down to Steve Case,
Jim Kimsey, and Mark. Seraf von Meister is important, but
he was not part of the trio that would go
on to found the company that becomes a O L.
So what the heck did this Control Video Corporation do? Well?
I didn't know very much about this when I started
(06:36):
my research for this, which is funny to me because
I've talked about Atari a lot, and their their business
was deeply tied to Atari. And yet somehow I had
never come across this, or if I had, I had
forgotten about it. Control Video Corporation had created a product
called game Line for the AD, and again I had
(06:57):
never heard of this thing. Game Line was a cartridge,
a very large, misshapen cartridge. It didn't look like the
video game cartridges you would typically get if you wanted
to play a game of Pac Man or Pitfall. But
you would plug this cartridge into a t and it
would extend far out of it because it was so big,
(07:19):
and it had a port in it in which you
could plug a phone line, an old hard lined phone
connection to so This cartridge was part modem and part
storage device. Uh so you would plug it through the
normal cartridge port. It also had a battery that you
had to plug in. They had to put a nine
(07:39):
volt battery into this game line cartridge itself and then
plug it into your phone line and at that point,
your ATAR twenty could dial into the game Line service.
Game Line customers would get an account. You would have
a little form that would come or a card that
would come with your game line cartridge that would include
(08:01):
your personal identification number for that cartridge. If you logged
into the service, you would get access to games that
were available on that service, and then you could actually
use the game line to download games to your cartridge
to play on your AT twenty SID. So this was
incredibly forward thinking. This was a service all the way
(08:24):
back in three where you could download games to a console. Now,
it took me a bit to get my mind wrapped
around this because I'm familiar with the Atari twenty s.
The cartridges for the atwy dred are ROMs. That means
they're read only memory. You can't change them, at least
(08:45):
not without physically changing the cartridge. The games themselves are
hard coded in circuitry on the cartridges themselves. So the
physical layout of the components on the cartridge are what
make the game. It's not digital information stored in a
volatile medium that you can erase and and right over. Instead,
(09:07):
it's stuff that's physically etched in this cartridge. But the
game line was a little different. It's still had a
cartridge part that would plug into the console, but the
information was stored on microchips. They could store these small
amounts of information, not really big files. UH technology just
wasn't there to hold a lot of information, But games
(09:29):
were super small back in the early nine so this
was not a problem. Also, you needed it to be
small anyway, because these are games that are going to
be transmitted over phone lines and the speed of a
modem back in three was pretty slow. So the cartridge
part of the game line would act as this interface
between the game line and the UH. But the contents
(09:53):
of the cartridge could be changed by wiping and overwriting
the memory on those microchips. Pretty darn cool. Now, you
would have a limited number of plays per title that
you would essentially rent from game line, so you would
have a membership fee, and there was a per download fee.
It was just a dollar per game. So in a
(10:13):
way you'd think, oh, well, that's not bad. I've just
been a dollar and I get I get a copy
of this game. But again, that copy wouldn't last forever.
It would actually expire, and then if you wanted to
play the game again, you would have to rent it again,
and you would have to do that over and over
until you lost interest in playing that particular game. I
guess the company had plans to create similar services that
(10:34):
would be operated over the phone, including banking services and
news feed services, so you would get cartridges for those
specific applications. You wouldn't use your game line to access
it necessarily. You would have a news line cartridge that
you would plug into your atari and then you'll be
able to read the news. So sort of a proto
internet service. Well, the idea was incredibly prescient. It was
(10:58):
all the sort of services that we would associate with
online service providers and later internet service and there were
only a couple of online service provider like businesses in
operation in the early eighties. Compu Serve, which we'll talk
about as well in these episodes was one of them,
but there weren't a lot, so this was pretty new stuff.
(11:22):
Game Line didn't take off in a huge way, probably
for quite a few reasons. One of the big ones
was that the service was not able to secure licensing
deals with the largest game publishers for the Atari twenty
six hundred, so they weren't able to land deals with
Atari or Activision, and that meant some of the biggest titles,
the most popular titles for those game consoles or for
(11:45):
the hundred specifically, just weren't available for game Line, so
that made it difficult. There were more than seventy games
available on game Line, but these were mostly you know,
third or four tier games. Some of them were only
available on game Line, but again, they weren't the big names.
(12:05):
It wasn't the Pitfalls or the River Raids. Then the
video game crash of nineteen eight three happened. This was
the other reason game Line wasn't able to take off,
because the entire industry crumbled. It imploded. It pretty much
wiped out the Atar as a console. You didn't have
anyone who could sell the darned things. Not to mention
(12:26):
other competing video game consoles and companies, they all started
to suffer. Anyone who was making a home video game
console ine was in serious trouble. Or whose business depended
upon making games for those consoles, they were in trouble too,
So in nine four and eight five, the Control Video
Corporation sort of fizzled. It disbanded, but then it coalesced
(12:51):
into a new company. Now at this point, von Meister
quietly bowed out. Once the Control Video Corporation was really
starting to fall apart because of the video game industry
going to pieces, he extracted himself. But the new business
that formed out of the ashes of Control Video Corporation
(13:13):
was called Quantum Computer Services. Only ten of the employees
from Control Video Corporation would still have a job with
this new company, So the CEO of Quantum Computer Services
was Jim Kimsey. Mark Saraph would serve as the chief
technology officer, and Steve kay still had a job too
as the head of marketing. But Kimsey also recognized case
(13:37):
while he wasn't a tech guy, he wasn't the guy
to engineer a system or program something. He really had
a good handle on the business side and the marketing
side of things, and so Kimsey thought, this is a
guy I need to groom to become the head of
the company once I'm ready to hand over control, and
(13:57):
that would be the case. I've got a lot were
to say about the early days of a o L,
but first let's take a quick break to thank our sponsor.
This new company, Quantum Computer Services, took a lot of
inspiration from the strategy they used with the Atari twenty hundred,
(14:21):
but obviously they weren't going to be able to cater
to that audience that had imploded. So instead they started
to look at the burgeoning personal computer industry and they
targeted the Commodore sixty four community. Personal computers were succeeding
where video game consoles had failed. On May one, Quantum
Computer Services launched q link are sometimes called Quantum Link,
(14:45):
which was essentially an online bulletin board service. And I've
talked about bulletin board services or bbs is in the past,
but here's a super quick refresher. With the BBS, you
have somebody who is acting as host. They have a
computer eader, and they install software on that computer to
let it be a host for other machines. This computer
(15:07):
holds all the files that visitors to the BBS will
be able to interact with, whether they're just reading things,
or they can download stuff or upload stuff. This computer
is the home for all of that. Users can direct
their own personal computers to visit this BBS. They run
user interface software, a special program that allows them to
(15:29):
do this, and that also involves dialing a phone number
connected to the BBS using a dial up modem. So
the BBS is essentially answering a phone call from another computer,
and then those two computers have a conversation, just like
two humans would acceptance data instead of voice or sound.
This is on a very small scale, similar to what
(15:50):
happens on the Internet, but this represents a direct connection
between one computer and another, a client computer and the
sir for a computer, there's no network there, so the
connections only passing through the circuits of the phone system
and otherwise it's a direct connect from computer A to
computer b so q Link was a service in which
(16:12):
Commodore sixty four users could subscribe and access various features,
which included stuff like an electronic mail system that other
users could participate in, chat features, some file sharing capabilities,
and some networked games. You were restricted to other Commodore
sixty four owners who were also using the service. You
(16:34):
could not use q link to connect with people who
are using competing services. There was no inner connectivity. It
cost about ten dollars a month to subscribe to this service,
and if you wanted to use most of the features,
there was an additional charge of several cents per minute,
like six to eight cents per minute after the first
hour of use each month. So if you subscribed, you
(16:56):
would typically get sixty minutes of uh plus service is
what they called it, wrapped up in that and beyond
sixty minutes he would have to start paying per minute
of use. Steve Case would work super hard in his
division to promote que link and get more Commodore sixty
four users on board. Eventually the company would have about
(17:17):
a hundred thousand subscribers using Commonore sixty four accounts. Now,
for the next few bits of information, the next few
dates I'm going to talk about, there's somewhat muddled. I
went through a lot of different sources while researching these episodes,
and the problem is that there are a lot of
sources that have slightly different dates for when things happened.
(17:39):
So rather than say definitively that X happened on Y date,
I'm going to do my best but keep in mind
some of these could be off by a year one
way or another, because no one seems to agree on
when everything actually happened. So circa n Quantum Services, Quantum
Computers Services expanded by creating similar products called PC link
(18:05):
and apple Link. They had essentially the same sort of
features as q link did for a Commodore sixty fours,
but these were for Apple and IBM compatible computers. They
also created a service for Tandy computer owners to take
advantage of the same sort of stuff that q link
customers had been using. However, these were not interoperable. You
(18:27):
couldn't use the computer on Apple Link and communicate with
someone on pc link, so these were all independent services.
You could communicate with anyone else who was on that service,
just not with on one of the other services. So
this again was not the Internet, but rather centralized servers
that customers were dialing into in order to access these features.
(18:51):
Sometime around the company launched its first instant messaging service,
a precursor to what would become a O L Instant
Messenger or AIM. I'll talk about AIM more later on
in this series of episodes. One other super important moment
happened around nine nine. According to the official A O.
(19:12):
L History, that's when the You've got mail alert debuted.
So if you've ever heard that phrase, it comes from
A O L. And specifically it comes from nine. The
phrase would become iconic in the early days of the Internet.
It became a bit of a cultural meme. Folks would
mimic the notification or they would use it as a
punchline to a joke. Later on, when people had smartphones
(19:37):
that can actually play sound bites, that would become some
people's message alert system, you've got mail. The man whose
voice says You've got mail for A O L is
Lwood Edwards. Now Edwards. His wife, who was a customer
service representative for Quantum Computer Services, had overheard Steve Case
(19:58):
say he really will that they could have a voice
component to the online service interfaces, that the company had
something to differentiate their service from other products. So she
came home and she told her husband, Elwood about this.
And Elwood was a voiceover performer as well as a broadcaster.
(20:19):
He had a history in this kind of thing. So he,
according to the story, went into his living room and
he got a cassette player, which was a thing back
in those days. And a cassette tape and he recorded
himself saying several phrases including welcome and you've got mail,
and lots of others, and then they sent it off
(20:39):
to Steve Case and he got the gig. He's obviously
done lots of other work. Like I said, he's had
a long history in broadcasting. But Steve Case liked it.
He said, this is the tone and the technique we want,
and they went with it. So the phrase would become
intrinsically linked with A O L Services In those days.
It was famous enough to become the title of a
(21:02):
romantic comedy film in n starring Tom Hanks and Meg Ryan.
A O L got a lot of mileage out of
those phrases. As for Elwood, in two thousand and sixteen,
he popped up in online culture after a woman named
Brandy Barker uploaded a video of Elwood cheerfully reprising his
famous line he was driving her around because Elwood had
(21:25):
sort of retired from broadcasting but was working part time
as an uber driver in Ohio. It's actually a sweet
little video if you look it up, and that's pretty
much everywhere online. By the leadership of Quantum Computer Services,
felt that the company needed a rebranding to better reflect
what it did what its products were. So Steve Case
(21:48):
held a contest internally to rename the company, and employees
got to vote on the various nominees, and the name
that went out over all the others was America Online,
and so Quantum Services Quantum Computer Services ditched its name
for a o L. That happened in nineteen Now a
o L was not the first online service provider, as
(22:10):
I said, the first of those came out more or
less in nineteen seventy nine. These dates are also kind
of fuzzy because it really depends upon when you would
consider the beginning of the service. There was some limited
services in nineteen seventy eight when you could call into
computers after a certain time because the computers during the
(22:31):
day would be used for one purpose, but in the
evening they could, when they would otherwise be idle, they
could be put to use for this kind of stuff.
Seventy nine was really when things were starting to take effect,
and one of those early services was compu Serve. One
of these days, I'm gonna have to do a full
episode just about compu Serve. Another one was called the source. Now,
(22:52):
those services may have been what convinced William von Meister
to launch Control Video Corporation in the first place in
ninety three. Might have thought, I want to do the
same thing that they're doing with computers, but I'm going
to do it for home video game consoles because that
market is red hot. So copy serving the source. We're
pretty simple dial up services. Users could connect using a
(23:14):
dial up modem to a computer. Sometimes they might even
have to lift a telephone off of its cradle and
put it into a special other cradle that's connected to
the computer they're using. People who have used old modems
know what I'm talking about. The interfaces were text based.
They were not graphic user interfaces, both because computers weren't
(23:36):
really capable of displaying complex images, and also because it
cut down on how much data needed to go across
those phone lines and those modems. Because, like I said,
early modems had really limited data transfer capacities. You didn't
want to try and send a big file it would
take forever. Since the early days, the basic services were
(23:56):
pretty much what you would find if you had been
a que link user. Typically you'd have some sort of
electronic mail service bulletin boards or forums for discussion, news feeds,
that kind of thing. You were limited to communicating again
with the people who used the same service you did.
With some minor exceptions, there were some third parties that
offered up some cross service communication tools that would work
(24:19):
on services that had similar architectures. But for the most part,
you were limited to just your own community. You couldn't
chat with people who used other ones. The online service
providers might operate a network themselves, but that was an
internal network that you would connect to. They weren't interconnected
to other networks like the Internet is, so at least
(24:39):
at first, this wasn't about connecting to the Internet. It
was about connecting to a specific online service providers network.
So online service providers, you could argue, fit somewhere between
bulletin board services and the Internet. In scale, in a
o L held its initial public offering, That is, the
(25:00):
company made the change from being a privately owned company
to a publicly traded company. The first day of trading
on the Nasdaq Exchange was on March nineteenth two. The
opening price for a share of stock in a o
L was eleven dollars fifty cents. By the end of
that day, the stock price had closed at fourteen dollars
(25:21):
seventy five cents. That's an increase of twenty eight point
three percent, which isn't bad, and the number of shares
sold meant that A o L was able to raise
more than sixty million dollars in that process. A O
L and other online service providers like Prodigy since that
a more mainstream awareness of the Internet was right around
the corner, so they were preparing for this. They were
(25:44):
getting ready for what they envisioned as being an explosion
of interest in their services, and as it turns out,
A o L ended up being a little too modest
as far as expectations go. They would not scale up
to the size that they needed to, but they wouldn't
know that till later in according to time and they
(26:05):
should know more on that. In our next episode, A
o L introduced a new service in its suite. Users
could click on an option to access something pretty phenomenal,
and that would be the Internet. It would go from
being an online service provider that operated only its own
services to one that was a gateway to the information
(26:26):
super Highway. I have more to say about that, but
let's take another quick break to thank our sponsor. Now,
the Internet as a thing that the general public could
readily access has been around for nearly thirty years, but
(26:48):
before that it was a network that only a relatively
small number of people knew about, let alone had access to.
If you were on the Internet before, let's say, you
were likely a college student didn't and most likely, if
you were a college student on the Internet, you were
probably enrolled in at least one computer science class. An
employee at a research facility might have access to the Internet.
(27:11):
People in the military had access to the Internet. They
also had access to millnet, the military specific network that
is built on the same architecture. So there were a
few ways that you might have access to the Internet,
but just a few. It was just it was not
readily accessible to the average person. Then you had these
(27:32):
online service providers go beyond their own internal networks to
connect to the network of networks. The reaction was not
overwhelmingly positive on for the people who were already on
the Internet. That is, veterans online were greeted by a
flood of new users who had no inkling of how
things would work on the Internet. They hadn't been part
(27:54):
of the culture that had been forming. They didn't know
the lingo. There were nubes, in other words, and the
veterans weren't necessarily kind to the nubs. They resented this
flood of the uninformed, who were way worse than the
annual introduction of college freshmen. Those were bad enough. These
people were even worse. There was a bit of an
(28:14):
online culture war. But then again, while I call this
a culture war, you have to remember at most this
effected maybe a million and a half two million people.
A o L didn't even have two thousand subscribers yet,
so most of the mainstream world had not dipped a
toe in the Internet and viewed the whole thing as
a big fuss with computer nerds, and I guess it
(28:37):
mostly was. But A o L was trying to expand
beyond that narrow niche of computer enthusiasts. They were trying
to encourage adoption of this, and to do it, the
company took on a new marketing strategy that became about
as famous as that You've Got mail line. A o
L began to produce c d s, compact discs that
(28:59):
could in all the A o L interface onto a computer,
and then they began to send those CDs out, They
put them in magazines and they would mail them directly
to home addresses, and it got a little out of hand.
Anyone who owned a computer, and some people who didn't
began to accumulate collections of A O L compact discs.
(29:21):
There were jokes about using them as Christmas decorations, or
coasters or Frisbees. They were everywhere. The strategy was pervasive,
it was annoying, and it was effective. In Jim Kimsey
retired as CEO, he stayed on board as the Chairman
of the board for A O L for a couple
(29:42):
more years. Steve Case became the new CEO. He had
proven his worth numerous times by positioning the company's services
in a way that appealed to the end user. One
of the big differentiators in the A o L service
compared to competitors like Prodigy and compu Serve, is that
A o L's folk was on the ability to create
communities online. That tied back to that book I talked
(30:06):
about earlier, the one that inspired Case. When he was
in his twenties. He had worked to make sure that
A o L services included features that made it easy
for users to connect with one another beyond superficial messages.
By comparison prodigies, services were mostly centered around shopping for
one thing. The service was largely funded by seers, and
(30:28):
copy Serve was viewed as more of a tool for
real tech heads, people who were deeply tied to the
world of information. It was considered the more geeky of
the various online service providers. A o L was marketed
as more user friendly, the service that the average person
could get hold of and understand in. A o L
(30:50):
established its own homepage on the Internet. It was an
online service provider, but the home page did not exist
till a o L dot com. So, as Steve Case
at the Helm, another big change was around the corner
that in retrospect seemed to presage a o l's meteoric rise,
and this was a change in how the company build customers.
(31:12):
It was all in pricing up to nineteen six, The
general approach was to charge users according to the amount
of time they spent on the service. The longer you
were on the service, the more you paid, so you're
paying by the minute. In nineteen ninety six, a o
L changed its pricing model to a flat fee of
(31:34):
nineteen dollars n cents for a month of service, so
it's twenty bucks a month, and you could go online
as much as you liked, for as long as you liked,
as many times as you liked within that month. That
definitely had an impact. At the end of nineteen, a
o L had grown to one million subscribers after introducing
(31:55):
this new pricing model. By the end of ninety six,
they were at five million users, an enormous jump. Such
a big jump in fact, that A o L's servers
had trouble with this increase in traffic. On August seven,
which was a Wednesday, in case you're curious, the service
crashed and it remained offline for about nineteen hours. It
(32:18):
was big enough to make the news. CBS News correspondent
Peter Van Sante called it quote the silence of the
techno nerds end quote harsh words Van sent now. According
to A O L, the cause of the problem officially
was that they were doing regular maintenance on A o
(32:40):
L servers and something went wrong and it took a
while to fix. But CBS News cited an unnamed analyst
with Jupiter Communications who alleged the real reason was that
A O L had failed to scale up operations and
keep pace with the increase in the number of users,
and so it was user overload that caused the problem.
(33:01):
If that's the case, it's a great problem to have,
because it's better to have to scramble to meet demand
than to have to hustle to get enough customers. Too.
Straight by, you want the problem of having more demand
than you have supply. Kimsey had stepped down in in
Mark Seraf, the other co founder, would resign his position
(33:23):
of senior vice president with the company and leave to
go do other stuff, which meant that out of the
three co founders, only Steve Case remained, although to be fair,
Kimsey was on the board of directors for a little bit.
In Bolstered by a growing customer base and a solid
performance in the stock market, A o L began to
(33:43):
stretch out a bit and made a move on one
of its major competitors, a company that had been around
much longer than a O L had It moved to
acquire compu Serve. The two companies had been competing fiercely
over customers for years. Sometimes one would offer special deals
to lure people away from the other service, then the
(34:03):
other service would do the same, and it went back
and forth year over year over year between the two companies.
AOL had the larger number of customers by far by
which is when this acquisition would become final. A o
L had around eleven million subscribers and compu Serve was
closer to two and a half million. The acquisition was
(34:25):
a little bit on the long and winding side. In
other words, it got complicated. So let's explain, because it's
one of those fascinating corporate maneuvers that as a person
who loves tech and has a history in liberal arts education,
this was new to me. So before the acquisition, copy
(34:49):
Serve was part of H and R Block, the tax
preparation company. H and R Block purchased compu Serve back
in nineteen eighty for like twenty million dollar ers. By
n seven, H and R Block was going through some
major changes at the executive level. They were having real issues,
(35:09):
which is a fascinating story in itself, and I can't
really tell it on tech stuff because it doesn't really
tie into tech, but maybe I'll tell it on the
brink one day because I think it's a fascinating story. Anyway,
they were going through some stuff. It got complicated Facebook style,
and so the board of directors for H and R
Block decided one of the things the company needed to
(35:31):
do in order to streamline stuff was divest itself of
Copy Serve. A L expressed interest right away, saying, we
would very much like to take that off your hands,
and we will make an offer, and they offered to
purchase the company with shares of a O L stock,
But the board rejected this offer. They didn't feel that
(35:53):
a O L stock was valuable enough for this to
make sense. They would prefer to either have stocks were
more um stable, more established, I guess is a good
way of putting it than a O L. Or they
wanted to do it in cash. A couldn't do it
in cash. But then a third company came into the picture.
(36:15):
This third company was World Calm, which is another company
I'm going to have to cover at some future point.
World Calm had an offer for both H and R
Block and A O L. World Colm offered to buy
Copy Serve from H and R. In exchange, World Calm
would give up some of its stock. That stock was
seen as being more stable and more valuable than a
(36:38):
O L stock, and H and R thought, well, we
can turn that around and sell it right away and
get the money we want. So the H and R
Block board agreed to that term, and Company Serve was
sold to World Calm for one point to billion dollars
worth of World Calm shares, which H and R Block
then sold the very next day. After this exchange between
(37:01):
world Common H and R world Coms sold part of
compu Serve to a o L. Specifically, it's sold the
information services part of compu Serve, and it retained compu
serves network services business because that's the business that World
com is in, is in network technologies. In addition, a
(37:22):
o L sold to World Calm its own Advanced Network
Services division. So World Colm gets the network parts of
compu Serve and a O L. A o L gets
compu Serves information systems divisions. World Colm gets a lot
more of the market share for its business, a O
L gets more dominant position for its business, and H
(37:46):
and R Block can count a whole lot of money,
which is what I understand they're quite good at doing.
So pretty interesting. Plus, I mean, if you look at
H and R Block, they made a heck of a deal.
They had paid twenty million dollars for compu Serve in
nineteen Then two decades later they sell it for one
(38:09):
point to billion dollars and compu Serve had been making
profits in those years in between. So incredible deal for
H and R. Block A o L. Had secured its place,
or so it seemed. It had eclipsed a former competitor,
and it had even brought that company to heal. Sure,
(38:29):
there were some compu Serve customers who weren't crazy about
the whole thing, but the future was bright. The rapid
rise of the company was guaranteed to continue, wasn't it.
We'll find out in our next episode. If you guys
have any suggestions for future episodes of tech Stuff, whether
it's a company, a technology person in tech, maybe there's
(38:52):
just a moment in tech history you would really like
me to focus on. Let me know. Send me an email.
The address is tech Stuff at how stuff works dot com,
or head on over to our website that's tech Stuff
Podcast dot com. There you're gonna find other ways to
contact us, like through social media. Also, don't forget to
pop on over to our merchandise store that's over at
(39:13):
t public dot com. Slash tech Stuff every purchase you
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Karah Preiss
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