Steve Case Advocates Entrepreneurship for Economic Recovery
By Dong Liu
This afternoon at a heavily-packed Hewlett Auditorium audiences from all over the world came to attend Steve Case's talk during Stanford's Entrepreneurship Week. Steve Case is the co-founder of America Online and the founder and CEO of Revolution Partners. During his 30+ years of entrepreneurial experience Case summarized its essence and importance in national economic development. "We need innovation, risk-taking, and entrepreneurship to get the country back on track," he said. "Entrepreneurship is important because of the underlying economic climate of America and it's critical for our nation's future."
Case summarized his trials and tribulations in entrepreneurship into the "3 P's": people, passion, and perseverance. He is convinced that with a combination of all three factors all entrepreneurial endeavors will be rewarding. He described his own career path in three stages, each spanning almost a decade: 1. The growth of AOL. 2. The merger of AOL and Time Warner. 3. building the Revolution Partners.
Almost 30 years ago, Case read the Third Wave by Alvin Toffler and became intrigued in interactive services and in the idea of the "electronic frontier" which allows people to be connected to a vast amount of digital information. At that stage, it was more of an idea than reality and no companies were exploring a similar path. After graduating from college, Case worked in marketing for Proctor & Gamble and soon transitioned to Pizza Hut, whose highly entrepreneurial environment, relatively flat organizationl hierarchy, and independence of franchise decisions appealed to him.
Yet still, the idea of creating and developing internet interactive services captured him. In 1983, Case moved to Washington DC to work in the gaming company GameLine, which allowed customers to download Atari games and later moved to other interactive services such as emails. The experience at GameLink was a lesson in perseverance: GameLink's product was a disaster as it was shipped, which led the manager to comment that "you'd thought they'd shoplift more than that."
From 1985-1990 Case developed the strategy of creating private-labeled internet services and establish partnerships with computer manufacturers. The first service, PC Link, linked computers with interactive services and built modems into PC's. Yet they had to compete with Prodigy, a $1-billion company while they only had a couple million dollars of venture capital. But in many ways PC Link was a breakthrough because it had the first graphic-user interface, was free of charge, focused on community building, and introduced instant messaging.
Case showed two videos, made in 1987 and 1995, of interviews he participated in on TV programs to summarize the products. The first was for Quantum Link and the second was a PBS interview for AOL.
In 1987 Case's company built a new service called Apple Link, which used Apple's licensing of its name to connect Apple users to the internet. It was launched in 1988 but soon shut down in 1989 due to Apple's discomfort with the product. The falling apart of the Apple deal created a crisis in the company and made Case realize that they cannot rely on partnerships with other computer manufacturers but must stand alone as a business.
Due to a lack of marketing budget, they chose America Online as the name of the new company. Although online services were widely misunderstood and underrated in the 80s, by the 90s the tide began to turn in Case's favor and it gained more widespread acceptance. Yet up until 1992 it was against Federal law to connect a commercial service to the internet. AOL was in a sense the pioneer of all internet service companies, and was the first internet company to go public. It had 70 employees in the beginning and $70 million valuation.
But soon it grew into a $100 billion company with almost 20 million users at its peak. The bulk of AOL's accelerated growth came in the 1990-2000 period, until it became the number 1 stock in the 90s, above Microsoft and other technology stocks. With the rapid growth of AOL Case sought to move from the narrowband (phone line connection) to broadband and eventually to wireless, and as a result the merger with Time Warner was conceived.
AOL's merger with Time Warner was initially hailed as the best of both worlds, because both companies addressed each other's weaknesses and complemented each other's strengths: Time Warner could give AOL its extensive cable system with broadband capacity, and AOL could broaden Time Warner's traditional media confines and give it a new outlet. It took a year for the merger to complete because various lobby groups marched to Washington arguing that such a merger would create too dominant a company that would endanger others' survival. Case also took the role of Chairman of the Board instead of the CEO to focus more on strategic decisions than to immerse in day-to-day operations.
The merger was made for $350 million dollars and became a total disaster.
Case summarized the factors behind the eventual failure of the AOL-Time Warner deal. First, he attributed factors that ran outside of human control: the impending recession, the diminsh of advertising revenue, and the emerging Internet bust all did harm to the conditions and the prospects of the deal. Second, he concluded the failure on the part of the 3 P's: there was trouble in people because of the cultural clash between the different workforces of AOL and Time Warner, there was trouble in passion because the company became more corporate and devoted less passion to its core business, and there was trouble in perseverance because with the Internet bust, it was seen as the sector not to invest in because it cannot sustain itself, which caused many capitalists to back away. All in all, Case summarized the deal using Thomas Edison's words: "Vision without execution is hallucination."
After AOL, Case founded Revolution Partners, which "invested in people and ideas that would change the world," either in for-profit or non-profit organizations. He emphasized the importance of taking risks, because he feels that too many venture capitalists nowadays are not taking enough risks, despite the fact that entry barriers are now lowered and everyone focuses on building audiences to sustain itself. Revolution Partners has invested in ZipCars because it believes that people who live in the city should not be compelled to own cars for convenience and environmental purposes. It has also invested in healthcare services to educate consumers about healthcare reforms, as well as in Exclusive Resort, which allows people to rent holiday homes instead of purchasing property for single-season usage. The investment in Revolution Money, a financial service, was also a lesson in perseverance because despite years of disappointing performances during the recession, it was eventually acquired last year.
In conclusion, Case said that entrepreneurship is critical for the growth of the country and the development of its economic recovery. "It is patriotic and not just economically motivated," he said. "Now is the golden era for entrepreneurship because big companies are all playing defense now so it creates a tremendous opportunity to enter the market."