Copyright 1992 by Mary Eisenhart. All rights reserved.

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Getting America Online

An Interview With AOL President/CEO Steve Case

By Mary Eisenhart

Photos: Susana Millman


Founded in 1985 as Quantum Computer Services, America 
Online is, in some ways, a textbook example of the venture-
capital-funded startup that makes good. Begun with a   
mixture of vision and pragmatism, it attracted such blue-
ribbon investors as Hambrecht & Quist, Kleiner Perkins 
Caufield and Byers, and Citicorp. It differentiated itself from 
its competitors in key areas: a wide range of strategic 
alliances with partners including computer companies, 
software vendors, and print publishers, and massive 
investment in making the software easy to use for even the 
beginning computer user. Over a seven-year period it 
gradually developed into a successful national company and 
went public in a healthy stock offering in March. 

	Unlike its main competitors--CompuServe, a subsidiary 
of H & R Block, GEnie, a subsidiary of General Electric, and 
Prodigy, a joint venture of Sears and IBM--America Online has 
been an independent company from the beginning. Its success 
has been driven by its openness to outside partnerships and 
some aggressive marketing--whether you use a Mac or PC, the 
software and some initial connect time are free. If a 
prospective customer doesn't get the software through any of 
a number of bundling arrangements (with Tandy, IBM, and 
many other vendors), a phone call (1-800/827-6364) gets a 
disk and startup kit on their way.

	Culturally, AOL walks some interesting lines. Its mass-
market orientation causes it to have stricter rules for online 
conduct than you'll find on the Internet, say, but while there 
are system-wide policies against harassment and some of the 
more popular swear words in public areas, there is not 
Prodigy-style censorship. Last year, the system made 
headlines when it was discovered that some users were 
taking advantage of its sophisticated file transfer capability 
to distribute child pornography in electronic mail; 
President/CEO Steve Case issued a statement to the user base 
that struck a masterful balance among commitment to ECPA-
mandated privacy, free speech, respect for customer 
sensibilities, and cooperation with law enforcement.

	AOL is a serious business with plans for serious 
expansion. Its board of directors includes the likes of Kleiner 
Perkins partner Frank Caufield, Businessland president 
Harold Copperman, and former Secretary of State Alexander 
Haig. It is also home to nearly 200,000 users from children to 
grandparents (Seniornet, for example, recently migrated to 
AOL), who discuss topics including school, politics, software, 
pet care, sports, and rock 'n' roll. There's an area where 
Microsoft offers in-depth advice to small businesses, and a 
new service (a joint venture with the Chicago Tribune) called 
Chicago Online, where the locals and visitors discuss such 
topics as upcoming events and where to get the best Italian 
Beef in town.

	Steve Case was visiting the Bay Area in June, so, in a 
flurry of email, we arranged to meet and do this interview.


How did you happen to get involved in all this 
anyway?

	I remember reading, I guess it must be twelve or 
thirteen years ago, Alvin Toffler's book The Third Wave. One 
of the concepts he developed was the concept of the global 
village, telecommunication bringing people together. And 
when I read it, I was struck by how powerful that concept, 
taken to its ultimate extreme, could be. 

	I was very intrigued by it, but then I kind of went on and 
focused on more pragmatic things--I worked for Procter and 
Gamble for a while, and Pepsico for a while, in the early '80s. 

	Ten years ago, I bought a Kaypro CP/M computer. I 
bought it mostly out of curiosity, because I wanted to get into 
computing. But I also wanted to try out this concept of 
communications. 

	What transpired was a series of very time-consuming, 
very costly, very painful steps to get hooked up. I figured out 
that you needed this thing called a modem, and I spent a 
couple hundred dollars to buy it, and waited a month for it to 
arrive by mail, and then learned that it didn't work with the 
computer I had. So I had to buy another modem. And then I 
needed to buy communication software to make that modem 
work with my computer, when I finally got that. 

	It was very complicated to figure out how to make it 
work. And I sort of reviewed the services out there, and 
decided to subscribe to The Source. I waited a month to get 
that--I think it cost a hundred dollars up front to get it, and 
quite a bit per hour to use it. I finally figured out how to make 
that work, and got in and wandered around. 

	And although it was very painful and very time-
consuming and very expensive, I thought it was really kind of 
magical that I was sitting in my room, which at the time was 
in Kansas, and I could connect to this service that connected 
me to the rest of the world. As a marketer, I said that if there 
was some way to fix this, to make it accessible to real people 
and affordable to real people, this could be a major new 
medium.

	We started the company in 1985 with the belief that the 
consumer online service market had a lot of potential if you 
could combine a very easy-to-use service with affordable 
pricing, and partner with companies who already had the 
awareness to market sufficiently. In 1985, Commodore was 
the dominant home computer, so that was a good place to 
start.

	That's how the company got started. We convinced 
Commodore that there was an opportunity here; they agreed to 
market the Q-Link service to their customer base, so they 
would bundle our software with all their computers, all their 
modems.

	As a result, we were able to get some venture 
capitalists interested in investing in the company.


Even at that stage?

	Well, we couldn't have started the company without 
their investment. The requirements to start a consumer online 
service and do it right are certainly such that you can't 
bootstrap it. It requires some capital up front. 

	The venture capitalists believed there was a market, 
and because Commodore was going to help market it, we could 
get customers relatively efficiently, and we were off to the 
races.

	For the first several years of the company's life, the 
only market we served were Commodore 64 owners. Then we 
started diversifying with the Apple II market, and a service 
we did with Tandy for their DeskMate interface, and 
Macintosh and so forth. But we built the company, really, 
starting with a focus on Commodore.


Considering how much money has been bled on failed 
online systems, what did the VCs find attractive 
about this service, as contrasted to all the other 
ones that belly-upped over the years?

	My sense is that they thought the market could be huge, 
and that there was a role for an independent company to try to 
provide a highly accessible, highly affordable consumer 
service, and to market that in partnership with companies, 
like Commodore originally, and more recently Tandy and IBM 
and Microsoft and Claris and the Chicago Tribune and a 
growing list of people we're working with to build this 
market.

	I think the fact that we had a strategy of segmenting 
the market, of not trying to be all things to all people, and 
partnering with companies that already had credibility in 
some of those markets, so that we could leverage the 
momentum they already had as opposed to having to create it 
from scratch, made them more comfortable that this was the 
kind of investment they could make, that they would be able 
to get a good return on. 

	If we had proposed being kind of a mass market service, 
and we were going to try to compete with Prodigy and Time 
magazine and HBO and so forth, spending tens of millions of 
dollars to build awareness, they probably wouldn't have been 
as comfortable. In fact, we were a little bit more pragmatic 
and a little bit more focused, and had this philosophy that 
really is part of our culture: that the way to build this 
medium is to do it collectively in partnership with other 
companies, as opposed to trying to go it alone. I think that 
probably made them feel good about the investment.


What's the state of your relationship with Commodore 
at this point?

	We don't have too much relationship with them. That's 
mostly a function of how the market has evolved. We still 
provide the Q-LInk service, and it's actually still quite 
profitable for us. We have thousands of customers who are 
still using it happily, and we'll continue to provide it, but 
obviously Commodore has not been selling the Commodore 64 
computers for many years now; their focus has been on the 
Amiga. And we just made a strategic decision a few years ago 
that we were not going to provide a service for the Amiga. Not 
because it wasn't a good computer--it was, but we just felt 
the market opportunities were greater focusing on Macintosh 
and DOS and some of the other areas.

	 They've always been supportive--without their help, we 
could never have started the company. So we're certainly 
appreciative.

	They're focused more and more on Amiga and more and more 
on Europe, and we're focused on the consumer market in the 
United States, so over time we've moved in different 
directions.


You went public not too long ago. To what extent are 
your original investors still involved, and what doors 
got opened by going public?

	Most of the original venture capital investors are still 
involved. I think they still believe that there's a long way to 
go in terms of meeting our ultimate objectives, and in most 
cases they want to hang in there for the ride.

	The major change since we've been public is one of the 
reasons we decided to go public. We felt that since one of our 
core strategies was to establish alliances with a lot of 
different companies in a lot of different industries, by being 
public we'd be more visible and more credible. 

	That has happened. There have been a number of 
companies that have come out of the woodwork wanting to 
work with us, and some other companies that we had been 
talking to that are suddenly more enthusiastic about working 
with us, because we are more visible in the market, and they 
can understand the momentum we're making, and that we're 
going to be around for a while. So it's definitely been a 
beneficial process.

	We also were pleasantly surprised that Wall Street, for 
the most part, understood what we were doing, and the 
market we were trying to develop, and really got excited 
about it. Since there had been so many failures in the 
consumer online services market in the 1980s, and a lot of 
publishers lost a lot of money, we were concerned, when we 
were headed down the path of going public, that Wall Street 
would just say, "Oh, here we go again." 

	And what we found was that a lot of things had changed, 
and the market had developed to the point where it was 
reasonably sized--according to Link Resources, already a 
$400 million market--and there's several million people using 
these services. So it's a reasonably-sized credible market. 

	Yet at the same time, only 3% of households in the 
United States use these services, and 97% don't, so it's a big 
market with tremendous growth potential. I think they felt 
that the dynamics were now right in terms of the 
marketplace, and that we had a good strategy to participate in 
that marketplace. 


When you say you want to "do it right," what does 
that mean to you?

	It's a lot of things. When we first entered the market in 
the mid-'80s, almost all the services that were targeting 
consumers were too hard to use, and too expensive, and not a 
very relevant mix of services for most consumers.

	We said, "If we're going to break this open and have it be 
a broader medium, we've got to address those problems. It's 
got to be easy and fun to use, and it's got to have service 
content that real people find value in, and it's got to be 
something that people can afford."

	So we made a significant investment up front in 
technology. We were the first company to offer a front end 
software interface to our service, actually. Back in the mid-
'80s, everything was ASCII text, very simple interfaces, so 
we spent a lot of money developing that technology. Now more 
and more people are also going in that direction, graphical 
user interfaces and so forth, but that's a key part of making 
online services accessible to the masses: making it something 
that is intuitive, that somebody could sit down in front of, 
and it won't take very long to figure out how to get in and get 
around.


What kind of services did you offer on Q-Link in the 
early days?

	It was a pretty broad mix. The focus was on computing 
support--we knew that obviously people have a computer, 
they have an interest in computing, so that's an obvious first 
thing to target, in terms of forums to discuss different 
aspects of computing, and software libraries that you can 
download from and take better advantage of the computer 
you've got.

	We also felt that in the Commodore market games were 
important, so we did a number of multiplayer games. Some 
ourselves, some with companies like Lucasfilm--we 
developed games with them to try and serve that kind of 
multi-player gaming market with a nice graphical interface. 

	And we had what we called People Connection, which 
was this interactive communications capability where people 
all around the country could exchange ideas pretty much any 
time of the day.

	There was also the usual slew of transactional services 
and information services and education services, but the 
focus was really much more on interactive communications. 
That's really always been our focus. We think the real magic 
of this new medium is the interactive communications 
capability. It's people participating in it, in sort of an 
electronic community, not reading the news off the screen. 
There's some value in things like news, but there's greater 
value in getting people to participate in more of an active 
medium, as opposed to just watching what's scrolling by.


Getting Seniornet was pretty much of a coup. How did 
you do that?

	I think they had an interest in figuring out how to scale 
their service so they could support a larger base of 
customers. One of the problems they found was the same thing 
we saw when we first started the company, which was that in 
order to attract a broad base of customers, particularly 
people who tended to be novice computer users, it had to be 
very easy to use. I think they looked around and felt that our 
service was the best in terms of ease of use. We started 
having some discussions with them, and they decided that it 
made sense to join forces. 

	I think it was driven by our philosophy, in terms of 
focusing on the consumer market; the investments we've made 
to make the services easy to use and visually appealing were 
the kinds of things they felt were appropriate, in fact they 
required, if they were to track the broader base of seniors, 
many of whom are not too comfortable with computers. If 
they're going to participate, it's got to be simple and fun.


Commercially, where do you think the online business 
is going, and what are the obstacles keeping it from 
getting there?

	The market trends are pretty clear and pretty 
encouraging. Most computers now sold in the consumer market 
have built-in modems, and three years ago none of them did, 
which was one of the major barriers. A few years ago, you had 
to buy a computer and figure out how to make that work, buy a 
modem and figure out how to plug it in and make that work,  
buy some communications software and figure out how to 
make that work, and subscribe to some service and figure out 
how that worked. Particularly since different services 
usually worked differently, it was very, very difficult.


If any two of them had the same command set, you'd 
fall down dead from the shock.

	Absolutely. Some people look at the online market and 
say, "It's been around for five or ten years and there's only a 
few million users." I look at it and say, "I'm astonished that 
there's a few million users, given how many obstacles we as 
an industry have put in front of real people to get on."

	So the first step, in terms of making it a mass medium, 
is accessibility. Making it easy to get in, easy to get around. 
To the extent that the computers, or palmtops, or screen-
based telephones or what have you, are designed so it's very 
simple to get into these services, that will be one of the 
major kinds of requirements to make it into a mass market.

	And then it's having a set of services that are relevant 
to specific groups of people, so there's a reason to get in on a 
kind of habitual basis. We think that partners like the 
Chicago Tribune help provide that within their particular 
markets.

	

Why is the Tribune interested in this, and what's in it 
for them?

	They clearly are viewed as the leading source of 
information in Chicago. In addition to owning the Tribune, 
they own one of the major radio stations, one of the major 
television stations, the Chicago Cubs... They really own 
Chicago, and are really respected in Chicago, and we think 
that by working with them we can really create some content 
for the Chicago market that will provide reasons for people to 
get in on a habitual basis. 

	And then we can marry that information with what we 
do pretty well, which is interactive communications 
capability, trying to create electronic communities, so that 
people in Chicago, instead of just reading the newspaper kind 
of passively, can interact with it, find out more information, 
discuss things with reporters, debate topics with fellow 
readers. It's that marriage of information and  interactivity 
on a platform that is accessible and affordable that we think 
will really drive this into being a mass market.


How does the Tribune plan to deal with the 
interactive stuff? Somebody in one of the folders 
was saying, "Okay, when does Mike Royko get online 
so we can hassle him about his column?"

	I think it'll vary. I think, like anything else, it'll take a 
while before it really develops. I don't know exactly what the 
status of Mike Royko is, but my guess is he's not the most 
computer-friendly guy in the world and probably would not be 
one of the first to get online to participate.


It'll probably be the junior reporters right out of 
college.

	Yeah. What typically happens, whether you're working 
with a software company or a computer company or a 
magazine or a newspaper or what have you, is that very 
quickly there are a few evangelists who surface, who really 
believe in this and do what it takes to make it happen, in 
terms of building the interactivity and building the 
community.

	I actually think the Tribune has been unusually creative 
in thinking about this new technology, and they fully 
understand the interactive communications side of it. They're 
not like some of the newspapers in the 1980s, just trying to 
throw up some news and position this as in any way a 
replacement for a traditional newspaper. It's a supplement to 
a newspaper, where you can get additional information, where 
you can interact and exchange ideas. It takes a newspaper one 
step further. I've been impressed with how quickly they've 
come to that realization.

	Obviously our commitment is to build local editions in 
most of the major markets, in cooperation with, hopefully, 
the major newspapers in each of those markets. So what 
we're trying to do in Chicago is prove that the concept works, 
and then start rolling it out in other cities. We believe that 
we'll have partnerships with lots of newspapers and lots of 
markets, all working together to try to build this new 
medium.


One issue that arises is ads. We're a print 
publication; we live off of our ads. They're a print 
publication; they live off of their ads. Content is, 
essentially, subsidized by advertising. How do you 
see this making a transition into the online universe? 
How is advertising going to kick in?

	Well, it's unclear. I think the first step is building a 
critical mass. Nobody really is too interested in advertising 
unless there's a good reach in terms of the customer base. I'm 
not sure we're there yet.

	To the extent that we have lots of people online, we 
probably will develop a number of different ways for 
advertisers to communicate with our members, but we'll do it 
in a manner that is consistent with the kind of atmosphere 
we've tried to create online.

	Clearly there are a lot of people who like Prodigy, and 
they've obviously been very successful, but there a lot of 
people also who don't like the fact that there are these 
intrusive ads at the bottom of their screen. So we're less 
likely to go in that direction, perhaps more likely to go in the 
direction of asking people what their interests are. To the 
extent that there's somebody who wants to deliver a message 
to you based on those interests, maybe we'll provide a 
mechanism to do it. But it'll be more based on what you want 
to find out about, as opposed to being kind of intrusive.

	But the bottom line is that it's not a high priority for us 
right now. Our focus is really on building the membership and 
working with a lot of partners to do that. To the extent that 
we're successful at building critical mass on a national scale, 
there should be some additional opportunities that we could 
pursue that would benefit customers as well. Obviously if we 
developed additional sources of revenue, that will allow us to 
be more aggressive in terms of how we price the service, 
because some of it will be paid for by somebody other than 
the customer. But you're not going to see anything from us in 
the next couple of years in the advertising camp. We'll let 
Prodigy experiment there.


So, for somebody like the Tribune, what is the 
economic advantage at this point in doing a venture 
like this? Foot in the door?

	Well, I think it's more than that. Certainly there's a 
strategic imperative of trying to position themselves as 
being the primary source of information in their market, and 
embracing new technologies if those are ways to better 
deliver information to their customers. 

	Companies like the Tribune are looking at online 
services, they're looking at fax, they're looking at audiotext, 
as ways to provide information to their customers. That's 
number one--newspapers in just about every market have had 
flat circulation for the past couple decades. 

	What's essentially happened is that the younger people, 
sort of the computer generation, are the ones least likely to 
read newspapers. Which suggests that if you're running a 
newspaper, you'd better come up with some compelling ways 
to meet the information needs of those people, and you'd 
better be embracing some of the new technologies that those 
people are starting to embrace.

	And of course it's pure strategic imperative. Any 
newspaper that sort of sits on the sidelines and believes that 
down the road they're going to deliver the newspaper as it's 
currently designed to people ten or twenty years from now is 
just being naive. 

	Beyond the strategic side, there is a financial reason to 
do it. The Tribune shares in the revenue generated by their 
customers; they get a greater share if they actually did the 
marketing to attract the customer. So they get some revenue 
based on the usage of their area, and they get some revenue 
based the usage of the customers they generate. They did 
believe, and we believe, that down the road there may be some 
additional sources of revenue, such as through advertising. 
But the focus is on building the product, attracting the 
customer base, and then we'll look at some ways to improve 
the economics, whether it be through advertising or other 
kinds of opportunities.


Do you think newspapers as we know them will cease 
to exist, or will they exist as they are now and be a 
completely different universe from what's online?

	They certainly will not cease to exist. New technologies 
rarely replace old technologies, they generally take them in 
new direction. Television didn't kill radio, it just redefined 
radio.

	The same thing is true here. There is a fairly vigorous 
debate going on within the newspaper industry in terms of 
how to evolve the newspaper, but I think everybody 
acknowledges that some evolution is going to be required. We 
don't presume to know the newspaper industry well enough to 
know which is the right path, but certainly trying different 
approaches will lead to a better product than they currently 
have.

	One of the directions that more newspapers are pursuing 
is thinking of the newspaper as the summary, or the main 
menu, which will allow you to get more detailed information 
on topics you have a particular interest in through new 
technology. So you could find out, at sort of a top-line level, 
what's going on--if you really had a keen interest in a 
particular topic, then you could get more information, either 
online or through fax or audiotext or what have you.


With regard to Judge Green and the Baby Bells, do you 
think that the phone companies will get into this 
business over the proverbial dead bodies of the 
newspaper companies?

	I certainly think the phone companies will get into this 
business. When they get into it, how they get into it, who 
they're partnering with, are the questions that nobody at this 
point really has the answers to. 		Our belief is that the 
phone companies will move into this area with some caution, 
trying to figure out how to add value to the existing products 
out there, as opposed to starting from scratch, and they'll be 
looking for alliances with a variety of companies, including 
newspapers. 

	To the extent that they eventually play a role, it will be 
by facilitating development of the medium and by working 
with a lot of different partners, as opposed to trying to go off 
and do it themselves.

	That said, I think there's enough uncertainty in terms of 
when and how they can play--there's obviously several bills 
in Congress now that are trying to restrict the phone 
company's involvement. I think most of the phone companies 
right now have a wait-and-see attitude, wanting to see where 
this settles out before they make any major commitments.

	So we don't see, in the next couple of years, any 
meaningful role in the marketplace for the phone-company 
kind of services, but down the road, if you look out five or ten 
years from now, we do think they will play a role.


Do you have an opinion as to whether it's a good thing 
or a bad thing for the phone companies to be in the 
content business as contrasted to the carrier 
business? Some people hold that there should be 
essentially a firewall between the two businesses, 
and have good solid arguments for that.

	It's hard to say.  We're certainly familiar with both the 
arguments. I think newspapers are going to be better at the 
content side than telephone companies, and telephone 
companies are going to be better at the transmission/conduit 
side than newspapers. 

	And even if people are able to do something, that doesn't 
mean that they can or will do it well. There are a lot of 
companies that are able to provide online services. In the 
1980s, there were dozens of ventures that were started to do 
just that, and virtually all of them were not successful. It 
was mostly just a matter of trying to understand where their 
core competencies were, and in some cases they were in over 
their heads. 

	I don't think that telephone companies will be 
particularly adept at managing this interactive 
communications component of the service  that we call online 
communities. That's something that I think a lot of the big 
companies, particularly the phone companies, view as a kind 
of anarchy. It's not something they can control, and it's 
troubling to them. They'd much rather have a situation where 
people are dialing in to get electronic Yellow Pages, or to get 
some news online from a very carefully edited and organized 
news service, as opposed to creating a platform for people to 
exchange ideas. 

	So my sense is that probably to the extent they get in at 
all, they'll focus on information services, perhaps even more a 
business focus than a consumer focus, and let other 
companies who focus on the communications side take the 
lead.


Going back to Prodigy, you've said that there is a 
significant overlap between your user base and the 
Prodigy user base, and that you advertise America 
Online on Prodigy. How do you differentiate what you 
do from what Prodigy does?

	It's a little bit like any medium--there's always an 
expectation among some observers that one size will fit all 
needs, and it almost never is the case. People subscribe to 
dozens of different magazines and watch dozens of different 
cable television channels. There's not this sort of winner-
takes-all mentality in any media business.

	And the reason for that seems pretty clear--nobody can 
meet the needs of everybody all the time, and it's better to 
focus on areas where you can add value. We think the area 
we're particularly good at is this interactive communications 
capability, creating these electronic communities, whether it 
be in partnership with newspapers or magazines, or with 
associations. 

	We think what Prodigy's been particularly effective at 
is creating a platform for direct marketing, and that's one  of 
the key drivers of their business. That just is a different kind 
of business than what we're trying to do. They're much more 
interested in transactional services like home banking, and 
we don't provide those at all. We're interested in 
communications, so we provide capabilities like real-time 
conferencing, which they don't provide at all. It's just got a 
different flavor to it, a different personality, and some 
people will find value in one, some people will find value in 
the other, and a lot of people will find value in both.


One of the things that Prodigy has acquired a certain 
amount of notoriety for is that they're very stringent 
about what you can and can't post, and indeed your 
postings go through an editor before someone decides 
whether they go up or not.

	This is not what happens on America Online, but 
on the other hand AOL has stronger online conduct 
policies than, say, the WELL or the net. What's the 
thinking behind all that?

	Well, to some extent Prodigy, I think, has been unfairly 
attacked because of some of their policies. I think most of 
what happened is that the whole interactive communications 
area caught them by surprise. It was not part of their 
business plan; they were expecting this to be an information 
and transactional service. They threw up a few message 
boards just for the heck of it, they created an email facility 
just because somebody thought that might be nice, and 
suddenly people wanted to use  it.

	They really didn't have the functionality that probably 
was necessary, and they really had not thought through some 
of the policy issues that relate to interactive 
communications, and it just took them a while to wrestle 
with those issues. And they are complicated issues.

	I think now, actually, their policies are a lot more 
reasonable than they were in the past. They are posting a lot 
more of the messages that before they would have censored. 

	We prefer having a more open system and trusting the 
judgment of our customers, so we do have a little bit 
different philosophy in terms of what is permissible than 
they have. I think they've made a lot of improvement in the 
last couple of years over when they originally started, and I 
give them a lot of credit for that.


And on the other hand, on America Online, you can get 
your postings nuked for having one of the Seven 
Forbidden Words in them.

	Everybody has their limits. We probably are the most 
tolerant of the major national services, but at the same time, 
if we're trying to create this into a mass medium, and attract 
millions of people, and we're going to do that by partnering 
with a lot of big companies, whether it be newspapers or 
magazines or computer companies or what have you, we don't 
think an anything-goes environment is appropriate. We think 
an open system that is quite tolerant is appropriate, but at 
some point you've got to draw the line. And that's what we do.


How do you balance the interests of people who want 
to discuss their sex lives with the fact that 
somebody's five-year-old is going to log on?

	We just try to be reasonable. People have a tendency, 
because it's in an electronic medium, to think this somehow 
requires rethinking the way society should work.	 

	And in most cases, the way society works works 
reasonably well. We're just trying to leverage some of those 
concepts and bring them into the electronic world.

	Clearly community standards are what drives the 
judgment calls in most areas around the country, and that's 
the same kind of thing we try to do here. Trying, to the best of 
our abilities, to understand what the expectations of our 
members are, and try to have a policy that's reasonably 
consistent that reflects the desires of our customers.

	To a large extent, these kinds of issues are a little bit 
overblown. The vast majority of the usage of our service, and 
other services like ours, is in areas where this is not an issue 
at all. It's really more the exceptions that get the attention. I 
think for the most part people think we're doing a pretty good 
job of moderating how the service works and being reasonably 
balanced in terms of the judgment calls we make. But 
nobody's perfect.


A while ago in the Grateful Dead area we had a 
situation where a passing flamer came along and used 
the f-word and had his response removed. It was 
interesting to compare the people in that group with 
their counterparts on the WELL. The people on the 
WELL would uniformly have raised holy hell whether 
they agreed with the response or not. Its removal 
would have been such a hot button that everything 
would have ground to a screeching halt until that was 
dealt with. 

With this group, it was about half and half. 
There were a lot of people who said, "This is totally 
unacceptable and we can't have it." And there was a 
whole other group of people who said, "Later for this, 
where's the setlist?" It's interesting dealing with 
different customer bases, and how to tailor things to 
different customer bases.

	Right, and that's one of the issues we wrestle with. 
America Online is not one big generic service, it's a lot of 
clusters of services. It consists of dozens of electronic 
communities, and each of them is a little bit different in 
terms of their requirements. What we're trying to do is 
recognize some of the differentiation among some of these 
communities, while at the same time having policies that are 
reasonably consistent. 

	It would be really confusing to people if something was 
tolerated one place and wasn't tolerated the other place. And 
on the other hand, you don't want to err on the side of having a 
policy that's sort of the lowest common denominator. 


A system-wide K-12 standard...

	No, we don't want that. We think that that's a little 
more of what Prodigy's trying to do, and we think that's fine 
for them, but it's not what we're trying to do. 

	We want a communication system that is tolerant of 
different viewpoints, that doesn't mind controversy--even if 
the controversy is about ourselves, which is often the case. 
We want to get people to be active participants, and we're 
willing to take the risks that some of that entails.


As time goes on, do you see things being available on 
the  service like video and stuff like that? Not 
simply as downloads, but interactive video?

	Sure. If you look down the road five years or so, 
certainly the communications infrastructure will be in place 
to support higher-bandwidth communications cost-
effectively, and that will allow us to do some things that just 
aren't practical today to make the service even more visually 
rich and compelling.

	That said, there's still an awful lot that can be done 
with the current technology. When you're looking at new 
emerging markets, people are always looking at the next thing 
as being the answer. And we think the answer lies within 
what's already on the table, with computers that exist today 
and modems that exist today, just trying to make it as 
accessible as we can and bring as many partners to the table 
as we can, providing content and helping to build awareness 
for America Online. We think that's the challenge of the next 
few years, to do a better job of leveraging what's already 
there, and not counting on some things that aren't yet built.

	We continue to rely on desktop PCs as the way people 
access online services, and that's fine. The good news there is 
that more and more PCs are being sold in the home market, 
and more and more of those PCs have built-in modems. And 
many of them have our software, and Prodigy and other 
software, preinstalled on the hard drive, so it really becomes 
a matter of "take your computer home, plug one cord into the 
wall to get the power, the other cord into the wall to get the 
phone connection, and click something on the screen," and 
you're off and running.

	So the barriers to trial have greatly diminished versus a 
few years ago, and that's great. And that market will continue 
to grow rapidly and be the principal driver for the online 
services market.

	But beyond that, I think there's tremendous potential in 
terms of continuing to improve the accessibility and 
providing other ways for people to access services like 
America Online. We see the computer markets and the 
consumer electronics markets kind of converging, and beyond 
the desktop PC there seem to be three major new market 
segments that are on the verge of being developed. The first 
is palmtops, the second is interactive television, and the 
third is screen-based telephones. 

	We're looking at all of them. We think that palmtops 
essentially are the consumerization of personal computing 
into highly affordable, highly accessible, highly mobile kinds 
of access devices, where you really could carry in your pocket 
a device that makes it fairly easy for you to send mail, for 
example, or get your stock quotes. It could be an important 
way for people who are currently not comfortable with 
computers to connect to these kinds of services.

	Screen-based telephones are the same kind of thing. 
AT&T and Northern Telecom and other companies are working 
on taking a computer and a phone and merging them together 
so you have a smart telephone with a good display that would 
allow people to access these services as well.

	Television is the third area. A number of companies are 
working on ways to provide computer technology in 
television, which again could be an important way to deliver 
the kind of services we're providing.

	All three of them are ways that people who currently 
are not comfortable with a desktop personal computer--and 
millions of people are not comfortable with desktop 
computers--can participate in these kinds of online services. 
Seniornet, for example, is a group of people that has a driving 
interest in communicating and sharing information, but right 
now one of the barriers is that you have to own a desktop 
computer to participate. If they could access those services 
through a simple telephone or a palmtop device, millions of 
additional people would suddenly be interested in this online 
medium.


Is it a matter of waiting for standards to emerge 
before you can build anything useful?

	Well, there's some of that, certainly. Because there are 
now interesting new market opportunities, there are now lots 
of different companies chasing those, and coming up with lots 
of different interesting, but usually incompatible, ways to 
meet those needs.

	We're looking at the various options. We're likely to put 
our toe in the water sooner rather than later in trying to 
understand how these new kinds of products could broaden the 
online medium. But certainly, in order to make a major 
commitment to it, it's going to require some coalescing of the 
different alternatives so it's clear what platforms we should 
be betting on.


Do you think Newton is a likely contender for that?

	I think it's certainly a contender for that. On the 
palmtop side, the two major contenders at this point seem to 
be Newton and what Tandy is doing in conjunction with Casio 
and GeoWorks and Palm Computing. I think the Tandy-Casio 
venture is probably more likely to focus on the mass 
consumer market, with highly inexpensive devices.


GameBoys for telecomm.

	Sort of, yeah. Or Sharp Wizards On Steroids is the other 
way people look at it.

	I think Newton is initially going to focus on a higher-
end part of the market. But the interesting thing about both 
approaches is that they have the desire to move those 
technologies into other kinds of devices. Apple's already made 
it clear that Newton is a technology, not a product, and that 
they hope Newton technology will one day be in screen-based 
telephones and televisions and other kinds of devices. If 
they're successful in doing that, it obviously becomes a more 
interesting platform for America Online than if it's a 
dedicated notepad device.

	But overall, our objective of growing a mass medium 
and mass electronic communities is going to be fueled by the 
development of different ways for people to access these 
services, whether it's Newton or Tandy and Casio or AT&T's 
Smart Phone or any of the other kinds of things that are 
starting to come out, that are encouraging developments 
because they take the computing capabilities and extend the 
reach of them into the mass market. And we'll be there with 
services that people will enjoy using and will be able to 
afford using and won't have a lot of trouble using.


How significant do you think wireless in general is 
going to be?

	I think it'll be very significant as it relates to things 
like palmtops. That's certainly one of the key areas where 
they can add value, through wireless connectivity.

	It's not likely to play much of a role in the next few 
years, particularly in the consumer market, because the 
standards aren't clear and the prices of those wireless 
services are still fairly high. 

	But the dream of having a device that you can carry with 
you, that will fit in your pocket, that any time you receive 
email it automatically displays on your screen, any time you 
want to send a message to somebody you just type it in and 
push a button, whether you're on a boat or on a plane or in the 
office--clearly we're moving quickly to that goal, and a lot of 
companies are coming up with some very innovative solutions 
to meet that need. So now it's no longer a dream, it's just a 
matter of making those technologies affordable and 
accessible to the masses. And we're not too many years away 
from that outcome now.


I was reading someplace that your pricing structure 
is different for PC and Mac. This was news to me, 
because I've always used the Mac software since the 
beta test days.

	What it really is is part of our attempt to create a 
broader number of customers subscribing to America Online. 
We were always looking at all the different aspects that 
might contribute to growing the membership base faster, and 
one that certainly impacts it is pricing. 

	So what we've been doing, for the last couple of years, 
is constantly testing different pricing options to try to 
understand what customers prefer. Our intent is to have one 
price that everybody pays, but like a lot of direct marketing 
companies, we do try to understand what customers really 
prefer by testing it out in the marketplace.

	 Most magazines, for example, have lots of different 
prices you pay depending on how you subscribe and when you 
subscribe and so forth. They're not doing that to confuse 
people, they're doing that to come up with the optimum way to 
price their magazine. We're really trying to do the same kind 
of thing. We want to get feedback from customers  to help us 
make those decisions, as opposed to try to do them in a 
vacuum.

	When people use multiple computers, they can still 
share the same America Online account. Whatever you start 
with, we'll continue to honor that. We're not forcing  
somebody into some different pricing structure.

	It's probably just motivated by the desire to make 
things simple and affordable. For example, in the Macintosh 
world we have a pricing structure that charges more if you 
get on during the day than if you get on at night, and the 
reason for that is our costs during the day are quite a bit 
higher. But one of the things we wanted to test out was 
whether, if we had a flat rate 24 hours a day, that would be 
simpler and therefore more appealing to consumers, and that's 
what we're trying to find out.


Other than numbers, did you notice any cultural 
shifts when the PC people got on? I noticed that 
there was a lot more foot traffic all of a sudden!

	Well, before, what we were doing was running separate 
services for separate platforms, so the Macintosh service 
was separate from the PC-Link service, and so on. We felt 
that was appropriate for several years, because part of our 
positioning in the marketplace was trying to create services 
that met the needs of each of the different computer 
segments we were going after, and we felt that a Commodore 
64 owner had somewhat different interests from a PC 
compatible owner or a Macintosh owner. 

	Over the last year that's blurred, and we felt it was 
more appropriate to bring them together into one larger 
electronic community. So that's what we did--we 
interconnected our PC-Link service with our America Online 
service. There obviously was some social change, because 
suddenly there were twice as many people participating in the 
same areas, and a lot of the people were kind of new to the 
neighborhood. It took a couple of months of people getting 
used to it, but it seems to be working pretty well now.


Things like the Microsoft Small Business Forum are 
dual-platform things?

	Right. And really, that's the direction we're going in. The 
services we're adding, like Chicago Online, are accessible to 
all the different people who are members of America Online. 

	We just don't think it's appropriate any more to segment 
based on what kind of computer you own. There are certainly 
some differences between a typical Macintosh owner and a 
typical PC compatible owner, but they're much fewer than 
they were five years ago. People are people, and we're trying 
to create electronic communities to meet their needs, 
whether it be their business interests or their career 
interests or their hobbies or what have you. And in those 
areas people care less about what kind of computer you own 
than what kind of interests you share.


One of your stated goals is to have the best software 
libraries of any system around. How does that work?

	There's two aspects to it: the software that's submitted 
by members themselves, and the software that comes from 
publishers. We try to encourage members to send in public 
domain or shareware files, and we give them free time so 
they are able to do that. Then we have a group of people we 
call Forum Leaders, who review the files, check them to make 
sure they're not copyrighted material, check that they don't 
have any viruses in them, try to provide a description so that 
people browsing through the library can understand what the 
program will do before they go to the trouble of downloading 
it. 

	On the PC and Mac services, each of them, there are 
more than 20,000 software files now, on a wide variety of 
topics ranging from business templates to games to graphic 
programs and so forth. We think we'll continue to grow that, 
based on members submitting new and interesting programs.

	The second comes from publishers. We now have 100 
software publishers, including Microsoft and Word Perfect 
and Claris, providing support online, and just answering 
questions from users. They also generally have software 
libraries so people can download the recent updates and 
templates and so forth. We expect that to continue to grow as 
well, as we add additional publishers.


I've noticed quite a discrepancy in how plugged into 
this various vendors are. Some are quite responsive; 
with others, I've sent support questions a month ago 
and still haven't heard back.

	That's not good. I'd like to know exactly who they are so 
we can follow up on it. 

	But the main issue there is getting companies to view 
online support as an integral part of the way they serve their 
customers, as opposed to sort of an afterthought. And it is 
kind of a cultural change for some of the companies--it just 
takes a while for them to understand it.

	The companies that have been doing it for a while 
understand that it's really a powerful way to provide better 
support to customers more cost-effectively, because you 
create this environment where your customers are helping 
each other. It's sort of self-sufficient support--somebody 
posts a question, and some other user of the product actually 
answers it often  before the company itself gets to it. So it's 
a very powerful way to provide better support less 
expensively, and more and more companies recognize that. 
There are certainly some that are just trying it out for the 
first time and don't really have the commitment to it that 
they will over time. We just think that the situation will 
continue to improve as more companies do it and understand 
the value of doing it.


Out here there's a service just starting up called 
AMIX. There's apparently been a lot of interest from 
software companies about using as an upgrade 
delivery mechanism, because you can just download 
the upgrade, pay the fee to AMIX, and AMIX pays the 
vendor, and all this is much simpler than the usual 
song-and-dance. Do you envision doing anything 
similar?

	Well, sure. We actually do that now, we typically just 
don't charge for the upgrade. It would be relatively easy for us 
to add a mechanism so that when you download a program, 
you're charged a certain amount for it. The capability to 
download upgrades exists now; the ability to charge for it 
doesn't exist now.

	It's certainly something we could do relatively easily. 
But we've always been a little bit tentative in positioning the 
service as a way to electronically distribute software, 
because electronic distribution of software is a concept 
that's been talked about now for ten years, and generally 
hasn't taken hold.

	Part of the reason for that the traditional distributors 
and retailers of software aren't really keen on the idea of 
building a mechanism to bypass them. And a lot of companies 
have been reluctant to use the medium for electronic 
distribution because it essentially cuts their existing retail 
partners out of the loop.

	So that's why we haven't done it. It's not a technology 
question, it's really more a business question. We'll see how 
AMIX does in that area--my guess is that it will require 
building a lot more critical mass of people who are 
subscribing to the service before it becomes interesting for 
most of the publishers to do it that way. Because it's a 
business issue and not a technology issue, to the extent that 
it becomes something that people are comfortable using, it 
would be relatively easy for America Online to provide that as 
well.

	One of the interesting dynamics to watch will be what 
happens as communications becomes an integral part of 
computing. Certainly for the first ten years of personal 
computing modems and communications have been positioned 
as a peripheral part of computing--you go to a computer store 
and go to the Peripherals section to get your modem, which 
essentially has defined it as being a nonessential part of the 
computing experience. 

	That is definitely changing. Now 100% of the IBM PS/1 
computers have modems, about 90% of the Packard-Bell 
computers have modems, quite a number of the Tandy 
computers and computers from other vendors have modems. 
Suddenly that's changing the way software companies think 
about providing support, and the way they think about 
providing upgrades. 

	Because if they could count on the fact that most, if not 
all, of their customers have a communications capability, 
that would dramatically shape the way they think about 
communicating with their customers and the way they think 
about updating their software programs. For example, it 
would be more likely that they would follow the path we 
follow--we tend to add new services and features every 
week. In a sense we're upgrading our program constantly. 

	Software companies could do the same thing, so that 
instead of waiting a year to get some fix or to get some 
additional enhancement, they could just offer it to people as 
soon as it's ready. The reason they don't do that now is 
because there's not enough people using modems among their 
customers to do that as a way of meeting the needs of the 
bulk of their customers.

	

Do you have any sense of what other systems your 
users use, and what percentage of them only use AOL?

	We do have that information. When people first sign on, 
we ask them some of those kinds of questions.

	What we generally find is that about half of our 
members are using some other service, and it typically is one 
of the other major national services such as Prodigy or 
CompuServe. Which sort of supports the point that we've 
always believed, that different services meet different 
needs, and that it's unlikely, as this market develops, that 
people are going to just subscribe to one service.

	When I use CompuServe, I sort of feel like I'm walking 
into the library, which has the benefit of a broad array of 
information services, really very powerful depth that 
certainly we don't have and Prodigy doesn't have. But at the 
same time it's got sort of an intimidating atmosphere,  in 
terms of the interface and pricing and so forth. It's powerful 
content that's a little hard to get to, and somewhat expensive.

	And when I walk into Prodigy, I feel like I've walked 
into a shopping mall where there's a lot of merchandising 
activity going on, and some social gatherings on Saturday 
mornings and so forth. 

	And when I walk into America Online, I feel more like 
part of a community, with different areas of the service 
sharing ideas and interests and so forth. 

	So they all have a little bit different feel to them, a 
little different personality. You might find a lot of value in 
participating in America Online, whether it be the Microsoft 
Small Business Center or Rocklink or what have you, and then 
go to CompuServe to get some fairly detailed business 
information, and perhaps go to Prodigy to do some of the 
transactional kinds of services that they do well. It's 
unrealistic, given the potential of the market and the current 
size of the market, for any one service to do everything and do 
it effectively.


So do you see the online world getting more diverse 
as time goes on? Do you see more new services 
springing up, or the existing ones just getting more 
broad-based?

	I think it'll be both. Certainly as the market develops, 
there will be a proliferation of specialized services. I think 
you're starting to see some of that now. At the same time, I 
think it's the kind of market that critical mass is important--
the value of a communication service is typically in direct 
proportion to the number of people using it--it's better to 
have a forum where there's thousands of people participating 
than to have one where there's dozens of people participating. 

	As a result, I think the big services will get bigger, and 
it will end up being a market that splits into a relatively 
small group, probably three major national services. I think 
that group is already pretty well defined--CompuServe, 
Prodigy, and America Online. And we'll see the emergence of a 
variety of highly specialized services, some just dealing in 
the personal finance area, ssuch as one service called Smart 
Investor that recently came out. Some just focusing on games, 
which is what the Sierra network is doing. Some focusing on 
marketing business information, like AMIX. 

	So it really will be a market that's characterized by a 
few major players that have lots of customers, and are 
platforms that major media companies, for example, can feel 
comfortable working in tandem with to provide services like 
we're doing with the Chicago Tribune, as well as a 
proliferation of highly specialized, kind of small-sized 
providers, meaning very narrow interests.


What about Internet? You now have the easiest-to-
use Internet mail in the world. 

	Well, it's a start. Internet's kind of interesting in that it 
developed without a grand strategy. It really developed kind 
of organically to become this network-of-networks that's 
clearly the largest interconnected network in the world. 
Millions of people are using it daily. 

	We just felt the opportunity was to marry the 
affordability and accessibility of America Online with the 
power and reach of Internet, and the first step to do that was 
the email gateway we announced a couple weeks ago. It's 
already quite popular. We're transmitting thousands of 
messages each day now between America Online and Internet.

	But we think beyond that there's an opportunity--
Internet's got a lot of power, but it's also hidden away from 
most people. You've got to know the secret keys to get into an 
Internet system, and then you have to figure out how to get 
around the Internet system. So in many respects it's this 
resource that is hidden from normal people. We want to figure 
out a way to bring that to real people all around the country.

	A lot of people are talking now about the 
commercialization of Internet, trying to figure out ways to 
take the Internet from being reliant on government subsidies 
to being supported by business traffic. We want to go a step 
further and figure out how to consumerize Internet, try to 
make it accessible to the masses. Email, as I said, is the first 
step; we're trying to figure out other things we can do to link 
America Online and Internet so you kind of get the best of 
both worlds. 

	That may include providing access through America 
Online's interface to some of the Internet newsgroup kinds of 
services. It may involve allowing people through Internet to 
access America Online. There's a lot of different ways that 
we're looking at, but it just seems like a powerful way for us 
to take advantage of what we do well, which is accessibility 
and affordability, and what Internet does well, which is have 
millions of people sharing ideas. There's a lot of potential for 
services like ours to tap into the power of Internet.

	Our design philosophy has always been ease of 
everything is everything. It kind of goes back to my original 
experience ten years ago, which I still remember vividly to 
this day, of sitting in a room in Kansas trying to figure out 
how to connect to this electronic world and how painful it 
was. Everything we do, and everybody within the company is 
constantly figuring out, is how to make this accessible to the 
masses. 

	And as a result, we'll take the time to do it right. We 
could have offered an Internet email gateway a lot sooner, but 
we wanted to design it in a way that worked seamlessly, like 
any other America Online mail system. So if you're sending 
mail to another America Online customer, it works the same 
way as if you're sending mail to somebody on CompuServe or 
somebody using an Internet system in Sweden. It works 
exactly the same way. 

	That takes longer, but it's important. We're going to 
continue to push for that ease of everything. That may mean 
some functionality that we'd like to provide to our customers 
won't be available as quickly, but when it does become 
available, it'll be easy to use.



Do you envision a time when AOL might have more 
global access than it currently does, like getting into 
TWICS and NiftyServe and all those systems?

	Oh, sure. We do have the capability to provide 
international access to America Online through the existing 
telecommunications partners we've got, such as Sprint, that 
have nodes around the world. 

	We're also considering establishing some partnerships 
with companies in other countries, so we actually create 
localized versions of America Online that are customized for 
those particular markets. 

	Right now, we think there is an opportunity on the 
international side, but our focus is really still on the US side. 
We think there is tremendous opportunity to grow our 
company and our customer base just by focusing on the 
markets we're currently serving and serving them more 
effectively. 

	As a public company, we talk about how many members 
we have. At the end of March, we said we had 170,000 
members. There were100 million households in the United 
States, and depending on whose numbers you believe, about 
ten million of them now have PCs and modems and are able to 
access these services. And all the new PCs have modems built 
in. 

	So there's just a huge opportunity to grow  within the 
market we've already defined, as opposed to having to chase 
some new markets. So that's not something we're likely to do 
any time soon.z

.