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In part, the AOL division is a victim of the lofty expectations generated by its successes in recent years--and the hyperbole of some of its executives. After the online service's ad and e-commerce revenue doubled in 1999 and nearly doubled again in 2000, executives--led by Pittman--declared that AOL could power AOL Time Warner to a 33% annual growth in cash flow, even during a 2001 that was clearly shaping up as a recession year.
But while managers in New York City were trumpeting these goals, the folks at the AOL division's headquarters in Dulles were overwhelmed by them. Even before the merger was finalized, many of AOL's top managers and technologists were retiring--either formally or in practice--on the immense wealth they amassed before the dotcom bubble burst. Pittman, meanwhile, moved to New York to help run the parent company. And founder Steve Case, now chairman of AOL Time Warner, stepped back from day-to-day responsibilities, in part to spend more time in California with his brother Dan, who is battling brain cancer.
That left Schuler--who had never managed anything larger than the 100-person software start-up that he sold to AOL in 1995--in charge of a fast-swelling staff of 15,000 and $9 billion in annual revenue. Instead of setting strategic priorities, Schuler and his lieutenants bounced between brainstorming sessions for soon-to-debut products like universal messaging and agonizing meetings over how to fulfill short-term earnings goals. One executive bemoans that at the old AOL: "Our great strength was keeping it simple, the goals clear and everyone pulled together. We really ended up losing our focus."
In the first move to restore some discipline, AOL Time Warner last fall sent chief financial officer Michael Kelly from the New York headquarters to become the AOL division's chief operating officer. Kelly found what a senior executive refers to as a "big sandbox," in which in the name of synergy, it seemed as if anyone with an idea was suddenly proposing grandiose new projects with Time Warner divisions. "People are doing crazy stuff and wasting money," says the executive. "Someone has to set some priorities." Case, 43, says ruefully that rather than speeding AOL's move into the broadband age, "the merger actually slowed us down."
Case is confident that AOL will haul itself out of the ditch; he points to a history of unfulfilled predictions of its demise. During the winter of 1996, just before Pittman arrived, the company was dubbed America on Hold because its servers couldn't handle the dial-up volume. But AOL invested heavily in fail-safe server technology and launched a massive marketing effort. "I've seen this movie a lot," says Case, who recently bought an additional 1 million shares of stock at $24 a share, after selling twice that amount early last year at a significantly higher price. "I kind of like being the underdog again. That's when we've always done our best work."