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Only in the digital age can an outfit go from worst to first so quickly. In the past 24 months, AOL has dodged everything from a Bill Gates bull rush (his Microsoft Network spent millions to compete with AOL) to a tussle with the Internet, whose wide-open spaces threatened to make AOL's narrower "gated community" irrelevant. Case, 39, has been famously (if inadvertently) self-destructive, infuriating AOL members by offering too little capacity and too many headaches. Overeager users have crashed parts of the service twice in the past year by bombarding it with more calls than computers could handle. And as "America On Hold" angered customers, it perplexed Wall Street. Accountants demanded that AOL refigure its books, erasing every dollar of profit the company ever made. It faced potential lawsuits from the attorneys general of 36 states over billing practices. William Razzouk, a hotshot executive from FedEx, split after just five flabbergasted months as president of the service. The company endured, inevitably, a collapse of its too-rich stock price. Twice.
Many of the same problems remain. AOL, which has always had a high turnover of subscribers, still serves for many as training wheels from which they eventually graduate by getting directly onto the Internet. Retaining customers will become even harder as phone companies, cable companies, Microsoft and Netscape make it even easier to use the Internet's open standards for browsing the Web, chatting and sending mail. AOL hopes the WorldCom deal will eventually allow it to offer higher-speed access through phone lines, but cable and wireless technologies could lure impatient users away from cumbersome dial-up services. Customers could also become turned off by the increasingly intrusive ads, upon which AOL's flat-price business model now depends. And while Microsoft has yet to perfect its own MSN service, even Case observes that Gates' behemoth usually gets things right on the third or fourth try; when Microsoft finally gets its browser, mail, Internet access and content fully integrated into its Windows operating system, users may find it easier to get to the rich content of the Web that way rather than through the suburban environment of AOL. But despite all these challenges and the predictions of doomsayers over the years, Case's company showed last week that it has at least the potential to thrive.
The WorldCom-CompuServe deal certified AOL as cyberspace's first true empire, a global online service that's adding 6,000 members a day and will soon be available in more than 100 countries. Revenues have pumped up with impressive speed, even for a high-tech firm, from $53 million in fiscal 1993 to nearly $2 billion this year. And, slowly, profits are emerging. The stock price, which traded at $22 a year ago, hit a high of $80.50 this week. Even at a perilous 80 times projected 1998 earnings, it will beat the market, think Wall Street pros. "AOL has won the battle to become the No. 1 brand in home online access," says Keith Benjamin, an analyst at Robertson Stephens.