(7 of 8)
What makes these riches especially sweet is that Case has come close to wrecking his magical money machine. The self-demolition derby started last fall, when AOL's strained network backed up like a kitchen sink. New York City users were calling access numbers in places as far away as Alaska before getting through. In December, when AOL changed its pricing structure to allow for unlimited access at a flat rate, the mess worsened, and customers screamed. Attorneys general threatened to sue AOL for promising service it couldn't deliver. Wall Street analysts argued that this was the sort of problem that would drive AOL users into the arms of other Net firms. Though Case settled with the state officials, it took him months to win back consumer confidence.
Not to mention a couple of hundred million dollars. In the past six months, AOL has learned the hard way about the fixed costs associated with building an empire. In the lot next to its Dulles headquarters, the company is erecting a $50 million network facility, on top of $300 million spent adding modems from Florida to Alaska. "We're building the equivalent of a Prodigy every month," says Mike Connors, AOL's president of technology.
Members still complain of being shut out during busy times. Yet the slowing of AOL's once brisk cancellation rate and the acceleration of new arrivals seem to show that Case is at least one step ahead of the complaints. "These guys flirted with disaster," says Daniel Hart, a new-media strategist at Viacom. "Fortunately, they were smart enough to pull it out."
Successful as AOL has been, Case knows that his company could still end up being the RC Cola of the Net rather than the Coca-Cola. With the Web spilling onto platforms as diverse as TV sets and cell phones, Case sees that his business may be preparing for another big shift. "Even though we've been at it for a decade, this is like the second inning in terms of the development of this medium." The online business, he says, is about to become "the most competitive market in the world."
In fact, the hidden victory of the WorldCom deal is that it gives AOL a technological leg up. WorldCom is building bigger pipes--broadband, in the parlance--over which AOL can push a richer service. Although some industry watchers see broadband as a weapon for rivals like cable companies to use against AOL, Case naturally holds the opposite view that his product will be more effective in a new era. If AOL can attract 12 million users just with snappy graphics and chat, imagine what it will be able to do with full-motion video and stereo sound.
Imagine too what Microsoft can do. No company is a bigger threat, yet Microsoft is both partner and competitor for AOL. Case says it's a relationship based on "ambivalence and, to some extent, fear." Soon AOL will unveil new alliances with Microsoft that include everything from licensing the online magazine Slate--on AOL starting this fall--to becoming part of Microsoft's "Active Desktop," which will let AOL deliver information to Windows computers using new Microsoft technology. Pittman, for one, feels AOL holds a better hand: "Microsoft's destiny is not MSN."