The arc of innovation and disruption can be long and steady--think automobiles and nations--or short and steep. Started in 1985 by an ex-assistant brand manager by the name of Steve Case, America Online reached a $166 billion market cap in early 2000. Case used his currency to pull off the largest--and most controversial--acquisition in history: Time Warner. But the ensuing dot-com bust shattered the deal's logic.
Case resigned his chairmanship of AOL Time Warner in 2003, but his zeal for startups continues. Today he heads a successful venture firm, Revolution LLC, and is a voice for entrepreneurship in public policy. Recently I chatted with Case. You can read the longer version of this interview, including Case's views on public policy, on my Forbes.com blog.
What did you see that others missed when you started AOL? I had read Alvin Toffler's The Third Wave in college, in 1980, and was struck by his concept of an electronic global village, people connected to an interactive world, with services and information at their fingertips. Belief in this became my North Star.
How did AOL disrupt such early online leaders as CompuServe and Prodigy? We had only a few million dollars in venture capital, which had to last for several years. Our strategy became one of partnerships and guerrilla marketing. In the end we beat Prodigy and CompuServe because we were crisply and obsessively focused on the consumer.
AOL was also the first to see the power of community. People connections, chat rooms, message boards, just as Toffler had predicted. Communication between people has always been a huge business, whether through AT&T or Hallmark cards. But the Internet made possible a new kind of communication--between people who weren't family or close friends but who shared a passion.
All of it occurring in a narrowband world of dial-up modems. AOL's trick was an interface that made the dial-up experience friendlier. Our interface was stored on floppy disks or built into computers. We had pages that looked like today's Web, but most of the images were stored on the disk.
So when an AOL user heard "You've got mail! ... " That was stored, not transmitted. Pretty cool.
But then you were disrupted by browsers and broadband. What happened? We didn't miss the Web; we embraced it. That's why we grew so fast in the 1990s, from 200,000 users to 20 million. The frustration was the second wave--the transition from dialup to broadband. We pushed a public policy called open access to let us buy bandwidth from cable providers. That failed, so we sought out the largest broadband cable provider, Time Warner. That's what led to the merger.
As a venture capitalist, what do you tell entrepreneurs? That big, transformative ideas typically take a decade to become successful. Understanding that is important. Obviously you have to execute. You have to get on base, get early traction. Then you ask, what will it take to accelerate progress? What are the barriers that need to be removed? You need the big idea--a North Star--but then you need pragmatism, perseverance, patience. You can't skip any of those. Disappointment is sure to come.
What are the characteristics of founders and founding teams you like to back? I like consumer companies that have some disruptive aspect to them, either technology or business model--something big. Something around which you can build a company, change the world and become an iconic brand on the world stage.
Like your investments, Zipcar and LivingSocial? Zipcar has grown tenfold over the last five years. When we first invested, the car-share industry was quite small--$25 million, with 50,000 people using cars in ten cities. But we liked the economics. It makes no sense for most city dwellers in their 20s and 30s to own cars. Plus smartphones and social networks made the promotions and transactions a lot cheaper and easier. Zipcar is a public company with a $1 billion valuation. We think we've just scratched the surface in market potential.
LivingSocial is changing the way local merchants compete in a world dominated by big brands with huge budgets. From the consumer end LivingSocial exposes people to services they might not know exist in their own cities. Who knew, for example, you could kayak in the Potomac? And get a discount?
The theme of your career, it seems, has been finding consumer markets suddenly disrupted by technology. It's all about entrepreneurs who can deliver choice, convenience and control to important aspects of people's lives.
For more on Rich Karlgaard follow him at: http://blogs.forbes.com/digitalrules
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