Goodbye to the Truest Believer

 
 
By David Coursey  |  Posted 2005-10-31
 
 
 
Nobody believed in the potential of the Internet more than America Online founder Steve Case. And no ones reputation has been so tarnished as a result of such belief. Its unlikely Case will ever live down the rap of being the architect of the "worse business deal in history," but that part of his life is now officially closed.

Steve Case this week crawled out of the limelight, resigning as a director of Time Warner, the company that five years ago he merged with AOL.

Case has a new venture, vaguely Internet-related, that hes stocked with a roster of other damaged executive talent. I guess misery really does love company.

You will remember that in 2000, Case made a huge—and losing—bet, using his companys wildly inflated stock price to purchase the much larger Time Warner. The combined entity was renamed AOL Time Warner.

At the time, the merging of traditional and "new" media seemed to make sense, though few were keen on AOLs purchase such a much larger company. But, AOL had lots of money and Case decided to spend it.

I was among those who thought hed lost his mind, his tiny (by comparison) online company buying one of the worlds largest media and entertainment companies.

The scale of the deal seems outlandish today, but reflected the state of the dot-com era at the moment it took place. Six months later, the purchase would likely have been impossible.

What happened next was the stuff of business school horror movies: The old-line media company had what amounted to an auto-immune reaction to its new owner, never making good on any of the supposed synergies that existed between them.

Time Warner then effectively walled off the "foreign body" that was trying to take it over.

Click here to read more about Case stepping down from his seat on the board of directors at Time Warner.

Saying that AOL was a tumor on Time Warner would not be too much of an overstatement, at least from Time Warners viewpoint.

As problems with the deal became apparent, Case lost power and, in 2003, the companys chairmanship, though he remained on Time Warners board until his resignation on Monday. Shortly after Case left as chairman, the company dropped AOL from its name.

If anyone has forgotten what a bad deal it turned out to be, let me quote from a recent story in Fortune magazine:

"AOL Time Warner, valued at about $290 billion after the merger announcement in January 2000, shed more than $150 billion of that market value by January 2002. The company wrote off almost $100 billion in goodwill, settled Securities and Exchange Commission and Department of Justice investigations for $360 million, and set aside $3 billion to resolve shareholder lawsuits. Case, however, did very well by the deal: From 1999 through 2002 he sold stock valued at $475 million."

His current fortune estimated at $825 million, Case says he has invested $250 million to form a private holding company called Revolution Health Care.

Based in Washington, D.C., the company could be more aptly named "Reputation Health Care," given the stellar group who compose the companys board of directors.

Topping the miss parade is Carly Fiorina, whose merger of Compaq and HP fizzled.

Also on board are Franklin Raines, who stepped down amid scandal as CEO of Fannie Mae last December; and Steve Wiggins, who left Oxford Health Plans following a huge drop in the companys share price.

Others on the Revolution board include former Secretary of State Colin Powell, whose reputation suffered as a result of misinformation he presented in the run-up to the Iraq war; and former Netscape CEO Jim Barksdale, who sold the remains of that company to AOL.

Despite all this—and I may be the only person today who says this—I like Steve Case.

Steve and I used to talk occasionally, and in the early days we traded a fair amount of e-mail.

Steve, and his late brother Dan, a venture capitalist in San Francisco, struck me as remarkably down-to-earth people, at least for the industry as the time.

Despite the flameout of the Time Warner deal, AOL has been an earth-changing company.

The recent talk of interest from Microsoft, Google and Yahoo, only confirm that something important is still happening, even as AOL sheds massive numbers of dial-up customers to broadband.

I think that Steve Case has gotten a bad rap, even with all the evidence Ive presented to the contrary.

He made one mistake, admittedly a huge one, amid a long run of successes. That big mistake was believing too much in the medium he helped invent, something everyone had encouraged him to do.

Buying Time Warner was the logical expression of this belief, at least for a big thinker like Case.

So for all the people who are thinking nasty things about Steve Case right now, I have only one question: If he called and offered you a job, would you turn him down?

Health care is a very different, more established, and tougher business than the Internet was when Case was among its pioneers.

I dont know much about the health care revolution Case is trying to spark, but should he call, Id be on the next plane to find out. And, I bet, so would you.

Steve Case remains among the Internets heroes, even if hes a tarnished one.

Contributing editor David Coursey has spent two decades writing about hardware, software and communications for business customers. He can be reached at david_coursey@ziffdavis.com.

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