David Louie with business and Lee Glasser with weather.
And we feel it's very important both at AOL and other companies involved to let students
learn from places, from facilities, from information that they could never get in the physical
building that they attend every day.
And that's what cyberspace is all about.
Apple computer is hooking up with the largest online provider, America Online.
Shares of Netscape fell today, falling six and a quarter.
The Wall Street Journal reporting that Microsoft is trying to persuade America Online to license
its software on the Internet.
And Netscape fell more than $6 to 38 and three quarters.
Today's Wall Street Journal says that Microsoft is trying to persuade America Online to license
its software on the Internet rather than.
The battle over who can build a better on-ramp for the Internet could take a new turn today
with the expected announcement of an alliance between Netscape and CompuServe.
Netscape shares fell on news that rival Microsoft is trying to convince America Online to use
its Internet Explorer as the main software to browse the World Wide Web.
Microsoft has fired another shot in its Internet turf war with software rival Netscape.
America Online has agreed to license Microsoft's Internet browser a day after reaching a similar
but more limited agreement with Netscape.
The nation's number one online service says it made software deals with both companies
to give customers more choices.
AOL will also be featured in Microsoft's Windows 95 operating program.
Checking those stocks now, America Online climbed more than seven points.
One content provider is leaving prodigy amid questions about the online service's future.
Newsweek reports it will switch to America Online in three months.
AOL is America's largest online service.
Also tell you about a big winner in the market today, America Online.
Another alliance for the nation's top online service, America Online.
And as we continue looking at this, the first shots you can say were fired in a hardcore
software battle.
Microsoft announcing plans to team up with America Online.
AOL once said the online business would turn out to be Microsoft's Vietnam.
In fact, Monday, AOL licensed Netscape's browser for its new Internet only service, which currently
has few customers.
But now Microsoft's browser has the leading position on AOL, and new versions of Windows
95 will have a quick link to AOL.
While America Online is getting together with once rival Microsoft, AOL will make Microsoft's
web browser part of its service, giving AOL users another way to access the Internet's
worldwide web.
This morning we'll tell you about a big story.
Sources tell Digital Jam at this hour the final touches are being put on a joint venture
between once bitter rivals, Microsoft and America Online.
America Online and Microsoft are also joining the other top online services today at a press
conference here in New York to begin self-regulation of the online industry.
They've decided to form a new organization to develop guidelines for online computing.
The new group is calling itself Project Open and will promote the online industry's efforts
to let parents control the material children see online.
This is Moneyline with Lou Dye.
Shares of America Online soared four and three-eighths today and Netscape gained six and a quarter.
America Online agreed to license Netscape's popular web browser.
That deal another blow to Microsoft which has been trying to lure Internet business
from Netscape.
Steve Young has our report from New York.
The America Online deal to use Netscape's worldwide web browser is a strategic coup.
From ABC News, this is world news this morning.
Huseyah Asuris.
The country's biggest online service is expanding its presence on the Internet.
America Online is teaming up with AT&T's new Internet service, giving AT&T subscribers
access to the online service at a reduced rate.
America Online is also joining with Netscape to provide Netscape's popular Internet browser
program to its subscribers.
At a Manhattan news conference this morning, right now it's the use of the Internet at
home that's the focus of major online services.
AT&T, America Online, Prodigy, CompuServe, the Microsoft Network and Internet access
provider Netcom are announcing Project Open.
That's a public education effort aimed at changing people's attitudes about the Internet.
A super day for Super Tuesday and right through the information superhighway.
Sue Herrera now the details on those stories.
Susan.
Okay thanks so much Neil.
There have been still more lane changes if you will on the information superhighway.
America Online has announced new deals with AT&T and Netscape which will give AOL greater
marketing clout.
A few years ago when it started out it was considered a sexy, unique service, probably
just a niche service, probably wouldn't go much further than that, that it would be a
world dominated by online powerhouses like Prodigy and CompuServe.
America Online has essentially left those services in the dust and it has now scored
one partnership after another to underscore its commitment to be the online service of
record.
Over the last couple of days it has picked up ten points in the stock market and it is
arguably among the most powerful names even in the Internet community.
America Online Steve Case the CEO joins us right now.
Mr. Case good to see you.
Good to see you.
Alright you seem to be making deals with everybody or partnerships with anybody and proving to
a lot of folks that there is life in the online dinosaur just yet when everyone thought the
Internet would take over.
America Online has announced yet another blockbuster Internet deal.
Right now its shares are trading up five at fifty three and three ace and that is after
rising more than four points yesterday.
Well if you haven't heard by now Microsoft and America Online are announcing a broad
based technology partnership.
And here's a look at some of the other stocks which made some news today.
America Online signs yet another mega deal.
Apple Computer and American Online play let's make a deal.
Case of America Online Chairman and CEO are you there?
Yes I am.
Swell.
Ladies and gentlemen please welcome to the National Press Club America Online President
Steve Case.
Thank you very much that was quite an introduction I think it covered most of the key points
I was going to talk about.
So there will be some consistency between the introduction and my comments.
We started our company over a decade ago when there was not a lot of interest in online
services in fact there was virtually no interest in the concept.
People thought it was sort of this hobbyist computer nerd sort of thing.
But we had a belief then and we have a belief now that over time what would happen was the
development of a new medium which would ultimately be as important as radio was or television
was or magazines have been.
But it would take a long time for us to build the kind of the roadblocks to get from where
we were to where we needed to go.
And we've seen that over the past decade.
We now see the promise of this medium and certainly many of you are leading the way
and talking about the possibilities of this medium but there still are a lot of hurdles
to make this a mainstream phenomenon.
The reality is despite all the press all the hoopla all the enthusiasm from our company
and others that only about 10 percent of the households in the United States subscribe
to any online service any internet access provider any anything.
And 90 percent are sitting on the sidelines saying why bother.
So the challenge for us over the next decade is to reach out to this group that has so
far not seen the wisdom of joining this interactive revolution and provide them with a solution
that makes it something that they really see as a integral and compelling part of their
everyday life.
So we've made good progress but there's still a long road ahead.
What makes this medium so exciting to us is that it really is unique if you look at it
in a historical context that it is more interactive and more participatory than other things that
we've seen interactive in the sense that you can really have control over what you get
and when you get it and how you get it.
It kind of puts everybody in the driver's seat becoming a kind of a producer and editor.
At the same time it's more participatory it's not just about people talking to you it's
about you interacting with each other and exchanging ideas on topics that you think
are important.
So the concept of more interactive and more participatory are really the building blocks
of this new medium.
What I thought I'd do today is give you our perspective on what has happened and also
what is likely to happen as we make this march towards the mainstream and also raise with
you some of the challenges that we face as we look ahead into this mainstream kind of
audience.
The two key areas I think to focus on and it's been true for the past decade I don't
see any reason why it will change over the next decade is the key drivers of this are
a real obsession on consumers and what they want and how they want it and not getting
too caught up in the latest press release, the latest technology, the latest this, the
latest that.
Figuring out what consumers want and trying to stay really close to them and also recognizing
this requires a spirit of partnership that no company can do this alone.
It really requires people working together that's been the history in the last few years.
Now it requires broadening that tent and bringing new constituencies in including the government
and other groups that have an interest as this moves towards the mainstream and as it
goes from being kind of a niche phenomenon to more of a mass phenomenon there's lots
of issues that are being raised now and will be raised in the next few years.
So we need to expand that tapestry of alliances and open the tent to a much broader range
of constituencies than we've seen so far.
It appears that there are five principal challenges to focus on here to try to look at this in
a more strategic kind of fashion.
The first is creating a really extraordinary consumer experience.
That ultimately is what drives a lot of this and we'll talk about that.
The second is figuring out how to integrate this medium into society so it really is a
core part of society as opposed to something sitting on the sidelines.
And the third, which is sort of related, is to establish new legal and regulatory frameworks
that recognize the potential of this medium but also the challenges because it is so unique
versus things that people have seen in the past.
The fourth is to develop new business models so everybody participating in this business
throughout the value chain can do it in a successful and profitable fashion.
And the fifth is to use technology to really enable and empower and drive this revolution.
But recognizing that technology is really a piece of the puzzle, not the puzzle itself.
And in fact, consumers don't really care about the underlying technologies.
They're much more interested in what they're going to get than how they're going to get
it.
So we need to make sure as we move to a more mainstream audience that we don't forget that,
the best services may mask that technology as opposed to really highlighting it.
Now, if you look at what's happened the last couple of years, it really has been quite
extraordinary.
AOL is a good proxy for this but there's been other success stories as well.
Two years ago, we had 500,000 subscribers.
Today we have over 5 million subscribers.
So we've added 4.5 million subscribers in the past two years.
To put that in some context in terms of media properties, that means in the last two years,
we've added more new subscribers than USA Today and New York Times and Wall Street Journal
have added over the past 100 years.
So there is consumer interest in this phenomenon.
It's no longer kind of something that's hiding in the corner and people who are really enthusiastic
about their computers do this on weekends because they have nothing better to do.
This is now a core part of many people's lives and I travel around Fairmont and often encounter
people that surprise me that they're already part of this revolution, already usually subscribing
to AOL, which of course makes me happy.
But there's lots of other people on a global basis that are connected to this interactive
medium and many through the internet.
The numbers there are kind of all over the map ranging from 10 million or so users to
30 million or so.
The difference is whether they're just using something like email or using broader services
like World Wide Web access.
But there's no question that this is no longer a millions kind of phenomenon.
It's quickly becoming a tens of millions kind of phenomenon.
And the reason for that are those attributes I mentioned before.
It is unique.
It is interactive.
It is participatory.
It is moving on a fairly rapid global scale and is going to sit next to television and
radio and newspapers and magazines and other kinds of media as an integral part of many
people's daily lives.
So the challenge is to figure out how to do that.
It's one thing to say it.
It's another thing to do it.
We've been working on this for the past decade.
We've made some progress, but we do recognize there's still an extraordinary long way to
go to really make it the kind of mainstream phenomenon that we think is so possible.
And the key, as I said, is focusing on consumers.
That really sometimes gets lost in the sea of announcements because there's so many different
things happening, usually interesting in a vacuum, but sometimes lacking a context that
brings it all together so that your friends who live down the street or your relatives
or your mother can figure out why this service is so important to their everyday life.
The guiding principles at America Online have focused on what we call the six Cs, which
are content, context, community, connectivity, commerce, and cost.
And recently, recognizing that the market was shifting into more of a mainstream mode,
we've added two new ones, which are controls and customer service.
So I'll touch briefly on these because they really are central to understanding what's
going to drive this from a 10 percent household penetration kind of phenomenon to more of
a mainstream phenomenon.
Now, content is certainly important.
There's some people who say content is king.
We think that's probably a little extreme because in this new world, all of these things
are important piece parts.
And indeed, none of them are as effective on a standalone basis as they are in an integrated
basis, which is the way consumers see it.
But consumers certainly want access to a broad range of content.
They want access to brands they already know and trust.
They want it to be as easy as possible to get in and get around.
In this area of content, we have seen a dramatic shift in the past couple of years from a world
which was really mostly about existing brands, the existing newspaper brands and magazine
brands that people already knew and trust, to a growing number of new brands that are
being created by entrepreneurs who are really quite obsessed about the possibilities of
this new medium.
Now, that's not to say that the media companies aren't playing that same role.
We're actually partnering with a number of them to create joint ventures.
The key idea here is not whether it's an old brand or new brand, but that a new perspective
taking advantage of the power of this medium and leveraging this aspect of interactivity
and participation is really brought to the table.
And it's not simply about shoving data through a new pipe.
So this content is important.
People expect breadth and they get it.
And increasingly now they also get it by having this wider array of content available on the
world wide web.
So there's lots of content and it's growing at a rather exponential pace.
The recent estimates say there's over 100,000 websites, for example.
So there's plenty of content out there.
And it is getting better.
The second is context.
If there are 100,000 choices, it gets kind of confusing, particularly to the average
consumer.
They really don't know how to pick between this sports service or that news service or
this financial service.
They need some guiding function.
If you just imagine the world of television, for a long time there was three or four networks.
Now there's dozens of networks.
Many people find the dozens of networks a little bit bewildering.
A few years ago everybody was talking about 500 channels and people thought, my, 500 channels,
how would you ever surf through 500 channels to find what you're looking for?
You'd just get, you'd constantly be clicking that remote control button.
Well, this is not about a handful of channels or dozens of channels or even 500 channels.
This is about hundreds of thousands of channels, someday millions of channels.
How do you make sense of that?
How do you bring a sense of order to what otherwise most consumers will find a chaotic
kind of business?
And that's what context is all about, making sense of this.
So you provide a guide function and you can point people in the direction of services
that's most likely to meet their needs.
You can provide some quality control function because a lot of people really are looking
for that helping hand.
And indeed the 90 percent that aren't yet participating in this medium are going to
need that helping hand more than anybody else.
So that's this business of context, presentation and personalization and packaging to really
make it a mainstream kind of phenomenon.
The next aspect is community.
We've always believed that a powerful part of this medium was building a sense of community.
In some respects, AOL with five million members is almost like a society.
It's like a city.
And indeed if it was a city in the United States, it would be among the largest cities
in the country.
And we want to promote a sense of community.
We want to promote a sense of connectedness so people really feel part of the service.
We want them to feel it's their service, not our service.
And we want them to join in discussions on topics they care most about and participate.
So it's not just about reading information on a screen.
It's also about interacting with others in this participatory fashion.
The fourth aspect is connectivity.
And this is less glamorous than some of the other ones, but really quite important.
People need to be able to connect to a service like AOL by dialing a local number and not
getting a busy signal, getting in and being able to wander through the service in a highly
reliable kind of fashion.
That's why in the past year we've spent a fair amount of time and energy and money building
out AOL Net, our own network, which really allowed us to put a footprint in place so
that most of our customers can connect.
And we're focusing a lot on this connectivity aspect.
It's really quite critical.
The fifth is commerce.
And this is only now emerging because the audience reach of the industry, and AOL in
particular, is only to the point where we have critical mass where this is possible.
But if you imagine a world where everybody was connected, which we're not at today, but
someday may be at, it will really fundamentally reshape the way people get information and
communicate with other people and buy products, and that as they buy products there's new
ways to distribute information to help guide their decisions and new ways to purchase those
products and purchase those services, which really stimulates this whole market of electronic
commerce, which is quite important because that will ultimately will be a major driver
in the profitability of this medium.
The sixth aspect is cost.
We've always believed that simple, affordable pricing is important.
People don't want to have to make a lot of decisions.
They want to have a pricing structure they understand, and that's been proven time and
time again.
The two new areas we've added are controls.
This is a new phenomenon in the past year, a growing sense in a lot of different constituencies
that as you bring this more to the mainstream, you have to empower people to take control
of the medium, and particularly to take control of the medium for the needs of their own households.
We have developed and other companies have as well tools to make that happen, things
we call parental controls, for example, that allows everybody to customize the service
to meet their own particular needs.
It's really quite critical as we move more mainstream.
The final aspect is customer service.
Again, if you're going after the 90 percent that isn't presently plugged in, you have
to do a better job than we've done so far in reaching out and helping them get connected
in the first place when they have questions, helping them with those questions.
We now have over 2,500 people around the country who are just focused on that one thing, trying
to provide superior customer service.
So that's the aspect of really making this a consumer phenomenon.
One of the missing ingredients right now is a disconnect between what technologically
is possible and what consumers are pragmatically able to do, and it's particularly true when
you think of bandwidth.
Bandwidth is basically the speed at which you can deliver services, and a lot of interesting
things are happening that require higher bandwidth than most consumers have, and the World Wide
Web is one example of that.
I think most would agree that in order to get full value out of the World Wide Web,
you need to be connected with a modem speed of at least 28.8, and ideally ISDN or cable
modems, and there's lots of enthusiasm about the possibility of this higher bandwidth communications,
which sounds good in a vacuum, but if you then go look in the real world, the real world,
the majority of consumers have slower modems.
They have 14-4 modems or 9,600 modems, which basically means a lot of the things that you
read about and hear about, you're not going to be able to use with your computer and your
modem today, and indeed most computers sold today, if you go to a computer store tonight
and try to buy a computer, the vast majority will have 14-4 modems.
So there's a real important need to bridge the possibilities with the realities to make
sure we can reach a mainstream audience.
The next challenge is really integrating this within society, not having it be its own little
business sitting over here, but really having it more embedded throughout our everyday lives,
and there's lots of challenges there that are really just emerging, and indeed as an
industry, I think we're all now recognizing the importance of taking the lead in defining
these aspects as opposed to letting others do it for us.
One is an area of access, that there are problems with a, potentially with haves and have nots,
where some people have access to these services and others do not, and there's lots of things
that can be done there in terms of public-private partnerships.
One that's happening this weekend that AOL is participating in, along with many other
companies, is called Net Day, which is in California, wiring all the schools together
to provide Internet access, and we're providing AOL for free.
We're doing the same thing in the empowerment zones all over the country, going into the
most disadvantaged neighborhoods and providing free AOL access, but that's really the tip
of the iceberg of the kinds of things we need to do to bridge this gap.
There also are significant issues in terms of this idea of censoring content, and it's
a very hot debate in Washington and other places.
Our view, and it's shared by many within the industry, is the right approach is to empower
people through tools to allow them to customize this content for their own particular families,
and to supplement that with some kind of standard that is enforceable, and we've been arguing
for a harmful to minor standard as opposed to the current indecency standard, which we
think is a little vague and probably unenforceable.
There are lots of these kinds of issues that are just now surfacing, and it's sort of a
good news, bad news thing.
It's bad news because they're complicated and hard to deal with.
It's good news because it basically means this medium is arriving, and it's starting
to move mainstream, and people are starting to take it seriously and thinking about it
from a public policy standpoint, not just in this country, but on a global basis.
So it really is kind of a mixed blessing.
One of the issues that we're particularly dealing with is in Europe right now, and it
was referenced earlier in Germany, where a particular country has certain laws about
certain kinds of content, and that kind of runs right up against the internet and this
global connectivity where everybody can sort of be a publisher, and the information is
distributed quite broadly and quite difficult to control.
It's those kind of issues that really require a measured and deliberate kind of response,
trying to recognize the power of this medium, but also trying to be sensitive to local laws,
local customs, and so forth, is really quite important.
But the censorship issue, I think, is going to be one of the hot issues over the next
year or two.
I'd just like to give you one perspective of somebody by the name of Philippe Kahn,
who some of you may know, who's the founder of Borland, a software company, and recently
wrote as part of a censorship discussion on the internet last week a story that I thought
was really quite touching, which is when he was a young child, he was beaten up by a number
of kids who called themselves in France keepers of the great Aryan principles, and he said
the boys told him that the Holocaust was a fabrication.
And Philippe's mother, who was marked by death camp tattoos, told her son, who was quite
troubled by this, for centuries our people have been the victims of intolerance.
The price of our freedom is the burden of having to accept the worst in public expression.
For he who starts censorship will never know where and when to stop.
So this is a very difficult, very sensitive issue.
It requires a dialogue through a lot of different groups to try to figure out what the right
balance is for this medium, which really leads to the next challenge, which is the legal
and regulatory kind of framework.
The knee-jerk response here is to try to pigeonhole it into some existing framework.
It's either a common carrier or it's a cable operator, it's a broadcaster, it's a programmer,
it's something that we already have rules for because that would be kind of the easy
way to do it.
And in truth, there are always bits and pieces that are, in fact, similar between this new
interactive medium and some existing forms of media where there's already kind of clear
rules of the road.
But this is a new medium, and it does require a new perspective, and we're really calling
for a new framework that recognizes the uniqueness of this medium and tries to learn from the
past but move ahead towards the future with a unique perspective that really allows you
to take full advantage of this medium as it moves to a mainstream audience on a global
basis.
The fourth challenge was developing these new business models so that this medium can
be profitable for all the different participants.
And our history in the past 10 years has been that conventional wisdom has usually been
wrong, and ultimately consumers did what they wanted, not what they were supposed to do.
And I suspect the same will be true in the future.
Ten years ago when we got started, everybody paid for online services.
Everybody is probably a little expansive because there's only thousands of users at the time.
But the model was pay as you go.
Pay for each hour of access.
Nobody was charging monthly subscription fees.
And we introduced the concept of monthly subscription fees, which allowed you to load in a lot of
value and that's now kind of the industry standard.
Everybody believed 10 years ago that this business would be driven by electronic publishing
and electronic newspaper.
Basically taking the existing product and distributing it in electronic fashion.
Nobody fathomed that this idea of electronic community would be far more important than
electronic publishing.
Five years ago there was a real growth around the idea of niche services.
Maybe people don't need one of these broad-based services.
Maybe they just need a game service.
Maybe they just need a financial service.
These customized niche services.
That didn't work too well.
A couple of years ago there was a focus on a la carte pricing for branded content.
Maybe this was a newsstand and everything was going to cost $5 a month and you kind
of surf around and decide which things you want to subscribe to and subscribe to those
on a la carte basis.
A little bit like pay-per-view television.
Pay-per-view television didn't work so well and a la carte pricing hasn't worked too well
either.
So again, consumers seem to do what they want, not what they're supposed to.
Our view has remained reasonably consistent through this, which is the pricing needs to
be simple.
The pricing needs to be affordable.
You need to figure out a way to reach out to a wide audience.
Basic cable television where you get a lot of the major channels, MTV and CNN and Nickelodeon
and so forth, built in as part of that service fee is an important aspect.
Then you build a large audience and then you develop new revenue streams for all your partners
because you have a large audience.
That continues to be the path we're headed down.
We also are making much more significant investments in original content.
As I said before, we don't want this just to be about repurposing content from the past.
We want to create new content for the future.
It feels a little bit like reading some history about television in the 1950s where the first
couple of years people had cameras basically filming people reading radio scripts.
That sort of seemed interesting at the time because television was so intriguing, but
in fact what really drove it into the mainstream was programming that took advantage of the
power of television and therefore moved into an area where there was much broader appeal
than simply reading the radio scripts.
For the most part, the online world today is still in the reading the radio script stage
and we want to move from that stage into a stage where there is much more of a hotbed
of innovation and we can attract the most creative minds and the best entrepreneurs
to focus over the next decade on creating services that really can have broad appeal.
The fifth challenge is really trying to make technology serve consumers and really recognize
that technology is a central enabler of this revolution while at the same time not getting
too caught up in the possibilities of this widget or that widget.
There are lots of things that need to be assembled to make this work, but consumers would much
prefer that as an industry we kind of downplay that aspect and somehow plug it together to
make it work for them.
They really want to push a button and be up and running and not have to learn a lot about
the language of technology that is true today, whether it be bandwidth issues which we talked
about or ease of use issues or network issues or security or privacy issues.
There are lots of these things that need to get attention, but we need to do that as an
industry in a way that does not confuse consumers but instead they can view it as a real issue.
Real enabler and a powerful aspect of this medium.
Another point that I should mention, because if I don't proactively I know I will get a
lot of questions on it in the Q&A, I probably will anyway, is this burning question that
I hear all the time.
What is the role of online services versus the Internet?
They seem to be on this kind of collision course in the view of a lot of people.
We have never viewed the Internet as competition.
We view the Internet as a set of technologies, HTML, HTTP, SSL, there is lots of alphabet
soup in the Internet.
Also as a platform for software development and content development, but those are building
blocks.
The question is how do you build on those to really reach a mainstream audience that
some day we want to be tens of millions of people.
That is what AOL is all about, building on those aspects.
We are the leading Internet access provider.
We by far have more customers connected to the Internet than any other source, but we
also go beyond being purely an Internet access provider to try to add value up and down the
value chain.
We think there are lots of things that we can do and we need to do to make this a ready
for prime time kind of service, whether it be bundled pricing or optimizing for slow
modem speeds or original content.
There are lots of things that are happening and all the packaging of this to really reach
your neighbors and your relatives that really drives AOL's success and I think will in the
future as well.
So we sense there is a window of opportunity here.
There is growing interest in this phenomenon of online services, phenomenon of Internet.
Consumers are kind of coming out of their dens and saying I want to try this thing.
I have kind of been on the fence for a little while.
I am not quite sure exactly what it is, but I am now curious and we need to work every
day and find significant value on it.
It really does, the promise that we have always been pursuing of really empowering people
so they can get information in new ways, they can communicate in new ways, they can learn
things in new ways, they can buy products and services in new ways.
It really is an important part of their lives.
That is what we have been doing for the past 10 years and will be doing for I suspect many
decades to come.
With that, I would like to open it up for your questions.
Thank you.
Close to the end of your talk, you mentioned radio and television, but what is the future
of your linear competitors like newspapers and magazines in the next 5, 10, 15 years,
20, 25?
There has always been a presumption in history that new things would somehow kill old things.
It has never been the case that television, for example, was supposed to kill radio.
It obviously did not.
Cable television was supposed to kill network television.
It obviously did not.
There has always been a path of progress where new things emerged that may have altered what
some of the existing things did, but that did not fundamentally eliminate them.
Newspapers, I think the real question is how do they define their business?
Almost all the newspaper companies that I am familiar with have a fairly strategic perspective,
which is that this is not just about printing things on newsprint and delivering it to people's
doorsteps.
They are more about a brand that people trust and being able to obtain lots of information
from lots of different sources and organize it in a way that mainstream America can understand
and appreciate.
And the way they actually deliver that service to their consumers doesn't really matter,
whether it be in a printed form or electronic form.
Those brands, I think, will continue to be trusted, particularly in the sea of choices.
If there are millions of channels, people are going to be more likely to seek out the
New York Times service or the Wall Street Journal service than they are the Steve Case
service.
Aren't you trying to get your brand to be one of those brands?
Anyway, you mentioned going into the information providing service yourself.
And so could you tell us a little bit more about your providing of news and entertainment
content?
Does this mean more online publications without paper cousins, maybe?
First of all, following up on the earlier question, we are not creating brands that
compete with newspapers, for example.
We are partnering with a lot of companies to make that happen.
We're not in the business of gathering news.
We don't have a single reporter out there gathering news.
What we are in the business of doing is trying to aggregate together information to meet
the needs of a particular audience.
And we partner with as many companies as we possibly can to accomplish that objective.
We don't believe that we're particularly experts in anything.
We think the real magic of AOL is how we bring together all these different components, these
different piece parts to create an engaging interactive experience for millions of people.
But in order to do that, we have to partner with lots of different companies throughout
the value chain.
And some of the, in terms of magazines and newspapers, I think some of the real magic
over the next decade will be hybrid offerings that really leverage print as a launching
pad into an online world so that you may read about something in a newspaper or in a magazine
and want to learn more, want to discuss that with others and move to the online service.
That these things will work better in tandem than they each will work separately.
With all this partnering, are we journalists all going to be working with or for you and
Bill Gates someday?
No.
America Online was among those warning a year ago that the bundling of Microsoft Network
into Windows 95 was a major threat to competitors of online services.
Obviously this didn't happen.
Why not?
Well it hasn't happened yet.
The issue we raised a year ago is an issue we still have a concern about today, which
is to the extent a single company has a monopoly position in something as central as operating
systems, which we think of operating systems for computers sort of like dial tone is for
telephones and how they leverage that monopoly into new businesses strikes us as being a
serious public policy issue.
I would say the reason it hasn't had more of an impact today is really two things.
One is Windows 95 has been quite successful, probably a little less successful than some
people thought that the minority of home computers presently run Windows 95.
That will increase over time and as it does increase the threat will increase.
The second is ultimately this is a services business where every month people make a decision
about what service to subscribe to and the Microsoft Network got off to a fairly slow
start in terms of providing an interactive experience that met the needs of consumers
in these areas I talked about content and context and community and so forth.
So that the combination of that monopoly marketing power with a really terrific service I think
could have resulted in a different kind of outcome, but it's never over till it's over.
We have a lot of respect for Microsoft and we think they will be a major force in this
market.
What is your view of the slowly emerging interactive television industry and how might it grow
to affect AOL and other online services?
Our view is trying to the extent we can try to stay close to the consumer view.
The consumer view is there's this thing called interactivity and that they read a lot about
it to the extent they're using it they almost always are using an online service like AOL
or CompuServe or Prodigy that the other things they read about such as interactive television
are still more concept than reality.
There are a few tests in a few cities but it's not a broad based phenomenon.
But the way I think consumers will continue to view it is how do you participate in this
interactive world and over time there's no question they'll move beyond personal computers
to other kinds of access devices and the television will certainly be one, screen telephones will
be another and also will move beyond telephone networks to other kinds of networks whether
they be cable networks or wireless networks and the challenge for our industry is to knit
these technologies together and these interactive experiences together in a way they can have
broad consumer appeal as opposed to view them as kind of niche phenomenon and have them
separate islands that are disconnected which I think will confuse consumers and slow the
overall adoption of these interactive services.
The rural readers of my magazine often have to pay long distance charges that are prohibitive
but that is changing rapidly.
When will all rural areas that is the entire country some 60 million people who live in
rural areas be able to have financially competitive access to the world wide web and online services?
Well I think it is changing rapidly.
Our own plans that we now have AOL network in over 300 cities that account for about
80% of the population of the country.
The 20% that we are not yet serving are adding additional capacity all the time.
We also recently made available an 800 number option that is surcharge but does allow people
whether they're traveling or living in a rural area to connect in AOL.
Another phenomenon that's happening is the growth of these niche access providers and
a lot of them are developing markets that don't presently have much competition so a
lot of these rural areas will be served by access providers who then will want to partner
with companies like AOL to provide their consumers with a unified experience.
For those of us in Washington there is a new AOL service called Digital City which has
restaurant, information, just about anything that you movie, information, weather information
and such.
What details can you tell us about Digital City as far as the number of users, revenues
derived from advertising, success in displacing the post digital ink which is their digital
version and might this Digital City wipe out some of the local newspaper franchises and
how can you be a partner when you're going at newspapers like that?
We would have loved to work with the Washington Post in Washington and we'd love to work with
every newspaper in every market as we build these local services.
Our view is there's a global aspect to this, a national aspect and a local aspect that
need to work together in a relatively unified way.
AOL is the brand we're establishing within this country and also now launching in Europe
and later in Asia to try to establish AOL as the leading brand in cyberspace.
We recently launched a second brand called GNN targeting this internet access market
and we launched Digital City as sort of a local affiliate just as the television business
had national umbrella networks, NBC and CBS and so forth and local affiliates we think
the same model will likely emerge in the online world and we set up Digital City as a separate
entity and we'll be doing ventures with lots of different companies in each market to try
to put together the right mix of partners to make these local affiliate options really
viable.
Why should an editorial content provider, I guess that's a magazine or a newspaper,
affiliate with AOL rather than establishing an independent worldwide website?
I'd say they're not mutually exclusive.
I think a lot of companies will do both.
The difference is if you create a service for AOL it's likely optimized for the audience
that we presently have.
Some of the things I talked about in terms of the technologies we've added to make the
service more engaging and more useful and more fun for people with typical hardware
configurations and modem configurations and so forth I think will result in your service
getting used more.
We have a model that allows us to collect revenue from our customers so you'll get
paid a royalty based on usage of the area and we have a critical mass of 5 million customers
that will allow you to develop advertising and transaction revenue streams.
Creating a website is a necessary but not sufficient condition to creating a business
because if there are hundreds of thousands of options somehow people have to find your
service and net surfing and serendipitously running into it is not going to build a significant
audience that builds reach and frequency that allows you to build an advertising model.
You'll need to build an audience.
I think if you need to build an audience the quickest way to do that is partner with an
AOL or Prodigy or CompuServe or Microsoft or somebody that can bring you that audience
in a relatively rapid fashion.
This issue of marketing and promotion I think is really quite underestimated.
This is not just about technology.
It is true that the barriers to entry to create content have dropped significantly.
Really everybody can now become a content creator.
It is true that the barriers to get distribution have dropped considerably.
Everybody can have their site on the world wide web.
So the traditional barriers in the newspaper industry where you needed printing presses
don't exist and the traditional barriers in the cable industry where you needed channel
capacity don't exist.
But from a broad based perspective the ability to build an audience is going to get harder
not easier and it's our belief that there will be a handful of major services on a global
scale that will have the wherewithal to develop this new business model that shifts the burden
away from subscribers to other kinds of partners and that if you are not participating with
one of those major services you are going to have a difficult time being successful
in this new world of interactive services.
Along those same lines will AT&Ts offer a free internet access via threat to AOL's dominance
of online services and can you foresee AOL becoming a completely free service like broadcast
television with revenues primarily coming from advertisers and marketers?
First of all I don't think AOL dominates anything.
We are the leader in an emerging market and there is lots of issues that need to be addressed
as an industry to really reach a mainstream kind of audience as I mentioned.
In terms of AT&T specifically I think time will tell.
Right now they are providing one piece of the puzzle which is access.
Others want a more integrated puzzle and particularly the 90% that is not yet served need a more
integrated puzzle and some of these so-called access providers trying to provide internet
dial tone and it won't just be AT&T it will be Sprint and MCI, it will be Pacific Bell
and Bell Atlantic, it will be TCI and Comcast and the cable industry.
Everybody will want to be the internet dial tone.
I suspect some number of those will end up being natural allies for AOL as we marry our
brand and package of services and value and community and context and content with their
access so some of the people that might be perceived as competitors might turn out to
be partners.
It has always been our view and will continue to be our view that everybody is a potential
partner until they shoot at us.
Do you get the impression that Wall Street doesn't really understand the technology
stocks, the online world, the internet, the world wide web?
I think it is hard to generalize.
There are some people in Wall Street that understand it very well and some people have
a very peripheral understanding of it which is to be expected because there are so many
different industries and companies to follow.
I do think that over the next year there will be a little bit more of a unified view among
Wall Street experts in terms of how this medium is developing, where the value is being created
and which companies ultimately will be the big successes but I would expect over the
next few months and probably at least the next year still a lot of volatility and a
lot of roller coasterness as people are making some assumptions about how this might play
out and ultimately it is going to be a function of what consumers decide not what I decide
or you decide or they decide.
Would you comment on the explosion of interest in the Motley Fool, the stock picking service
that is a big hit on AOL?
For those of you who don't understand, Motley Fool is a couple of guys who were in a garage
a year and a half ago who were publishing a fairly limited circulation newsletter that
they mailed to some people who were curious about their views of the market and they decided
they wanted to try to create a service on AOL that really brought some of that same
perspective but married some of these other aspects of interactive and participatory and
we launched that a little over a year ago and it was a terrific success and it really
showed you the power of creativity of entrepreneurs with an idea married to this new medium that
really emerged as a very successful service on AOL really quite quickly.
Some of that is because we believed in them and promoted them which supports the point
I made about the importance of marketing and promotion in the TV network world where there
is really four networks.
If you talk to producers in Hollywood who had an unsuccessful series they almost always
blame it on the network in terms of when they were scheduled or how much they were promoted
and that's with a relatively small number of choices.
In this world of hundreds of thousands or millions of choices what gets promoted will
play an important role but it has to be coupled with terrific, creative, engaging, exciting,
innovative content and building the sense of community and sense of connectedness in
the Motley Fool entrepreneurs are a good example of that and it's also a good example of new
brands emerging out of this online world and then marching into more of a mainstream audience.
They recently published a book with Simon Schuster that's already selling quite well.
I would not be at all surprised to see them have their own television show some day sort
of like a Lewis Rukeyser for this next generation.
So it shows you the power of this medium and creativity married together.
Do you plan to offer banking services online?
Yes we do plan to.
We actually have already started that process working directly with some banks like Bank
of America but also partnering with Intuit through their quicken offering is now by far
the leader in check registers and bill paying and we're partnering with a number of groups
such as Intuit to try to take that service and make it part of our offering as well because
our belief is that consumers prefer one stop shopping.
They prefer going through one interface they know and can trust paying one bill, calling
one number.
They'd rather get all of these services married together in a unified way than have to learn
each service, learn each interface and learn how to subscribe and use each of these offerings.
So the more we can bundle together under the AOL brand the better off we are and the more
customers we have the better able we're able to do that because we've seen this big get
bigger kind of dynamic over the past couple of years.
When we had hundreds of thousands of subscribers it was a lot harder to track content than
when you have millions of subscribers.
If you have millions of subscribers and have better content you're able to track more customers.
If you have more customers you have more revenue which allows you to invest more in technology
and marketing and content which allows you to reach an even wider audience and you reach
an even wider audience you then have the ability to start developing these new revenue streams,
interactive advertising and transactions and that creates this dynamic where the big get
bigger and these integrated offerings I think really will be the mass market phenomenon.
This gentle questioner however says America Online has goofed in its billing practices.
What are you doing about this management problem?
We've probably goofed in a lot of things over the past 10 years.
What we do when we goof is we address the issue as quickly and in such a forthright
fashion as we possibly can.
That's what we'll continue to do.
And what safeguards are in place to protect credit card purchases through AOL?
Well, it varies depending on the service.
Some services have extra levels of security.
American Express for example, you have to have a special password to get into their
area.
That's really under the control of each of our partners.
But one of the benefits of buying things on AOL today versus buying things on the internet
is it inherently is more secure because of a somewhat more closed client server kind
of architecture.
The challenge of the internet and it's being addressed at a fairly rapid clip and indeed
we are investors along with Netscape and CompuServe and other companies and an entity called Tereso
to try to standardize security on the internet is it's a much more complicated problem to
have a distributed global open network secure than it is to have a somewhat more limited
closed system secure.
So it's more secure today with the existing services such as AOL and CompuServe and we're
working together with a lot of people in the industry to try to make it equally secure,
perhaps even more secure down the road on the internet.
This question here says that AOL still has the worst web browser.
And what do you plan to do about it?
Well I don't think that's entirely true but it's partially true.
Did Walt Mossberg ask this question?
I just had to know.
We are about to launch a new version of our Windows software and soon a new version of
our Macintosh software that addresses a number of common complaints from members, one of
which is the web browser and it supports what's called HTML 3.0 extensions and Netscape extensions
so it really will improve significantly.
We also are in discussion with a number of companies in the industry about ways to partner
together to leverage some common architectures because if we can do things from a technology
standpoint in partnership with others that better meet the needs of our members, we will
do that.
How much does one of those famous AOL disks that you seem to send out to everyone cost?
And how much churn do you have in AOL membership?
What is the highest acceptable acquisition cost per subscriber?
Well we do buy a lot of disks and we do get a good price.
We think there is an easier way to get from where we are to where we need to go and we
think it would be good if the IRS would on your tax form just have a check off box, do
you currently subscribe to AOL and if you don't we'll send you the disk and we can eliminate
a lot of duplication and waste.
So I hope you'll take up that cause with us for the betterment of mankind.
In terms of the acceptable cost from an acquisition standpoint, our business model has been consistent
for quite some time which is we're willing to spend up to 10% of the lifetime revenue
we generate from a customer to acquire a customer.
Right now we're spending quite a bit less than that 10% number.
What's your strategy on the educational aspects and what is AOL doing to reach parents, schools,
potential audience multipliers?
Well we have been focusing for most of the past decade on the consumer market, really
trying to address people at home.
But we recognize there's two other markets that exist and over time they really will
integrate and unify in a way that really is quite interesting.
One is the area of businesses and the other is the area of education and we're doing things
on both fronts.
There's lots of businesses that are getting connected together within their company and
with other companies they do business with and bringing our millions of customers together
with those companies really adds a lot of value and you're starting to see that and
you'll see a lot more of that.
And the same is true on the educational side.
Right now most schools are left out of this.
Some have some form of access, most do not.
And as I mentioned before, we're doing things such as Net Day this Saturday in California
to wire together schools and provide free AOL access and we are doing that in other
areas as well because we think that's an important contribution we can make but also it benefits
by bringing these three spheres together in a more unified way which is going to be critical
we think to really reach a mainstream audience.
If AOL does not already offer this service, when will a book review listing service be
offered?
Well, I actually believe we already do offer a service like that but I could be wrong.
One of the downsides of running a fast growing company is you no longer know everything that's
going on.
In fact, you probably don't know most of what's going on but I do believe we have a book kind
of review service and if we don't, I suspect we'll have one soon.
And if not, of course, you can always go out through our worldwide web browser and get
it somewhere on the web.
TV networks are bowing to pressure from Washington and the public and are rating their programs,
their online services the next media to face this sort of pressure to regulate their own
content.
Well, actually, we've already received that pressure and part of the Communications Act
has this Communications Decency Act that I referenced before that really does create
some very difficult standards in terms of making this possible.
Our view is that it's really better to empower the customers of the service to decide what's
best for them and their families, which is why we've made such a heavy investment as
of other companies in tools and we're working together with industry groups to try to come
up with common frameworks.
One particular consortium is called PICS, which is basically designed to do the same
kind of ratings for content as you see in television or soon we'll see in television.
It's just gone too quickly but we're near the end and so I want to present our Certificate
of Appreciation and a National Press Club mug and I want to ask the last question, which
is how many of the AOL subscribers are there for sex?
I actually don't know the number.
We don't even know how to keep track of that.
We do know that with five million members, one of the key principles of this medium is
diversity and people can go self-select and people want to go to the personal finance
area they can, if they want to go to the sports area they can, if they want to participate
in discussions they can.
Each of our members really is in control of their own destiny and their own interactive
experience and that's what this is all about, really trying to build a medium that can reach
a mainstream audience and provide the kind of direction for the industry that can get
us from where we are to where we need to go and we do recognize that we've grown rapidly
in the past couple years and we're pleased by the growth we've seen but at the end of
the day, five million people subscribe to AOL which is about 5% of households which
means sort of 5% down, 95% to go so there's a long road ahead to really make this medium
and AOL in particular all it can be.
So thank you for your interest.