Acquired - Episode 44: AOL - Time Warner (with the Internet History Podcast)

Episode Date: September 18, 2017

On this extra-long episode of Acquired, Brian McCullough from the Internet History Podcast returns to discuss perhaps the most (in)famous merger of all time: AOL - Time Warner. Who doesn’t remember the soothing sounds of 56k modems and the timeless phrase, “You’ve Got Mail”? Join us all as we unpack how one of the biggest ISP’s of the 90’s tried to take over the world… and fell far short. Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Topics Covered Include: AOL’s status in the 90’s / early 00’sExplaining just what it is that AOL did at the height of their popularityHow AOL pioneered a number of internet paradigmsAOL’s persistent money troubles and bailouts from other companiesSteve Case foreseeing the coming era of broadband, inspiring AOL to pursue working with a cable companyEbay vs. Time Warner in a down-to-the-wire war for a merger with AOLWhy the money dried up for AOL after their merger with Time WarnerAOL and its value in the post-Time-Warner eraSpeculating about what would have happened had AOL and others stayed independent businessesAnd much discussion on how to grade this one…  The Carve Out: Ben: Give and Take by Adam Grant David:  Season of the Witch by David Talbot Brian: A Mind at Play: How Claude Shannon Invented the Information Age by Rob Goodman

So like $1,000 put in dominoes at its nadir has a better return than Apple. Wow. We're in the wrong business. Yeah, I know. Bottom fishing is a dangerous game, though. Yeah, yeah. Welcome back to episode 44 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

I'm David Rosenthal. And we are your hosts. So today, back by popular demand, we've got Brian McCullough of the Internet History Podcast on the show for a crossover episode. So thank you. Thank you for joining us. And hello, Brian. Hi, guys. Popular demand, are you sure? internet history podcast on the show for a crossover episode so thank you uh thank you for joining us and hello brian hi guys uh popular demand are you sure it was actually yes this episode this episode was one of uh the more popular ones uh of this year what did we do the the other one this year it's it trust me it's it's one it's in my top 20 for sure and i'm over

150 episodes at this point wow sweet well you are in our top five so i think that uh i think the melding of the format sort of like makes us all three of us uh up our games a little bit you know it does it does i think uh because it forced a little change for us we were just talking about this before the show but listeners um dave and i were talking about how you know, we do our research for these episodes with Brian, but knowing that he's got such a clear narrative around it, we sort of just have this spew of facts and we can sort of play the role of, hey, wait a minute, what about, instead of actually structuring the narrative ourselves. you guys probably want to know what the episode is about. So listeners may remember the last time we did this in episode 33 with Overture's acquisition by Yahoo. And today we're going back to kind of a similar time in a little bit before in 2000. And we're going to be talking about the sort of legendary, potentially the biggest flop of all time, a legend in the world of M&A, the merger of AOL and Time Warner in 2000. So buckle in. I don't know that legend is the word I would use.

Infamous. Notorious, infamous. Infamous, yeah. Cautionary tale, maybe all of the above. Well, let's just skip to the end when we all say worst acquisition of all time. That's the end of the episode. Thanks for having me on.

But today we're going to be looking at it from the AOL perspective. So was it the worst of all time or was it brilliant? We'll find out. Definitely have some thoughts on that. It's a change in the format whereid teases the audience into actually listening to the whole episode q campy teaser now yes yes well before we get into it um listeners i want to mention uh we've got a slack that is over 900 strong now so if you like discussing m&a ipos major tech news that happens um come join us at acquired.fm and join the Slack. We also love

reviews. So if you feel so inclined, pop open Apple Podcasts. You actually can pause this episode right now and go and rate us on Apple Podcasts, and it makes a world of difference. So thanks to those of you who have done that and encourage more to do it in the future. Okay, listeners, now is a great time to tell you about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation, and they have some new news to share.

ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business. Yep, and as you know from listening to us all year, ServiceNow is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn, solve problems, and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential. And while you get incredible productivity enhancements,

you also get to stay in full control. Yep. With ServiceNow, AI agents proactively solve challenges from IT to HR, customer service, software development, you name it. These agents collaborate, they learn from each other, and they continuously improve, handling the busy work across your business so that your teams can actually focus on what truly matters. Ultimately, ServiceNow and Agentech AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees, enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. Now, without any further ado, Brian, would you like to take us into the story? Yeah. So AOL Time Warner, the notorious Titanic of especially dot-com era shenanigans.

We want to start with AOL, because as I've learned by doing my show, people of a certain age have often said to me, thanks for doing episodes on AOL, because I kind of never understood what they did. Which I get, because if you're in a time when the internet's all around you, it's in the ether, then, oh, it was just an ISP, why are they so valuable? They only ever had 25 million subscribers at their height, so how does that compare to having billions of users like a Facebook has? So let's start with AOL and and posit that AOL over the course of the 90s was probably the best stock to buy if you were able to buy at its 1992 IPO and sell New Year's Day in the year 2000, your stock would have appreciated 80,000%. At its height, its market cap was about $150 billion, which was worth more than General

Motors and Boeing combined, was worth more than, you know, obviously Time Warner, Disney, all sorts of people like that. It was estimated that more than 2000 AOL employees were on paper, at least made millionaires by AOL stock. So, you know, you talk of Facebook, billionaire, millionaires, sorry, you know, even Microsoft millionaires, AOL made people a lot of people on paper uh really rich um so aol yes was an isp um back in our day kids you used to have to pay for the internet and it wasn't fast and you couldn't make a phone call you couldn't make a phone call because you had to dial in over your landline um cell phones existed, but most people didn't have them. At their height, AOL had 25 million subscribers. That was 2002, so after this merger takes place.

But they were accounting for, at various times, 60% of US internet traffic in the 90s. So there were other ISPs, even indie ISPs, But in the 90s, there weren't cable modems. There wasn't broadband. I mean, there was, but most people dialed in, and AOL was the main company that people dialed in with. AOL has a long, fascinating, tortured history going back to the early 80s. Again, I have a couple episodes on AOL that... They've got some serious name changes, right?

I mean, they didn't start as AOL. Control Data Corporation, there was The Source. Yeah, it's, you know, one man's pivoting is another man's failing at one business and jumping into another. And that's actually, you can look at AOL in two ways. Like either it's one of the more tenacious and brilliant entrepreneurial stories because they basically lose money for the better part of 15 years, certainly more than a decade. And what they're chasing is the idea of online, but they're so soon and so early that they have to wait for the world to catch up to them.

I think the other interesting thing to point out about AOL is it's not a Silicon Valley company. Its headquarters is in Dulles, Virginia. Exactly. Which isn't even New York or, I mean, it's D. Exactly. Which isn't even New York or I mean, it's DC. But so right, it's not even because AOL, as we'll talk about, gets into especially Madison Avenue and creating content and Time Warner, obviously, but they weren't even New York based. They were in the middle of nowhere. And everybody at the time always complained about that, like going to Dulles was like going to dulles was like going to siberia or something so again we're going back to the 80s um it's not till the early 90s when um they kind of tie themselves to microsoft and windows

that they um sort of leap to the head of the pack there's a whole pack here there's compu serve there's genie there's prodigy there's all these um and and compu serve i was on compu serve um so my dad was a beta tester for uh compu serve and for aol so he's got free accounts and i remember being on compu serve and thinking it was better but i my understanding is that it was like only sort of for the super internet savvy nerds and aol was much better at reaching the mass market does that does that feel like sort of why AOL won there? A hundred percent. AOL had the derogatory or pejorative name

of training wheels for the internet, but they actually embrace that and it makes sense. I mean, I've said on the show, like, you know, a lot of people's first email was AOL in a time when you didn't have email unless you were at a college or at work or something like that. But also, AOL trained people how to live online. Like, they gave you a screen name, and you went into the chat rooms, and you did dirty sex chat and things like that. And, you know, you could create an online identity. And this is what we should talk

about what AOL's business was. You know, they eventually basically made their money by allowing people onto the web, but they were also trying to curate the web and create this online experience that would like handhold people into it. Yeah, it's really amazing like we're kind of making fun of aol in a lot of ways here for you know being a dullest virginia company you know again nothing against dullest virginia but not where you think of as a tech hub but but they really pioneered a lot of the paradigms of the internet that are some of the most valuable you know companies and products today i mean aol instant messenger aim you know was companies and products today. I mean, AOL Instant Messenger, AIM, you know, was basically Messenger. I mean, AOL was a lot like Facebook before Facebook. Can we remember to bring that up at the end? Because actually, yeah,

AOL is always about to run out of money perpetually. Because what they have to do in the early 90s is, you know, they create this, it's called a walled garden. So they go to people like Time Warner and they say, hey, can you give us Sports Illustrated content? They go to, you know, this magazine, that newspaper and say, hey, we'll pay you, you know, X millions of dollars, allow us to, you know, republish your articles and your pictures and things like that in our walled garden. And so there's all sorts of times when they get saved by an investment from this company, or like Paul Allen invests a lot and basically tries to take him over in the early 90s and they poison pill him. Again, coming back to this idea that they're either not really a smart tech company, or they were these insane scrappers, that they held on to this idea that online could

be a thing, and then positioned themselves that when the tidal wave came, they just wrote it, right? I've talked again on the podcast before about reasons why Prodigy dropped the ball, CompuServe dropped the ball, AOL, you know, picked it up and ran with it. But essentially what you need to know is by 1996, essentially, AOL is the primary ISP, but it also has this huge amount of content that is, so what you would do is you would dial in and you'd be on AOL. You wouldn't be on AOL. You wouldn't be on the web. AOL would give you your email, they'd feed you their headlines, again, you know,

paying the New York Times to provide headlines, that sort of thing. And then if you wanted to go to the web, then you'd bring up a browser or you'd go through them, like it was a channel that you would go to. So it was always something that they were sort of wrestling with like they wanted you to stay on their in their walled garden but then they also couldn't help but be most people's first introduction to the web and the internet right um and they they ride this through the 90s through the and they they did eventually have a browser in aol right yeah that's a whole nother story about how they double crossed netscape and um signed a deal with microsoft and um right and then they had because they had bought a browser called book link and

so but the but the point is is that people aren't sophisticated in 96 98. For all they know, AOL is the internet. And so when I say that they're sort of wrestling with this, they want to be, somebody describes it as they want to be the carnival cruise lines for an online experience. So they want to curate it for you. But then at the same time, the reality is, is that most people getting on the web and doing things like going to yahoo or whatever are doing it through aol and they can't conceptually tell the difference right i i literally i'd love to hold on to this until tech themes later but like it's it over and over and over again the only thing that i'm thinking is bundling and unbundling like it is incredible how um, um, you know, the entire internet, everything that we

know as sort of the open web and various different protocols and things on various different platforms are all just bundled within AOL. And they were, you know, um, they were basically making all the revenue for that for, for a very long time before, uh, before we started to unbundle it all into these separate services. Now, there's some also interesting things about AOL's past, which are not. AOL presented this sort of, you know, Steve Case and his khakis in Gap ads, this sort of wholesome all-American thing. But they made most of their money by originally charging by the hour, and most people were in the chat rooms doing sexy talk to each other. So in the background, that's how they make their money.

But also they had a lot of things like accounting scandals where they get sued by even attorneys general, like you're not reporting. I can't even remember the details, but they're like reporting certain sales right away, even though it should have been, you know, over time and things like that. So they kind of always were playing fast and loose. But you can feel like, again, these are scrappers that are staying alive, staying alive with this dream of online becoming a thing until it finally is a thing. And it's essentially 96, 97, that it is a thing.

And they wake up and they have 10 million subscribers that, you know, 60% of internet traffic is going through their pipes. You know, in 98, or is it 97? You have, you know, you've got Mail the Movie. Like, again, we cannot under emphasize how much AOL was sort of the gateway for America embracing online and the web and the internet. They're also on the web. They're a portal like Yahoo is. By the year 2000, four out of every five web users were visiting an AOL property at least once a month. And they start to make real money by 97, 98.

So again, this is... And when you say an AOL property, that's on the web, but something that's on by AOL outside of the AOL walled garden? You know what? I pulled that out of my notes and I don't actually know. But that's what I'm saying is that they're playing both sides of the fence. So, and we'll get into this, like how they're starting to make real money.

They would sell you, okay, be on our AOL walled garden side or be on our AOL.com side. They had all this stuff to sell. Actually, we're going to get to that right in a second. So AOL starts to make real money in the dot-com era, and no one is making real money in the dot-com era. So that's one of the reasons why their stock starts to go through the roof. But then the other thing that Wall Street is seeing is like, okay, this internet thing is happening. And the majority of Americans are getting online via their pipes. So what do you want to do? That's the stock you want to be in. There's a Henry Blodgett quote where he says, AOL is the blue chippiest of the internet stocks.

And they're actually the first internet company to be included in the S&P 500. Guess what company they replaced? Actually, there could be a million. It was Woolworth. But so, you know, as late as 1998, they're still under a $30 billion market cap, but then like everything else in the dot-com era within 18 months, you know, that's ballooned above 150 billion. And we've talked about this era on this show before, and you certainly have on your show, Brian. But like, I think it's worth like, again, as always, just pausing on this, like as late

as 1998, AOL was worth, you know, market cap of under $30 billion. And that was insanely expensive. And that was insanely expensive. And that was insanely expensive. And then 18 months later, they're buying Time Warner, and the combined company is valued over $350 billion. That is how crazy that moment in time was. Well, let me tell you some more reasons why Wall Street was in love with AOL. What they're looking at is, you know, a lot of analysts call it like a three-legged stool or whatever. So

they're getting money from the subscriptions. Again, I think by 2000, they hit 20 million people paying $20 a month, right? And then they're a content platform. In the early days, when they had to go to New York Times and say, we'll pay you $2 million to get your headlines, by 97, 98, they can say to the New York Times, you pay us. If you want to be in our walled garden, we've got the eyeballs, we've got the real estate, you pay us. So they're basically a content platform. That's very lucrative. But the big thing, and this is going to be key to this whole conversation, is that by 97, 98, they're making tons of money on advertising. Because, again, they're basically where everybody goes, you know, we think of people starting their day on Facebook now, whatever. So that's where your email was on AOL.

By 98, 99, that's where your buddy list was on AOL. But this whole concept of people starting their day online, AOL again sort of trained people how to do that. So I just did an episode with an early Yahoo guy. All of the portals in this time period make money essentially by selling ads to other dot coms. The whole dot com bubble can be thought of as like just a snake eating its own tail. If you happen to be one of the portals, though, you're just you're the one doing the eating. If you're one of these venture backed startups, you're the tail. Which is so funny. funny i mean the parallels to facebook are just like jumping

off the page right that there was that that era um like three four years ago where everyone was saying that oh yes facebook discovered this magical mobile news feed ad and they're mostly um you know on this new format that's to install apps. And all the apps are funded by venture capitalists that are just paying money to startups to pay money to Facebook to get this. I mean, it's like hilarious how it's the same narrative around the company two decades later. Let me give you some brilliant examples of that. So here's a dot com company called Dr. Coop dot com. C. Everett Coop was thegeon General of the United States. This is how crazy the.com era is. DrCoop.com is a company that IPOs to make a health website, right?

I don't know the date of their IPO. It's probably 98, 99, definitely 99, I think. They IPO and raise $85 million for their website. A month after they debut on the stock market, Dr. Koop turns around and basically spends all of that money by agreeing to pay AOL $89 million over four years to provide health content to AOL users. So all of the money they raised on their IPO, they turn around a month later and they hand it over to AOL. Because everybody thinks that AOL is where you've got to be. And so AOL in 98, 99 is starting to ka-ching like crazy. Like there's

a company, a long distance phone provider called Telesave that pays $100 million. And, you know, this is this is playing off dot coms every like there's a company called Preview Travel that pays $21 million to be AOL's online travel agent. 1-800-Flowers pays $25 million to be the florist. Although I had Jim McCann on the show, and he said that that worked out very well for them. But AOL can play off Barnes & Noble, who pays $40 million to be the book selling partner in the walled garden section, versus Amazon that pays $19 million to be part of the AOL.com web portal. eBay ponies up $75 million to be the exclusive auction provider. And it kind of works out for everybody. Like when Dr. Koop's deal is announced, its stock actually leaps 56% in a day.

This is the dot-com era, friends. But everyone believes that they have to be on AOL, just like everyone believes you've got to advertise on Yahoo or whatever. So AOL's in this position to just start banking money. All of a sudden, they're turning a profit where they hadn't for years, and they're meaningful profit, and billions and billions of dollars. The guy behind this era is Bob Pittman, who I don't know if that name rings a bell to you guys.

He was one of the original founders of MTV. He became very famous for being the hard-driving guy behind this AOL deal-making machine. He was their COO, right? I think so. Right. We'll get to him later after the deal falls apart. Internally, his team of guys that would go around and shake the trees for these dot-com deals were called the hunter-gatherers because they, quote, descended on the dot-coms like scavengers and made them offers they couldn't refuse.

There's a quote where an anonymous dot-com company says that it was like high pressure, just boiler room type stuff. Quote, for weeks it was, you're great, you're great, you're great. We want to do business with you. And then one day it turns out that we have to give them every last dollar we had in the bank and 20% of our company. Another dot commerce says that AOL demanded 30% of her company, quote, and then for good measure, they tell us these are our terms. You have 24 hours to respond. And if you don't, screw you. We're going to go to your competitor. So listen, these are crazy times.

These are fat times for AOL. Again, I want to bring up this idea of culture and AOL being scrappers and doing whatever it takes to stay alive. So why do they stop when all of a sudden they're like in the catbird seat? They seem to be the nexus of this new internet economy. And they're, Bob Pittman's army of dealmakers, you know, basically drive what is essentially the thing that really makes Wall Street go nuts. So we're going to get into this again later. But everyone thinks that the AOL went away because people stopped doing dial-up,

or paying for dial-up, and they moved to broadband and things like that. But the thing that we'll see actually has the deal sort of collapse and AOL stock price collapse and things like that is the fact that what made their stock appreciate so much was that they had this insane growth in advertising and that's where the money was coming from. That's where the actual cashflow is coming from. Sure. It's great to have in the background, this recurring revenue of the,

you know, the subscription revenue, but that's not what was actually moving the needle in terms of why Wall Street loves them. Yep. It was all of these, all of these deals they were doing with all these dot-com startups that were giving them all of their money. Exactly. Well, interestingly enough, to transition here, because they're doing all these deals

with these dot-com companies they have sort of uh their ears to the ground and they can start to see um when you know um the money starts to dry up vc money starts to dry up ipos start to go bust they're the ones that know before anybody else that listen this bubble might be bursting and so it and so what in in from like a sort of macroeconomic perspective why are the david you may actually know more about this like why are the vcs uh ceasing to invest there um so what's the signal to them to stop it's hard to say again because we're talking about such compressed timeframes here. If I were to speculate, I think it's probably just that so much money had gone

into the system without, you know, real returns. And so you start getting to the bottom of the barrel. Well, actually, that's, that's it. They got great returns. Again, there's other things I don't have in front of me. Paper returns. Right, right, right. But see, for them, it doesn't matter because anything can IPO for a certain amount of time, right? And so once you get past the lockup period, you can take actual garbage public and it

doesn't matter, right? Yeah. I was thinking more from the limited partner perspective. Yeah. But what you said is exactly it, is that when they are taking garbage public, eventually everything is garbage. And enough people have kind of gotten rich enough and fat enough that they're like, you know what, I'm going to sit these out. You know, the seventh pets startup, I'm going to sit this one out and so that that in my my personal theory is that

that was it it's also a combination of people realizing that the returns on online advertising were not good you know the click-through rates you know are plummeting so the the actual that's always been such an underpinning of things like you know ad rates underpinning it's sort of like you, the plankton in the sea or whatever. Yeah. Well, I guess that's a key point, too. I mean, I think to come back to it, I'm sure that had a lot to do with it, too, is these companies that have been venture funded and then even IPO'd had given all their money

to AOL and Yahoo and other portals with expectation that that would drive huge clicks and huge revenue and then when it doesn't then they go bankrupt and then there's no more money to feed into the system well there's also it's it's the 1999 super bowl when i think there were 30 uh dot-com companies or maybe it was 2000 it makes more sense that it was 2000 that you know are paying two million dollars a piece for your one super bowl ad and that worked out for certain companies like Hot Jobs famously, but then others, you know, you've never heard of again, and they blow, you know, their $2 million of the 10 million that they raised. And listen, there's a reason why it's called a mania. There's a reason why, you know, after a party, you have a hangover the over the next day because he did some crazy stuff. But that was the times. So, to come back to this, as I said, they know before anyone else, because they can see this. They can see,

well, listen, Dr. Koop's not going to raise another round. So, you know, when that deal is up in three years or whatever it is where are we going to get another dr coop right so as early as and um i want to stop and mention there's three great books on this it's unusual that there's been this many books written about a dot-com era thing um there's kara swisher's book there must be a pony in here in Here Somewhere. There's Fool's Russian by Nina Monk. And there's also Stealing Time by Alex Klein. So in one of those, you can see and there's quotes from internal memos after other later lawsuits. As early as December 98, internal emails show that like Steve Case and Pittman and the other lieutenants are kicking around the idea that they need to start thinking about a safe lily pad to kind of land this company on.

Because they're seeing the bubble bursting. And so this is December 98, but so it's still another 18 months before the bubble actually bursts. So they think about um other internet companies um and we'll get into this later but they they they seriously consider ebay um but case was generally sorry didn't they like actually have meg whitman like waiting in a room or something i'll tell that story okay um um but the case But Steve Case was wary of doubling down on another internet company, because that makes sense strategically. If you think the bubble's going to burst, why do another internet company?

Two anchors tied to one another. Yeah, yeah. Or just to sink faster. So, he says something like, let's look beyond the internet and, quote, identify companies that have a profound impact on how people get information, communicate with others, which is our core business, buy products, are entertained, etc. So there's major courtships with AT&T, the pre-singular merger AT&T. Disney, they went hard at Disney, but apparently Michael Eisner was a hard no.

And the quote, I think this is from Swisher's book, one of the AOL guys says, we all knew we were living on borrowed time, and we had to buy something of substance by using that huge currency. We didn't use the term bubble, but we did talk about a coming nuclear winter. Well, one of their problems is that they also know that dial-up is a limited technology that's going to be eclipsed by broadband. Again, they're not stupid. As much as they're not maybe a Silicon Valley company, a huge technologist, they know that broadband is coming either through DSL, which people thought would be a thing at the time, but mainly cable modems. So a lot of thinking went into, we should get a cable company. Or that's probably why they were talking to AT&T. You know, AT&T had DSL at the time. Another quote from Kara Swisher's book is, anonymous AOL guy says cable was the driver of everything. Without it, no deal made sense. So Time Warner is the biggest of the media companies at this point in time. Also,

they have a little thing called Time Warner Cable. So if Steve Case doesn't want to do an internet tie up, he wants something that has more substance. No one's going to believe if they decide they're going to buy an oil company or something like that, though they could have. They had the market cap to basically buy anything at that point. So, what he believes is Time Warner has the content. And remember, they spent a decade believing that content was the thing that would make it online become mainstream, become a thing. And so it's, you know, content is key. How many times have we heard that over the decades? Time Warner has this, you know, Tiffany Platinum content going back hundreds of years. And by the way, they have a cable company. I think

it was the third largest, maybe the second largest at the time. So I'm going to take an aside here and tell you the story of Jerry Levin and Time Warner. Jerry Levin, the CEO of Time Warner at this point, made his bones through technology. He basically, he didn't invent HBO, didn't come up with the idea, but he was the guy behind the strategy of, let's deliver this pay channel via satellite TV. He makes his name, rises up through the ranks via the incredible success of HBO. And Jerry Levin believed in technology because of that. And in fact, over the several decades at the company, he continued to try to pioneer technological advances, believing that there's untold new ways in the future that technology is going to be able to deliver content and media and things like that. They invest in the full service network in Orlando, which was sort of an attempt

before the web took off to sort of do, you know, what they call 500 channels and, you know, shopping with your remote through your TV and things like that. Time, it was time at the time before they bought Warner, spent about a billion dollars on that. They also, when the web comes around, there is a site called Pathfinder that they throw several hundred million dollars after. I have a lovely episode of my podcast about Pathfinder because it's gone down the memory hole, but it deserves to be remembered for all the things that it pioneered in terms of trying to deliver media on the web. But it also lost them a ton of money. Around this time, corporate America, there's a watchword, everyone needs an internet strategy. You know, Disney does the Go Network, there was NBCI, There was all these initiatives. If you're a media company, you're trying anything you can do. Barry Diller tries to buy Lycos, or was it AltaVista? I can't

remember. Everyone thinks that you're going to be Amazoned. You've got to come up with a way to either embrace the internet and the web or combat it or something. So you have Jerry Levin, who's always believed in technology is going to change content and media. Time Warner has failed time and time again to come up with an internet strategy. And so in 1999, when the People's Republic of China is having its 50th anniversary, and all of the, you know, the politicians and business leaders and it's basically Davos and Beijing for that period of time. Everyone's in Beijing celebrating the 50th anniversary of the People's Republic of China. And Steve Case starts to seriously court Jerry Levin. Jerry Levin thinks this is great. This is going to solve his,

it's going to prove him right that if he can marry the greatest media company in the world to what everyone believes is the greatest internet company, his vision of technology changing media will come true. This is going to be his legacy. There's, in the various books, it's a complex courtship. This is where I believe the eBay thing comes in. My theory is that they kept talking to eBay because they were using it as a stalking horse. Like, actually, I'm going to open up the Kara Swisher book here. The week before, it might even be the day before, they actually announced the merger, the deal with Time Warner. Meg Whitman and their Goldman Sachs people are at AOL headquarters, and they're in one conference room. This is the main conference room,

trying to work out a deal so that AOL is going to buy eBay. In what's called the Malibu room on the opposite end of the floor is Time Warner and their lawyers, and they're, you know, working on the deal that's eventually going to go through. So it's a comical scene. This is quoting Swisher, executives are shuffling in and out, alternatively apologizing to and ignoring Whitman and her team who are sitting there cooling their heels wondering what, they're not quite sure what's going on. Is this just the way AOL works? They're famously flaky and like aggressive at various times, like sort of passive aggressive almost. And so spending a day there where nothing really gets done and lawyers are running out of the room and disappearing. And where are they going? They don't really know. They don't know that

Time Warner's in the other room. So at the end of the day, Whitman and the team is leaving. She goes into Bob Pittman's office to say goodbye. And she says, quote, you've got a lot going on here, it seems. And of course, she had no idea. I think it's the next day that they announced the Time Warner thing. But so yeah, they basically... Now, this is definitely an aside what if they had done the ebay deal because ebay survived the dot-com bus better than everybody huh well and in large part due to because of paypal which of course came later and then that's the counterfactual would if if if would aol have been smart enough to have allowed the PayPal acquisition? But if you look at eBay stock, like it basically, it goes down some, but then it reaches its

height. It surpasses its dot-com bubble height in like 2003, 2004. It's like the only stock that does. In a time period when Amazon's down to like $5, um, because eBay's business basically never dipped. Um, they, so in retrospect, which we'll get into, um, buying eBay was the way to go. They should have gone with a, with an internet company. So I'm going to, I'm going to save this. I'm going to come back in tech themes. This is my tech theme here, but you know, this is, um, well well i'm going to say much more on this later suffice to say that you know ebay was the much better business for the internet uh certainly

than time warner well believe it or not guys i'm gonna wrap this up i'm let's let's let's do it the the the i promised 20 minutes i'm way beyond that at this point. The deal is announced January 10th, 2000. It's the merger of $164 billion AOL with $83 billion Time Warner. The deal, it's announced as a merger, but the reality is AOL shareholders controlled 56% of the merged company and Time Warner shareholders 44%, so it's an acquisition in all but name. And, you know, I actually remember very vividly this happening.

And in my memory, I forgot to look this up. Like Jerry Levin and Steve Case are on Charlie Rose that night. Like they were everywhere. Charlie Rose. Yeah. Steve Case vowed that one day AOL Time Warner would have $100 billion in revenue and be the world's first trillion dollar market cap company. There's a quote from Roger McNamee, the venture capitalist, who says, quote,

let's be clear, this is the single most transformative event I've ever seen in my career. Kara Swisher has a quote from her book where she says, quote, in one major move, the two companies had seemingly addressed both of their weaknesses and intensified their strengths. I won't deny that I really believe that, as did many others, many of whom now pretend they never did. So, I mean, this is Januaryuary of 2000 this is the height of the bubble um what's also happening around this time the microsoft uh antitrust trial has come to an end it looks like microsoft's about to be broken up who looks like is the new you know king of the technology hill it's aol of all people um what happens is so the the deal is announced in January of 2000.

Four days later, the Dow Jones Industrial Average peaks at a level that it would not return to for more than six years. On March 10th, 2000, the NASDAQ peaks at a level that it would not reach again until March of 2015, losing 80% of its value at its low. The bubble bursts. And we'll get into culturally why the acquisition was a disaster, the merger was a disaster. But again, the reality of it is not that people stopped doing dial-up. Actually, until 2002, the dial-up subscriptions were still growing. It peaked at 26.7 million. The thing that kills this deal is that as soon as it happens, all of those deals that AOL did with the dot-com companies disappear, evaporate. And I'm not just saying that the three-year deal runs out. I'm saying that the companies are bankrupt and are not going to be sending you any more checks. So essentially, that insane

growth in advertising that had so excited Wall Street, at some point, Wall Street was estimating that AOL by 2003 would have more advertising revenue than an ABC or a CBS in television. Like, they're thinking this is it. This is the next big thing. Goes away almost from the moment that the deal happens. Culturally, you know, I don't know how interesting this is. But you know, those AOL cowboys move in, try to tell the time warner guys um you know okay we're gonna run this like a tech company now and it's like the the host body rejecting an organ time warner was always notorious for having these warring fiefdoms of like you know i control magazines you control cable you control book

publishing you know they don't and and and not dissimilar from from aol i mean i think aol had the internal fiefdom culture too i mean you mix two of those together that can't go well well and then uh with aol coming in as the conquering heroes and being like we know we know this new this new media game better than you yahoos you know um but but like literally you yahoos no pun intended yeah true there's practical things about culture clashes like if um in one of the books like sports illustrated just refuses to play ball like we're not going to give our content to you we're running our own in Sports Illustrated famously never really gave much to the web anyway. Or think of, there's a story about, like, Warner Studios, after the merger, refuses

to let AOL take over the Harry Potter website and the online promotion for the Harry Potter movies are just getting going, right? So that's why Warner Studios is, so when AOL says to them, okay, let's take this over, Werner Studios says no, right? And then the thing that AOL wanted the most to save their skin was AOL's... I'm sorry, Time Warner's cable division. Time Warner had Roadrunner famously,

which is another thing. They couldn't even get Werner to license them the Roadrunner cartoon thing. That's the infighting that is at Time Warner. But so when AOL says, listen, let's brand AOL into your expanding cable internet service, Time Warner Cable says, get bent. Right? So even though they're the acquiring company, essentially, the entrenched power brokers at Time Warner just tells these guys to screw off and basically waits them out until the disaster of the merger becomes evident

and get kicked out. And if you think about like the the power dynamics generated by the the revenue like i think aol's total revenue in 2000 right before the merger was like 9.5 billion or somewhere in that neighborhood um and and you know time warner had a much more narrow price to earnings ratio where they you know of that uh what were they what were they valued at like a um 150 million or something they're a billion yeah yeah sorry 160 billion like they had real material revenues such that that had to be like a 3x or something not like a you know ridiculous multiple like aol then i know what article you found because i found that one

too i think that was adjusted for inflation but it's even worse. AOL had less than $5 billion in revenue. Right. It was that small. Yeah. And Time Warner had over $25 billion. So, you know, over five times as much. And AOL's quote unquote revenue, as we've talked about, was, you know, the snake eating its tail. So you can see how you're like a a time warner mid-level exec and uh you still feel like you have all the power in that organization or you should by right you know there's also think think of this strategically so aol thinks well we'll have a cable company and um then that you know that'll solve our problem with the transition to broadband. But then if you're Comcast, why do you want to play ball with AOL now? If AOL had been independent, they were trying very hard to do things like go to Adelphia Cable or Comcast and say,

let's co-brand AOL and we'll take a certain percentage of the monthly fees and you take it but we'll value add to this and so but once they're with time warner then then why would any other you know uh broadband player play ball with them right so in a way strategically that never made sense um but then like we've been saying essentially the money just dries up not again, because of the dial-up subscriptions are drying up. But it's all of that ad money, it's all of that, you know, when they could charge the New York Times to deign to be on their screens and things like that just evaporates in the nuclear winter of the dot-com bubble bursting and so just a year at the one year anniversary of the merger being announced the combined companies are only worth 147 billion dollars at the time of the announcement aol was worth 160 billion so essentially the

combined companies a year later are worth less than AOL was at the time of the announcement. Yeah. And I think they continue to go down from there. They go down below $100 billion, even I think below $50 billion for the combined companies. Yeah, I had a bunch of stats on that too. The only thing that's relevant, I think, is... So, essentially, it's because the AOL side of the equation is delivering no profits and the revenues are shrinking. And they stole 55-down the company has to announce in 2002 which was the largest ever at that time it might still be the largest ever i don't know um 55.5 billion in 2003 the overall loss for 2002 this says is 99 billion so i don't know if that's like a fiscal year versus calendar year thing um so basicallyOL, everything valuable about that company is completely an illusion

and Wall Street notices. And so it's announced, what is it? January of 2000. Um, by December of 2001, Jerry Levin steps down. Um, the AOL people are still thinking that they're in charge at this point, so they want to take over the CEO ship of AOL, the control of AOL specifically. And actually, that's where Bob Pittman really was the guy that thought he was going to take it, because he was feeling like Steve Case would step down at some point.

But no, as we know, it went to Dick parsons um and so bob pitman is out by july of 2002 steve case finally leaves in may of 2003 september 18th 2003 time warner officially drops aol from its name that the combined company was called aol time warner officially but just uh three years later um aol or time warner basically wants to pretend like aol never happened and at this point they still own the asset like they're they're not saying all in one fell swoop or we're gonna spin it out like that it's still in the company it's just not doing anything well you as we you always hear hear those numbers now and again about however millions of people are still paying every month for AOL dial-up. I mean, it's... Oh, yeah. I've actually

got the number as of Verizon's bid in May 2015. They're still making $606.5 million in dial-up revenue. And I looked up some... It really actually hasn't shrunk much today um so they're really actually still maintaining that well you know there's other there's other assets in there um remember they bought uh netscape only to uh little company called netscape yeah yeah i mean so i you know every there's a reason why um caris wishard's book is called there's a pony in here somewhere it's in this my if there's a mountain of shit this big there's got to be a pony so they tried man it was a little pony well actually it was a huge one and you remind i'm glad you reminded me of this uh i made a note aol instant messenger um at its height, I think has over 100 million users. Okay, so like 2003, 2004. People have a buddy list. It's your social graph. Okay. You know,

for the research that you know, I've done on Facebook, basically, they wrote Facebook, they didn't talk to each other they sat across tables from each other they're on aim chatting at each other like that's how face um there's quotes that i found like you know people in charge of aim and things like that are like yeah we had social networking you know yeah so again and again aim came from icq and which which i think aol acquired icq acquired it didn't actually come from icq it's icq was another thing no one knows why they bought it aim it's an interesting story was an internal thing that aol didn't want to do but like people thought it was cool and they put it through what

why are messaging platforms always internal things slack discord aim that are like not actually going to be a product and then shocked like we should be less shocked by now that messaging platforms make good spin out clients and aol should have known because they're the ones that i didn't say this before but the reason they beat prodigy is because they let people chat prodigy tried to you know don't do sexy stuff like so aol people want to do the sexy stuff just let people talk the number one number one thing, if you have a technology product, a new technology paradigm, the thing that will be the company, the first successful company is the one that just lets people talk to each other. I guarantee you the first billion dollar software platform or whatever company coming from VR

is just the one that allows people to talk to each other in VR the best. You know, with the iPhone. There's a couple of real solid bets on that. Yeah. Yeah, yeah. from vr is just the one that allows people to talk to each other in vr the best you know it with the iphone real solid bets on that yeah yeah yeah with the iphone what are the things that came through you know things like you know whatsapp and things like that yes any any paradigm and technology allowing people to talk to each other is the safest first bet i didn't know that number the hundred million number for aim but but it makes sense. Like I had formative, formative, like growing up experiences where I, you know, had social, like the first experience socializing with people, um, you know, at least people online and also actually meaningful

relationships. Even when we like went to the same high school or middle school, like we'd chat on until like two in the morning and you like get to know people and you like care about what's in your your profile and you care about away messages like that was before facebook wall posts and like you you have all these things where like it's social status it communicates your personality it the number of people on your buddy list and the way you have it sorted is like representation of strong and weak social ties like that was an essential fabric of life well you know i would even say that same thing from the business perspective you know my my three startups were mostly in the 99 to 2005 era so before even skype becomes a thing like

like that's how we did business you know skyping people all the time. It was people's, if you knew their, their instant messenger screen name, I'm going to talk to Oum Malik next week. And, and, but like, he was famous for that. Like he would give that, like, that's how, if you wanted to get on GigaOum, you, we were talking earlier about, you know, promoting startups and things like that. Like if you knew Oum Malik's instant messenger, and I think Michael Arrington was the same way, like that's how you... His was Skype, I think. I remember him being a huge, yeah. Yeah, but so, right.

You know, business was done over that. Again, it's the social graph. It's like, it was your Rolodex. It was your, it was how you kept up with people. Yeah, it was everything. So, I need to do an episode on that. I got to track down some some aim guys and have them basically totally i mean it's incredible like it was and we joked about it earlier but like it was

facebook whatsapp you know uh wechat like you know all of this snapchat like um instagram not instagram photos weren't as big a part of it but like all of the most important oh you could you could trade files i don't know if you remember that yeah well you could trade music it would it would fail all the time like it was one of those things it was like yeah i give it a shot but we'll see if it actually happens but it was you know for all the you know um lots of people ourselves included make fun of these you know uh non-technologist cowboys in Virginia, like they invented the internet, to borrow an Al Gore phrase. It's a little, I mean, it's a sad thing to watch, really, because like, you know, Facebook was their opportunity to squander. And I mean, it's as

you sort of study network effects and how people build defensibility around their business, there's some fascinating stories about, I think it was ICQ trying to reverse engineer the AIM protocol so you could chat AIM people from the ICQ client. And these basically engineering wars going back and forth of how could they keep tweaking the protocol to keep the other guys out and keep their network effect to themselves. There was a whole cold war between AOL and and and microsoft because you had msn chat you had yahoo chat and so yeah that's what it was yeah that's what it was because as soon as msn messenger right as soon as msn messenger would crack the code aol would change it and and right and you

saw these network effect you know local network effect dynamics taking place, like just like there is today. I mean, MSN, Messenger and Live was the dominant network in a bunch of countries. And AIM was the dominant network in the US. And you know, it's just like iMessage and, you know, and Facebook Messenger here versus WhatsApp in Europe. Well, listen, remember, Steve, Steve Jobs famously told us that they were going to open source FaceTime. FaceTime protocol. Yeah, I haven't seen that happen. I think that's actually less of a business decision and more of an engineering decision.

I think as the lore goes, the team that built FaceTime was sitting in their row when they heard it for the first time when he announced it on stage and they all looked at each other like, what? I think I heard that too, yeah. Well, all right. That's my... I'm sorry I droned on so much, but I will hand it back. I will hand the keys back to you guys. Where do we even pick up?

I know, I know. I mean, well, David, do you want to talk into anything at all, any more acquisition history and facts, or should we go into the acquisition category? And I can kind of frame that up a little bit. The one thing I want to add, nothing more on the history and facts or should we go into the acquisition category and i can kind of frame that up a little bit the one thing i want to add nothing more on the history and facts of this itself but it's just such a um you know such a a fitting coda to this whole story is history repeating itself you know again and look where we are today and aolOL is owned by Verizon. AOL spun out of Time Warner in 2009. It was valued at just over $3 billion versus the, the astronomic heights of, you know,

nearly 10 years before that. And that's mostly because they had all this ad tech that they bought over the years, you know? Yep. Yep. So they get acquired by verizon and then on the time warner side the deal hasn't been approved by um by the government yet but they are in the process of getting acquired by at&t so you know there were all these uh jokes about you know the worst merger of all time and you know this tech internet company aol you know merging with an old media company. And here we are in 2017. And both of them are owned by phone companies. Yeah, really, really hard to imagine. All right, listeners, our next sponsor is a new friend of the show, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today. It's purpose-built for small to mid-sized businesses

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hilltops. They were voted by customers in the G2 rankings as the industry leader in endpoint detection and response for the eighth consecutive season and the industry leader in managed detection and response again this summer. Yep. So if you want cutting edge cybersecurity solutions backed by a 24-7 team of experts who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired or click the link in the show notes. Our huge thanks to Huntress. Well, for acquisition category, I think, why don't we actually take a stab from both directions? So let's say first, because it actually was, you know, AOL taking over Time Warner, what kind of

acquisition was that for AOL? Our standard categories are people, technology, product, business line, asset, or other. Brian, if I may be so bold as to voice what I think you would say, this is actually an other because it's not necessarily acquiring, if anything, it's maybe acquiring a business line but it's it's like acquiring stability and liquidity it seems to be what you're applying like like applying an exit strategy so see here's what i would say their rationale is that they're they're they're buying the business line of the or the technology it's murky to me what the category is, but they want the, they want the, um, the cable company so that they can transition into, into broadband. That's their rationale.

What are they really buying? The assets. They're essentially trying to say, listen, if, if our stock is ephemeral, we need to convert it into something that'll last forever. Time magazine has been around since the twenties, you know, Time Magazine has been around since the 20s. You know, Warner Brothers has been around since the 20s. Like, so it's the asset of content is king that they were really in their heart going after. Yeah. Well put. Man, and as a little aside, like, if you are at the negotiating table there and you're AOL, how do you keep a straight face through all this and really represent what you're in this for and what Time Warner is getting? Well, we can get into speculating on that later. All right, I'll save it.

So then let's take a stab from the other side. Actually, before you do, David, do you agree with that? What's your take on it? Well, I think I'd classify it as, I think you guys are totally right, but to me, I'd classify it as an other, because I'm trying to rack my brain here about any other deal we've covered on this show where the rationale for it has literally zero to do with the business. There is nothing going on here except, you know, it's not an asset that's valuable to AOL with the business. There is nothing going on here, except, you know,

it's not an asset that's valuable to AOL as a business. It's certainly not technology. It's not people. It's, you know, business line, sure, but like, that's just tons of business lines, they're essentially buying a conglomerate. The only reason they're doing it is to just sort of, you know, save their own, you know, net worth, personal net worth. This might be a crazy analogy, but the analogy that springs to mind is, you know, how like, you know, like Dubai and all the Gulf countries, they know that oil is going to run out someday. So they're trying to turn into tourist destinations. So that has nothing to do with energy or natural resources. But they're like, yeah, we know. We got to do something that's sustainable, you know?

Yeah, exactly. And I think that's what's going on here. It's like Snapchat today if they were to decide to go buy land in Manhattan. Right, or an oil company. Which famously Zynga did when they bought their headquarters in san francisco right in the heart of soma it's right a huge building right across the street from airbnb and uh is by far the most valuable part of zynga well the most valuable part of of time of new york times is their their building or which did they sell that already i don't know uh they sold it

and they leased it back yeah gotcha Gotcha. Gotcha. Okay. So let, okay. Let's do, do the reverse. So you guys go first and I'll go last. So what is, what is, what is Time Warner thinking it's doing?

So in my head, you know, I'm wondering if they're, if they're buying technology or they think they're buying technology or if it's really buying distribution that like, say, they've somehow missed out on the internet. And, you know, they need this way to distribute their content. And it's much better to actually own it than to partner. And, you know, by buying AOL, or by, you know, getting bought by AOL, then suddenly, you know, AOL has all

these dial-up customers, they're in all these homes, and they have a brand new channel to get their content to them. I think if I was going to try and rationalize it from Time Warner's side, that's what I would go with. Yeah, I mean, I think there are just some amazing quotes doing the research here from all the principals involved and from media and observers at the time. And, but I think it's kind of like, you know, Kara Swisher, you know, as you quoted Brian from her book, you know, she's the one who's honest about this. Like, yeah, at the time, like, you know, people were riding high on, on something and they thought that this made sense. And, you know, Jerry Levin,

the CEO of Time Warner, and then, and then CEO of the combined company, you know, he has this quote, uh, from the, when the deal gets announced, I think he, I think he said this to maybe there was a big Washington post article. I think it was in this might've been written by, by Kara. Um, yeah, she was with them at the time. Yeah. yeah. He says, this new world of valuations in the internet economy is something I accept. So, I mean, he's basically saying, like, this company that's buying us, like, kind of has no business. I don't understand the business, but like, there's the new normal, you know? And that's how people talked back then. Absolutely. So, I think it's just like, you know, I don't want to be too disparaging of them. Because really, as Kara said, like, everybody believed it then. But, like, they drank the Kool-Aid. They thought that there was, you know, a new reality there. Jerry Levin bought the Kool-Aid.

Yeah. Which is why I'm going to make the argument, bizarrely enough, for people, because that's what he thinks. He thinks, you know, he's coming to the end of his career, this is going to be my legacy. I was the guy that was smart enough to hitch this company to the thoroughbreds that are going to take it into the 21st century, right? And so, it's not people because he thinks that you know they're they're these brilliant business and it's just that they have cracked the code of something that we old media people can't haven't been able to figure out and we've been trying to do it for

10 years you know so it's people in that sense and there's such a great quote from from bob pitman from aol who they're totally like the pushers, like just, you know, feeding more supply into, you know, these guys, you know, via, you know, mainline. He says, he's quoted in the press at the time, saying that this is, I think it might be from the same article, the slow moving Time Warner would now this is the author of the article writing would now take off at quote, internet speed accelerated by AOL. And then Bob pitman comes in with a quote all you need to do is put a catalyst to time warner and in a short period you can alter the growth rate the growth rate will be like an internet company i mean this is like the this is like uh it's

alchemy alchemy alchemy via um you know buzzwords of it essentially here david pass some of that over here this is like when the the beatles period when you know they went and lived in india and like you know started doing their heavy drugs like i mean it does feel like like literally nothing in that sentence is grounded in reality like and you can understand in broad strokes how you look at a tech company and you look at the way that it grows but like zero of that was connected to like the intrinsic value and why tech companies get the multiples they do and why they have the growth rates they do and like any discussion of zero marginal cost it's like well catalyst you know well can i make a point here um in my research of the dot com the bubble generally what you have to understand is

everyone was was saying okay this is a bubble this is a bubble this is a bubble this is a bubble this is a bubble this is a bubble this is a bubble you know from 97 on and kept being proven wrong and like you know in in my book like there's a thing you know where there's quotes from like you know bears on wall street or, eventually everyone just capitulates because you've been wrong for so long. You know, when you're like, there's no way Yahoo's a $10 billion company. And there's no way they're a 30. There's no way there's a 50. When they're over $100 billion, at some point, you just got to be like, well, shit. So, it was, and you know what, there's all sorts of theory about bubbles and things like that. That's when the bubbles burst.

When you finally slay the last bear. When people's careers have been destroyed because they've been Cassandras for so long. And it's like, listen, I've been listening to you and I missed out on like a 500% upside. So I guess I'm buying Bitcoin at $4,600. I was just thinking this whole time uh this this will maybe transition to what would happen otherwise i would have loved to have like had a conversation with steve jobs during this period and been like dude what are you like what's your take on this like uh i i can only imagine what he would have said yeah i don't know i have thoughts on that in the sense that um

he i mean because it what his what happened in history is that um they waited until the till the everything exploded there's ashes on the ground and they sort of rise up in in a in a place where no one thought you know hardware or no one thought anything was going to be everyone is going to be on the web but steve's laying the groundwork for that all through this period uh the next acquisition is at the end of 1996 and then they have the sort of that that hub, the digital hub strategy. The digital hub, yep. With the iMac. So they kind of do ride with the iMac. It's when this is happening. Yeah, they do kind of position themselves as we're the best computer maker for this new web era.

Well, we had a few counterfactuals throughout History and Facts about what would have happened otherwise. But maybe a word on like what would have happened otherwise. Um, but maybe, maybe a word on like what would have happened had these companies stayed independent. Yeah. So the one thing that I really want to explore here, I think we sort of have a, uh, we could talk about AOL, but I think my, my just base assumption there is that it goes to zero or close um but the thing about the thing i'm curious about is is time warner potentially do they end up in a way better spot today in 2017 if they hadn't gone through this or did this have some kind of positive effect on them that we haven't really talked about they gained some dna maybe or some thinking yeah i don't know i would actually again my most recent episode was with a

yahoo guy that um you know yahoo surviving the dot-com bust like they had the same issue of um all of their dot-com advertisers going away so where are they going to get their their money from and um you know they they basically holly themselves, but they successfully turn the business around. So it's almost like that idea of if you do have to struggle, you're forced into creativity to find ways. So I'm not saying that AOL would have, you know, succeeded in anything. But, you know, maybe if they're desperate, they do take a look at the one thing that's actually still growing, aim, and try to figure out. You know, it's sort of like if you've got the parachute, then you just kind of enjoy the ride down and you're not hustling. Well, I think we covered the counterfactuals there. I don't have anything else for what would have happened otherwise. Should we move on to tech memes? Yeah, let's do it.

Let's do it. Should we move on to tech names? in distribution is really like one of the earliest internet growth hacks ever and that's distributing the cds and it's doing something that other people aren't to to get noticed and to get distribution because they're they're the point i want to make here is there are there's a trick and then the earliest people make out like bandits and then everybody realizes what's going on. And then it becomes the normal thing. And then there's basically a CPM race to the bottom. And then you're competing against everybody else in sort of a commodity, highly efficient marketplace. Like if you're buying Facebook ads now, and it's not any of the new formats, you're not jumping on whatever the new flashy thing is like you can basically depending on your category understand what your cost of customer acquisition is going to be and if you're aol and you do a very brilliant marketing

move of putting these cds at the checkout where no digital company and really no company is doing their their distribution like it's in movie theaters, it's in blockbusters, like all these unconventional places. And you're giving away something, you know, the benefit of AOL is a hundred hours or a thousand hours for free. Like there's so much that they can give away for free because it's the internet and it's software and it's, you know, reduce marginal costs relative to hard goods that it's, it's shocking to people. And for the first time, they're like, Oh my God, this, this seems like a crazy deal. And I've never, no one's ever tried to reach me at this point before. So to me, it's like a lot

of times companies succeed because of the initial basically distribution hacker or, or, or, you know, I guess growth hack, but really like figuring out how to get in front of people where no one else is getting in front of them i love that image of like the uh you know virginia suburbs aol you know 80s and 90s guys being the original growth hackers well hustlers that's that's what i mean they are definitely hustlers yeah that's what I always say. Yeah, hustlers. I mean, they are definitely hustlers. Yeah. David, you want to do a tech thing? Yeah, so mine, I mean, I alluded to this a little earlier, but I think this episode for me is a great counterfactual illustration to,

I've been thinking a lot about this recently. What really is like the power of the internet, right? Like they, this merger is everything, getting everything wrong about the internet. And what I mean by that is like the internet connects people who, you know, Brian, you were talking about aim and like letting people talk to one another and like, how do you, you know, how do you build value and create platforms on the internet like as we've learned over the last 20 30 years like you let people talk to one another you let people connect with one another and AOL instead of doubling down on that side of what they were doing they doubled down and they bought a media

company the thing about a media company is it's a manufacturing-based analogy. You're not manufacturing physical goods, but you're manufacturing media. You're making movies. You're writing journalism. You're making music. That stuff you've got to pay and make and sell. You can build great businesses doing that. Of course, like Time Warner is a great business of not to knock it, but like, that's not the internet.

What works on the internet and why, you know, the promise, the dream of the nineties, right. Was, you know, what has been realized now, which is Facebook, Google, YouTube, Airbnb, Uber, Twitch, you know, like Amazon, Amazon originally wasn't this, but now is this. They don't make stuff like they connect people. Facebook is a bundle of content and they don't pay for any of it. That's exactly what I was going to say. So what actually succeeded in the next decade, it was Facebook and Google who essentially make money off of everybody else's content by doing nothing. Well, I mean, they sell the ads, they sell the ads against it, and they're the platform that

people find it. Essentially, where do I find my Sports Illustrated article or my whatever in my Facebook feed, right? Or I, you know, do a google search for something and some evergreen article from somebody's website you know but right so aol is going after the content because they think well that's the evergreen thing that's the actual value right but they're getting in a worse business by doing that and the value of that content has been completely undermined because of what the Facebooks and the Googles did. Now, thinking about that, why is everyone getting into content? Why is Apple going to buy James Bond? Yeah, I don't understand it, honestly.

So either we're not smart enough to know how the worm has turned or people are making similar mistakes or what? Because we're now entering an era where, you know, Twitter and NFL games on, you know, like, what is it? Is content valuable or isn't it? I don't know. I guess the only thing I could say, I'm not smart enough to opine. Although, you know, I think back to our episode on BAM Tech, which was really fun to dig into. These companies, the Apples, the Amazons, the Facebooks, they're a little bit playing a different game now that they're so big. They are so big. They have so much money. And I think in a little bit they're playing defense versus like um versus

offense that's something we've talked about on the show like defense in that like they want to keep people they need to keep people on their properties um that's how the the merry-go-round keeps spinning and by going out and buying these super expensive manufactured content, I think the hope is that that'll attract and keep people on the platform. That'll attract people or retain people on the platform, and then they'll stick around for all the stuff they're not making, which is making the wheel go around. But if they move to a paradigm where they're paying for all the content on their platforms, that's a worse business.

I think it might be there's like a tiktok thing here right where first everybody's free and open about their content being aggregated because they like i mean if you just look at what disney was doing for the longest time they're like well we create content and it needs to be viewed everywhere because we're horizontal and so then they spend five to 10 years executing that strategy. And then suddenly the world starts to change and people start locking up their content and vertically integrating. And then you're like, well, okay, now we need to change our whole strategy and, and, you know, own every dollar that comes from serving our content. And it's, it's the aggregators that lose out in that world where the content starts getting

locked up. and so when you see a you know apple or a netflix or any of these you know netflix so much more so because they started as a pure aggregator um you need to make your own stuff because if everything's living in silos you got to have a good silo the history repeating itself lesson is that yahoo this is going back to our our previous episode we did together, Yahoo and the portals wanted to keep everybody on their pages. Google found a way to make money by being like, no, leave our page. That's fine. We'll still make money off you. So the question actually is, is that a dead paradigm? Is the open web a dead paradigm? Because if if it is then it's all walled gardens all the way down

from here on out it's turtles all the way down turtles all the way down or or is that sort of freedom of digital makes everything a commodity uh something that always comes back and rears its head no i mean high quality content is very expensive to make and very valuable and um it's only gotten even more magnified in this world where everybody is is is talking about the same thing at the same time they've been saying content is king since the 90s my friend yeah well but but i think it is like the the promise of the internet though. I don't know, maybe we are, you know, talking back into a world where, um, content is the most valuable, but, but what Facebook and Google, you know, and others proved is like before them, you know,

content was King, but it's not King anymore. Like being the platform is King. And that's not the same as distribution. Like it was always content is better than being the platform is king and that's not the same as distribution like it was always content is better than being the cable company the dumb pipe right but being the platform where you control uh the user experience and funnel and you control attention um that's better than making the content. So it's the news feed versus the, the, um, you know, it's,

it's, I'm thinking about it like rather than me having the choice in my RSS reader of choosing from any of the feeds I subscribe to Facebook, slam something down my throat and I say like, yep, I'll read that. And so if you're, you know,

uh, yeah, because then you get all your feedback from Facebook. Yeah. Yeah. I don't know. Uh listeners might we might have all argued both sides of this at this point we might have well but david i'll i'll give you credit for that that point i've never thought about that before that distribution is is you know if you're going to make a line and say content or distribution, there's something sort of different in being one of these, uh, platforms that dictates

where your attention goes. I'll use another analogy, but before I give up the ghost here, uh, Airbnb, right? Like you, the analogy, right. It would be like, you know, um, it would be great to be Joie de vivre like, or, or a boutique really high-end hotel chain. You'd do really well. You'd make money. But it's way better to be Airbnb because then you don't have to make the hotels. You don't have to build them. You don't have to run them.

But you can access everybody and you can open up all this new supply that didn't exist in the marketplace before. To me, that's like the dream of the internet. If Airbnb were to go and buy the rights to list Fairmont or Ritz, Carlton hotels on their platform because it's super premium, super exclusive content, that seems odd. So again, I'm confused. Are we arguing that content is, well, I'm arguing, I'm arguing that content is not King. That's what I'm right. Right. Okay. Gotcha. Gotcha. Yeah. Yeah. I don't know. You guys are still in this game. I'm not,

I withdraw formally. All right. This is great. This is our first, like, first like uh not first but in a long time uh oh wait debate unacquired wait brian do you mean do you mean because you're you're a uh an author an author now a podcaster now i'm moving on to being a historian author yeah exactly no more startups for me then i I just withdraw from this specific argument. All right. All right. So moving on to grading, the funniest part about this whole thing is since AOL is actually the acquirer, like what I thought I was going to grade, like I came into this thinking like,

well, this will be a fun first F. But like for AOL, I mean, it's like an A minus, right? That's the question. Okay. And anyone that has access to a Bloomberg terminal, like I do not, I don't know that anyone's done the math on that. So if you're an AOL shareholder and you have 10 shares before the acquisition, before the merger, what is the value of that? And then what is the value, say, of the day that they remove AOL from the AOL Time Warner name? Now, it's got to be less. We know that, right? But how much less? And then if you compare that to the counterfactual of if they had never combined, would AOL have gone to zero? So is it actually a success? There are lots of people,

you read these books, you get the quotes from the Time Warner insiders, they absolutely believe this was money laundering. They absolutely believe that they got held up. the the aol cowboys come in with their hugely valuable stock they laundered it into this you know uh actually valuable uh time warner stock and they got away with a heist essentially that's that's the view of a lot of time warner people um but i actually don't know the math on that and and if someone can do it like so even if even if like that that that 10 shares of AOL even if it only goes down by 60% that's better than going down 99% right so is it actually a success yeah well I mean I think so like it's in the one sense you could look at without doing the math on

share prices and holdings you know if aol was worth whatever it was 200 ish billion you know before the merger uh and then you know ultimately got spun out of time warner at a value of 3 billion and got acquired by verizon for 4.4 billion in you know 2015 or whatever it was um okay so that's like a huge loss in value but you still had your time warner shares right but it's but instead you got shares in aol time warner and then after the spinoff you kept your time warner shares and time warner just got acquired for you know is in the process of getting acquired for right that's the 85 billion dollars i think yeah so you know you now have joint about 90 billion dollars versus five that seems good if you were an aol shareholder

i mean of course you could have just you should have just sold at the top and like put your money into uh you know amazon but or domino's pizza or a price line domino's pizza yeah that's right. I was going to say, the only way this could be better for AOL is if they had actually bought a growth company like eBay. Yeah, that could have been a win. But then, like we said, listen, the Cowboys come into eBay, tell them how to run things. Would they have been smart enough to buy PayPal?

PayPal was the real valuable business there um it's got to be an f guys it's got there's a reason that people call it the worst merger of all time because it destroys so much value well it destroys a ton of value for time warner for sure it destroys a hundred billion dollars worth of value in the end yeah yeah but the problem is is that was that all from aol it feels it feels crappy to like consider giving them an a just because like the aol you know management team and shareholders like save their own you know personal wealth Well, but isn't that what we grade on? Was this a good thing for the shareholders of the acquirer? Oh, well, this is good.

Shareholders, or is it a good thing for the business? Terrible for the business, good for the shareholders. What do we do? It's better for the acquiring shareholders than it could have been. It's bad for all of the shareholders involved in the end because essentially aol is a is a sinking ship that just grabbed another ship and brought it down with it and didn't sink as far slower yeah slower yeah yeah you don't reach the bottom but you're still underwater for there's there's got to be there's got to be 30 harvard business school case studies that are

telling us that this has to be an f if this is the first f if you're ever going to give an f to something in this show there's also got to be some nice case studies and some sort of like um um like business epistemological thought um i don't even know if that's the right word that i'm trying to think of but basically around that question david just asked is it is it the shareholders or is it the business and and david is there a difference well um corporate um behavior of the past 50 years would imply no. But I think if you look back farther in history than that, there absolutely is a difference. If you can't save the patient, you know, like,

shareholder value, but like if the enterprise itself dies, so keeping the enterprise itself alive, even in some sort of mutated form, is valuable. Because I guess if the patient is dead, they're dead. Well, it's sort of like I mean, I think what we're coming to here and we have been for the whole episode is like exactly what you said, Brian. Like they were drowning and they grabbed a, you know, a life vest and that kept them from drowning. On the other hand, it didn't get them to shore. They didn't catch a boat.

They grabbed like a piece of driftwood. I think I'm, I think I'm ready to put forth a grade. I think I give them, I give the acquisition a C for AOL shareholders because of that. Like, yeah, you, you, you did, you know, keep the business alive. You, you preserved shareholder value relative to the alternative. Um, but you didn't, you know, uh, relative to what, you know, our two best acquisitions of all time on this show that we've rated thus far next and Instagram, like those are businesses that to use, um, uh, to use Bob Pittman's, you know, drug pusher, like analogy, uh, you know, X accelerated their company, you know, their acquirers at internet speed. Like there was no acceleration happening here. There was just, you know, buoyancy.

I'm going to do F because if there's never been an F on this show, you're never going to get a better chance. No one's going to begrudge you giving this the F. Like we kind of set a bookend? Set the scale? Listen, yeah, the scale doesn't have any meaning unless there's a top and a bottom. Well, if it were Time Warner acquiring AOL, absolutely F.

No question about it. I do have sort of a logical reason for it, which is that, again, it's sort of what we said about what happens in the next decade. It's not, like, being in the magazine business, being in the television business, being even in the movie business was not actually the evergreen thing. They didn't grab something that turned out to be the thing that, look, movie attendance goes down. Television watching goes down. Magazines are basically on life support. Newspapers are essentially dead. So, this idea that they jumped into media that would always be valuable was not right. And they were a part of the disruptive force that made that happen. And so this plunges us back into this argument about the value of content and things like that. But I think it's a bad thing because in the end, I would view it as two doomed company, an eBay or something, but would have been

staying independent, struggling. What's the one thing we've got? It's AIM. So the failure is two companies that were going down, embracing each other. So it's bad to me because they clung on to the wrong lily pad how many mixed metaphors can i do love it love it well you know i was trying to think what would my f be um um and i think you know what an a is a business is dying and acquires something and then can become the most valuable business of all time. So that's Apple.

I'm sorry, an A+. And then an F would be a company is the best business of all time and acquires something and that acquisition manages to sink it to zero. Bankrupt them. You're right. You're right. You're right. Yeah. you're right yeah and so um with our scale you know it's almost sort of like logarithmic toward the top because we often are like well we gave instagram an a so this thing has to be like a b

plus um and and like there's there's um very successful acquisitions that we don't give a's i i think um you know i i think like i've given, and we may have to go back and revise at some point, but I've given YouTube a C because like it didn't, I was worried about the opportunity cost of focusing on that for Google when it was a breakeven business. And so to me, like, well, I don't know if I could go F because AOL didn't completely crater their own business by making this acquisition. But I don't think I, Time Warner did, but they're the acquiree. I mean, I'd have to go like D, D minus because, you know, I think had buying Time Warner destroyed AOL, then it's an F. But it's certainly worse than a c for me

so i'm gonna like and way way worse so i'm gonna go like d minus and like i hope to one day find something unacquired where something went from like a fortune 10 to destroying themselves well i don't hope but you know if we ever have an f that's what it would be like some company that buys something that causes cancer for 10 billion dollars and yeah um which actually i shouldn't joke about that that's probably happened or something um well all i want to do is as for as as long as this show goes on i'm the one that first gave an f let's put that in the record. Great. You're forever in our... You can put in your trophy case the original. We'll change the Twitter bio.

Yeah. The original F. Carbouts? Awesome. Carbouts quick? Yeah. Mine is a book that I'm almost done listening to on audiobook and I'm going to be really bummed when it's over because it's really nice to have a dose of this kind of reminder in my life every day on my commute. And that is Give and Take by

Adam Grant. And it's really making the rounds right now. So I'm sure a lot of listeners have already heard of it or had people tell them they should read it. It's so awesome. It's research backed descriptions of the behaviors of givers, takers, and matchers in our lives and what the results are of those personality types and a litany of examples of givers and what they've done and how they've succeeded in their careers. And the super interesting thing that pops out from the book is if you look at sort of a spectrum of people's success in their careers, takers, if you look at a span from one to five, where one is not succeeding at all and five is succeeding fantastically, takers occupy two and four, matchers occupy three, and givers occupy one and five.

And so it's this interesting dissection of just by being a give first person, it doesn't guarantee that you're going to end up on top or bottom. And it tries to sort of tease apart what are the traits of givers that can, you know, make you someone that ends up ahead in the long run, just because you truly care about people and you're truly a, um, you know, someone that, that, uh, looks out for the interests of others. Um, and, and it's just a really interesting, um, it's interesting to understand something that I never had a mental, mental structure for before. And it's also like, just to like a good little kick to be a better person. And it's, uh, it's nice to have that voice every day. And the narrator sounds like Craig Federici. So if you like watching Apple

keynotes, you'll like listening to this guy's voice. My carve out, uh, which is appropriate for this episode with Brian and the internet history podcast, uh, and has been a deeply historical episode. Um, another book, a great one that I'm also a little over halfway through reading and can't wait to finish, um, called season of the witch. Uh, and I have that on my Kindle. I haven't read it yet. Oh, you you'll, you'll love it. It's, um, it's the history of, um, the dark history of the dark side of the counterculture and San Francisco and what happened to San Francisco in the sixties and in particular in the seventies, um, you know, the, the Manson murders, the Zodiac killer, the zebra killings, um,

everything that was really the, the not often told, you know, we remember the sixties as like peace and love and it's the 50th anniversary of the summer of love, um, in the Love in the city this summer. And, you know, what gets celebrated is the happy, the psychedelics, but there was a true, true dark side. And it's very, very fascinating to read about and really shaped the city. And, you know, again, like we've talked about on this podcast too, it was the tech movement in Silicon Valley that really came out of the next period in in history in this area. And it was shaped by, you know, by the dark side as well. Is the tech angle in the book? I not thus far.

And I don't know because I haven't gotten to the end yet. So I'm curious to see. But I'm also started reading another book called What the Dormouse Said. Oh, yeah. Which you've probably read, which is about the tech angle and the 60s and the counterculture. I just watched for the first time recently the Zodiac movie, David Fincher's Zodiac. And I had always heard it was a good movie, but I tend to, you know, avoid serial killer movies. But that it was a good movie but i tend to you know avoid serial killer movies but that really is a good movie um i was gonna do a book anyway so i'm not gonna um i'm not gonna

buck this trend but um claude shannon uh people might know from the book uh the information but also basically the guy that invented information theory. You know, Alan Turing knew the dude. And he shows up at the intersections of all sorts of things with computing and the internet and things like that. I think it's the first full comprehensive biography of him. It's called A Mind at Play, How Claude Shannon Invented the Information Age.

The authors are Rob Goodman and Jimmy Soni. I have not read it at all, but it's the top of my list to read. And so I think that since that's my sort of gig is the history of technology and things like that, I'm from the philosophical into the practical. So, yeah, I haven't read it yet, so I can't say that it's great, but I want to know more about Claude Shannon and you should, too, probably. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple. Yep. Vanta is the perfect example of the quote that we talk about all the time here on Acquired. Jeff Bezos, his idea that a company should only focus on what actually makes your beer

taste better, i.e. spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers. It plays a major role in enabling revenue because customers and partners demand it, but yet it adds zero flavor to your actual product. Vanta takes care of all of it for you. No more spreadsheets, no fragmented tools,

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And perhaps most importantly, your security reviews are now real-time instead of static, so you can monitor and share with your customers and partners to give them added confidence. So whether you're a startup or a large enterprise and your company is ready to automate compliance and streamline security reviews like Vanta's 7,000 customers around the globe, and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. Well, that's it for our show. One thing I forgot to mention earlier that might be interesting to

listeners is, you know, we spent a couple of episodes asking you guys to fill out a survey and we posted the results on acquired.ffm audience so if you're interested we've got some interesting stats on there two thirds of our our audience is uh is based in the u.s um 24 of you are engineers um 26 of you are currently or have started a startup and there's loads of other good uh information in there so if you're curious about basically acquired listenership, check out acquired.fm slash audience. Yeah. And one more bonus slash super carve out for the end of the episode is of

course the internet history podcast. As, as we have told you guys many times on this show, you know, Ben and I are both huge fans, Brian, of your work. It's awesome. And this has been so much, I think, even more fun than last time having you on the show. I think we got to know each other.

I totally was so geeked to do this because I was like, OK, I know. I think we're good together. So I knew the rhythms. And so I was like, oh, this is going to be great. The peanut butter and jelly of tech history podcasts. Well, thank you. And since I'm going to just basically post this on my side completely unedited,

I promoted it last time. I know I got feedback. A bunch of you listened and subscribed. And listen, You can hear that these guys are smart and they come at it from a different angle than I do. And it's fantastic acquired. Acquired FM, right? Acquired.fm on the internet. AOL or otherwise. Yeah. AOL keyword acquired. I was going to say, they used to have keywords. You could buy keywords.

Yes. Like, literally, if you wanted books, you didn't have to. It wasn't Google AdWords or AdSense. It was literally, you would type books into the AOL search bar, and they would give you, not webpages, but just what they had in their system in terms of books, and you could buy that keyword. I think I did it once actually. Well, guys, that's it. If you aren't subscribed to want to hear more, you can subscribe from your favorite podcast client to acquired or the internet history podcast. And if you feel so inclined, we would love a review on iTunes. Have a great day.