Did you know that at it's peak America On Line was responsible for 50% of all Compact Disc production in America?

Dave Young:

Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Simple is a marketing consultant, story collector and storyteller. I'm Stephen's sidekick and business partner, Dave Young. Before we get into today's episode, a word from our sponsor, which is, well, it's us, but we're highlighting ads we've written and produced for our clients. So here's one of those.

[No Bull RV Ad]

Dave Young:

Welcome to the Empire Builders Podcast. Dave Young here alongside Stephen Semple. And Stephen, you've got mail.

Stephen Semple:

That's right.

Dave Young:

You've got mail. You've got mail.

Stephen Semple:

Could you imagine? Could you imagine if it's still happened that way? You got mail. You got, you got, you got mail.

Dave Young:

It'd be all day long. I can remember in those early days when getting an email was like, oh, shit, I got an email. Or, somebody sent me an email, or they replied to one of mine. Oh my gosh.

Stephen Semple:

Yes.

Dave Young:

So AOL, that's the... There was a time.

Stephen Semple:

America Online.

Dave Young:

There was a time they'd send out their what? CD-ROMs.

Stephen Semple:

Yep.

Dave Young:

You couldn't reach into the seat back pocket of a car without finding one.

Stephen Semple:

And we're going to explore that whole marketing campaign. But here's the crazy thing-

Dave Young:

[inaudible 00:02:37] cereal.

Stephen Semple:

All of it. Yeah. At its peak, one half of CD production in the United States was dedicated to America Online.

Dave Young:

Oh my God.

Stephen Semple:

Isn't that crazy?

Dave Young:

Say it isn't so.

Stephen Semple:

I can't. AOL was founded by Steve Case, William Von, Jim Kimsey and Marc Seriff in 1983 in Brooklyn. And as we know, it went on to become one of the biggest names in the internet. And in January 11th, 2001, it merged with Time Warner being one of the largest corporate mergers at the time, which actually it turned out was a disaster, but we're not going to talk about that. But back in the early days in 1983, let's put it in perspective, because sometimes it's really hard to think about these technological evolutions, but in 1983, Sony released the first consumer camcorder CD-ROMs were developed. And the first cell phone, remember the Motorola one that looked like it was a World War II walkie-talkie?

Dave Young:

Well, before that were bag phones. My first one was a bag phone.

Stephen Semple:

Yeah.

Dave Young:

The cell phone that you carried around with a giant battery in a bag.

Stephen Semple:

Exactly. Yeah. So that's like 1983. And AOL did not start as AOL. It started as a company called Control Video Corporation, CVC, founded by Bill Von Meister. And here's what they created. They created this thing called Gamelink, and basically it's a modem that plugs into the Atari 2600 game module, and they would sell the modem for 50 bucks, and it was a $15 setup fee, and you could download games for a dollar over the phone. That was the idea. This whole idea of the internet did not exist. It was this idea. Now, Steve Case, who becomes the main character in our story, worked for Bill and less than a year later, 1984, CVC is struggling because the video game boom has gone bust. Atari cancels the 2600 because only 3,000 units are sold. So the business is a bit of a tough space.

Dave Young:

This is a couple of decades almost before the boom, the bust?

Stephen Semple:

Yes. Oh, yeah.

Dave Young:

The bursting of the .com bubble.

Stephen Semple:

But this is the video game business goes through this a little bit, softening. The board sidelines, Von Meister and parachutes in Jim Kimsey, who's a former military guy, and immediately he downsizes the business from a hundred people down to 10, including pretty much everybody in marketing. But he keeps Steve Case, because Steve's cheap, hardworking, and driven, and they become close. He mentors Case. Now, the first goal is stop the creditors, keep the business alive. Now, the big advantage they have is they have almost no assets. So essentially they would say to creditors, "Go ahead, but you're going to get nothing, so you might as well support us."

Dave Young:

A couple of office chairs.

Stephen Semple:

Exactly. Now, it's 1985 and one in 10 Americans own computers, but it's rising. So it's starting to get out there. CompuServe is around, but there's not much else around for online. And CVC decides to build an online service for the most popular computer of the day, which is the Commodore 64. Remember the Commodore? I had a Commodore 64.

Dave Young:

I didn't, but I had an old RadioShack one and I think I just skipped over the Commodore at some point.

Stephen Semple:

There you go. Yeah.

Dave Young:

Somehow.

Stephen Semple:

So CVC changes its name to Quantum Computer Services. It's not AOL yet.

Dave Young:

Yeah, yeah, Quantum.

Stephen Semple:

Quantum.

Dave Young:

Everything goes better with Quantum.

Stephen Semple:

Quantum. That's it. Now, it's 1985 and things aren't on the web. Online is really these competing subscription services, mainly email, chat, news. And each is separate. You can't email across platforms.

Dave Young:

There would be bulletin boards you could dial up into. A BBS system. And then you could access whatever they had-

Stephen Semple:

Whatever they had.

Dave Young:

... and you could leave me a message in the bulletin board, and if I happen to log back into it at some point I might get your message.

Stephen Semple:

Yeah. That's basically how it works. And it's slow. To put in perspective, if you were going to download a song, it takes three days to download a single song. So they've got this service for Commodore and it's $9.95 a month plus a usage fee. And online is still very niche. And they launched this Quantum link, which is email and news and games. And in 1986, there's 10,000 subscribers. Not profitable, but enough to get some investors in behind it. But here's the problem, you can also, not only is it only that platform, you can only use it on the Commodore 64. Each one of these things are designed for a specific computer. Commodore 64-

Dave Young:

That's why I didn't use it.

Stephen Semple:

Yeah. And Commodore 64 is now losing market share. So they've got to find some other computer companies and they decide to go with Apple just because of Steve Jobs and the way he sees the world. Although Apple's struggling a little bit too. The Mac's weak, the Apple two struggling, but they still see an opportunity there. So Case moves California for a little while to really work on lobbying Apple, and he eventually gets him as a partner. He lands Apple and this moves Case up the chain and becomes an Executive VP at the company. And then they go on the launch services for PCs. Now, when Case looks at CompuServe, what he sees is something that's faceless.

You sign on and there's that warble and all that other stuff. And he wants their service to feel friendly, so wants a sound instead of a warble. So Case suggests a greeting that tells them when they get something like mail. So he hires Elwood Edwards for 200 bucks. Who does the voice of Welcome, you've got mail.

Dave Young:

You've got mail.

Stephen Semple:

Elwood Edwards is the guy who did the voice for that. So that's cool.

Dave Young:

Yeah.

Stephen Semple:

So it's October 1989. They now have 75,000 subscribers. Chat rooms are the ones that are popular and the most popular ones, I guess, what subject are the most popular ones, Dave?

Dave Young:

Well, let's see. It's internet. So porn, I'm guessing.

Stephen Semple:

Well, conversations about sex. Yes. Conversations about sex. Now, this is a concern for... So this is a concern for Quantum because they want to be family-friendly and they're afraid this could cause a scandal and all this stuff. And they're thinking about shutting those chat rooms down until they take a look at the numbers. Because remember, more time on site, more money. And that's where the time is being spent.

Dave Young:

Because they're charging by the minute at this point.

Stephen Semple:

They are, yes. So they decide, you know what? We can keep these. CompuServe is the leader at this time. Now, Apple cancels the service and Apple owns the link name. So now they've got to find a new name. Case decides to hold a contest for the new name, takes a look at all the names have been submitted, doesn't like any of them, decides to pick his own, which was America Online.

Dave Young:

I think he chose wisely probably. It seems like it.

Stephen Semple:

Yeah, AOL. So it's late '91. They're about to go public. They have 155,000 subscribers, 24 million in sales. CompuServe has now risen to 900,000 users. IBM Sears. Now, I didn't realize Sears was a partnership in Prodigy, but IBM and Sears had partnered together to create Prodigy, and they had more than a million subscribers. It's the early '90s. 15% of homes have computers. And this is an important part in innovation.

Dave Young:

Sure.

Stephen Semple:

There's this whole idea of when you get to that 15% mark, you're about to explode into mainstream. And about the amount of time it takes something to go from zero to 15, 12, 15%, it's about the same amount of time it takes for something to go from 15 to 80%. But the type of user changes. It's no longer the early adopter. It's now your mainstream consumer, but it's also really rapid growth at that point. Commodore is dying. Apple is struggling. PCs and IBM clones are winning. Modems are getting faster.