Steve Case is Smart

Steve Case is stepping down as Chairman of AOL Time Warner sometime in May, and that pretty much clears the deck at AOLTW of any major executives in the company that came from the AOL side of things. AOL may have swallowed Time Warner, but Time Warner then digested AOL from the inside, eventually bursting forth from the apparently surprised online giant’s chest like the creature from Alien (an analogy that would be even more trenchant if Alien were a TW property instead of being owned by 20th Century Fox).

These days it’s fashionable to bag on AOL and the AOL execs, because the online component of AOL had been nothing but a headache for the merged company and will likely continue to be so for some time to come. I wouldn’t argue the latter part of that, but I think that the business smarts of the AOL execs have been vastly underrated. This is particularly the case with Steve Case, who I submit did exactly what he’s always done, and did it superbly — looked out for the future of America Online.

Not AOL Time Warner, which is a clumsy beast at best. Fundamentally, I don’t know that Steve Case actually cares about AOL Time Warner (note that this and everything which follows is pure speculation; while I was employed by AOL for a couple of years and contracted with them after that, Case and I never bonded, or even spoke to each other in the halls). But he does care about AOL; in the early 90s Case grew the company from a third-place also-ran behind (then) giants Prodigy and Compuserve and helped it survive a direct challenge from Microsoft to become the largest online service in the world.

He did this, in part, by keeping focused the consumer. Case was a guy who spent a few years traveling the country thinking up new pizza toppings for Pizza Hut, after all. He knew from the common man. But more importantly, he did it by being scarily prescient, and when he wasn’t scarily prescient, by knowing a good thing when he saw it and snapping up the technology and the people. The man didn’t have a perfect record, but more often than not he zigged and kept on skiing while everyone else zagged and ran smack into trees.

This is why I believe that at some point Steve Case looked at the insane amounts of capital that were funneling into Internet companies and making his lower-level managers millionaires at the age of 26 and thought to himself, there’s no way this is going to last. There was a reckoning coming, and it would (and did) wipe out the value of companies just like his. So Case went looking for an old-line company that could shelter his baby from the coming storm. He found Time Warner. When they merged, he raved about synergy and combining media forces and whatnot. But really, what else would Case say? It’s not like he could come right out and say “I bought Time Warner so that when the bubble implodes, AOL can sustain itself on Time Warner’s vital juices.” That would defeat the whole purpose. And anyway, that whole synergy thing could have happened, right? Okay, then.

Baldly put, the AOL – Time Warner merger was no sweetheart no matter which side of the deal you came from originally — relative to either individual company’s stock price prior to the merger, the stock is way down. However, allow me to suggest that while a merged AOL Time Warner stock price is currently in the basement instead of the penthouse, the value of a stand-alone AOL stock would probably have zipped right past the basement on its way to the lower reaches of the economic septic tank. Time Warner gave America Online stability while it rode out the bubble pop. Without Time Warner, AOL might have survived the last few years, but it would have been an extremely uncomfortable time, with delistings, massive layoffs and Microsoft licking its chops at the idea of merging with AOL for pennies on the dollar, instead of the only moderately uncomfortable time it turned out to be.

This won’t be of any comfort for the people who came into the deal owning Time Warner stock, and who saw the value of their stock decline primarily (but to be fair, not wholly) because of the trials of AOL and the Internet business model as a whole. But if you came in from the AOL side, the next time you see Steve Case, you should give him a big hug. Your stock is worth a fraction of what it used to be, but because of his savvy, it’s almost certainly a much more generous fraction than it would be otherwise.

Case can step aside as AOLTW chairman because AOL is saved — either it will continue to be integrated into AOL Time Warner, in which case it’s got a corporate structure to keep it alive, or it’ll be spun off intact, in which case it’s on its own in a far better state than it would have been had it tried to weather the Net collapse by itself. Also, of course, if AOL is spun off again, Case would logically be the guy to run it — putting him back where he was when this whole adventure began. Which is to say, in charge, and looking ahead at things other people aren’t seeing.