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Aol Time Warner Inc - History Of America Online

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America Online's roots go back to 1985, when Steve Case and Jim Kimsey founded Quantum Computer Services. Quantum provided online services for users of Commodore computers, then a popular brand of home computers. Two years later Quantum began providing online services for Apple Computer, Inc.'s operating system and developing software for both the Macintosh and the Apple II. After that Quantum grew quickly and was soon providing online services and related software for other companies, including Tandy Corporation and computer industry-leader IBM.

Quantum's costs were high, and it quickly ran through its capital. In 1991 Quantum was renamed American Online (AOL), with Case taking Kimsey's place as CEO and Kimsey becoming chairman of the company. AOL held its initial public offering in March 1992 and raised $66 million, with shares initially selling for $1.64.

At that time, the two leaders in providing online services were Prodigy and CompuServe. Case focused on achieving market dominance and pursued a strategy that included forming alliances with companies that would benefit AOL. He dropped membership prices below that of the major competitors and shipped out huge quantities of software diskettes to potential customers, offering them a free trial period using the AOL service. These marketing efforts paid off in rapid membership growth for AOL, and by the end of 1993 the company had more than 600,000 subscribers.

AOL was the subject of two takeover attempts in 1993, one from Microsoft cofounder Paul Allen, the other from Microsoft head Bill Gates. Allen, who had already left Microsoft, acquired a 24.9 percent interest in AOL and attempted to secure a seat on its board of directors. Both takeover attempts were thwarted by Case and AOL, eventually prompting Microsoft to develop its own online service, the Microsoft Network.

Key acquisitions in late 1994 helped AOL provide its subscribers with access to the World Wide Web, a part of the Internet that was quickly becoming popular because of its open platform and ease of use via graphical browsers like Netscape. Until this time AOL was essentially a closed network that offered subscribers access only to its own content providers, vendors, and other AOL subscribers. Content agreements with the New York Times, Time, NBC, and others had expanded AOL's content, but it was an essential part of the company's strategy to become a gateway to the Internet. This strategy was facilitated by the acquisition of Advanced Network Services, Inc., which built fiber optic networks to support Internet access. This was followed by the acquisition of BookLink Technologies and the Global Network Navigator, which enabled AOL customers to browse the Internet using graphic browsing software from BookLink. Later, in 1996, AOL would reach agreements with Netscape and Microsoft, who were competing heavily in the browser market, to use their browsers.

AOL began to grow more rapidly as it added new content providers and gave its subscribers greater access to the public Internet. In March 1995 AOL's subscriber base reached 2 million, and by August 1996 the company had 6 million subscribers. In October 1996 AOL introduced flat-rate service for a monthly fee of $19.95. In 1996 Bob Pittman, founder of MTV and considered a successful brand-builder, was hired to improve AOL's customer service and strengthen AOL's brand among consumers. After Pittman reduced AOL's subscriber growth to a sustainable level and improved the company's customer service reputation, he was promoted to president and chief operating officer. Case gave up his title of president and remained chairman and CEO.

By 1997 AOL had 9 million subscribers. During the year it gained 2.6 million CompuServe subscribers, which it continued to operate as a separate business. After WorldCom had acquired CompuServe from H&R Block, WorldCom traded CompuServe's subscriber base to AOL in exchange for AOL's network integration division.

AOL's stock rose 600 percent in 1998 and even more in 1999. This infusion of market capital gave it the power to make more and bigger acquisitions. In November 1998 AOL announced it would acquire Netscape Communications Corp. for $4.2 billion in stock, about 10 percent of AOL's market value. Included in the acquisition were the Web browser Nets-cape Navigator and Netscape's Web portal, Netcenter. A third party to the acquisition was Sun Microsystems, which agreed to pay $350 million over three years to license Netscape's software, while AOL agreed to purchase $500 million worth of servers from Sun. The Sun-Netscape alliance adopted the brand iPlanet to market the next generation of Nets-cape Web and application servers. During 2000 AOL recast Netscape Netcenter as a business professional's portal, and in fall 2000 AOL unveiled its new Nets-cape Netbusiness service, which was designed to help small businesses build Web-based storefronts and engage in business-to-business e-commerce.

In January 2000 AOL announced its bid to acquire Time Warner Inc. for approximately $165 billion in stock, with the exact value to be determined by the stock prices of both firms after the acquisition was finalized. As of June 30, 2000, the end of AOL's fiscal 2000, AOL had 23.2 million subscribers, plus 2.8 million CompuServe subscribers. By that point AOL alone had four major lines of business: the Interactive Services Group, the Interactive Properties Group, the AOL International Group, and the Nets-cape Enterprise Group.

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over 2 years ago

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