WEBVTT - AOL and the Very Bad Business Deal 0:00:04.120 --> 0:00:07.160 Get in touch with technology with tech Stuff from how 0:00:07.200 --> 0:00:13.800 stuff Works dot com. Hey there, and welcome to tech Stuff. 0:00:13.840 --> 0:00:16.840 I'm your host, Jonathan Strickland. I'm an executive producer with 0:00:16.880 --> 0:00:19.400 how Stuff Works in I heart radio and I love 0:00:19.520 --> 0:00:23.320 all things tech. And in our last episode, I traced 0:00:23.400 --> 0:00:26.720 a O L America Online from its birth out of 0:00:26.760 --> 0:00:30.640 a company that created a service for Atari twenty hundred 0:00:30.760 --> 0:00:34.040 owners in order for them to download games, up to 0:00:34.080 --> 0:00:38.200 the point where this company bought up its longtime competitor, 0:00:38.360 --> 0:00:42.440 Compuse Serve. Today, we're going to continue this story and 0:00:42.479 --> 0:00:44.280 look at how a O L got involved in a 0:00:44.360 --> 0:00:47.800 merger that is frequently listed as one of the worst 0:00:47.840 --> 0:00:51.560 business deals in tech history. Sometimes it's called the worst 0:00:51.680 --> 0:00:56.400 merger of all time. But that was not the Compuse 0:00:56.400 --> 0:00:59.600 Serve deal. Before we get into all of that, I'm 0:00:59.640 --> 0:01:03.520 going to backtrack just a touch. The company Serve deal 0:01:03.640 --> 0:01:07.040 started in nineteen nine seven and it was complete by 0:01:07.080 --> 0:01:12.080 early nine But another thing that happened in nineteen seven 0:01:12.720 --> 0:01:14.679 was really important to A O L. And that was 0:01:14.800 --> 0:01:18.120 the launch of a I m AIM or a O 0:01:18.240 --> 0:01:23.000 L instant Messenger. AIM would become an incredibly popular messaging 0:01:23.000 --> 0:01:27.240 app for several years, though the company would eventually sunset 0:01:27.440 --> 0:01:31.600 the service in twenty seventeen. A o L had already 0:01:31.640 --> 0:01:35.560 baked in a messenger feature into the A o L desktop, 0:01:35.600 --> 0:01:38.160 but it was part of the overall A o L 0:01:38.319 --> 0:01:41.080 user interface, who had to be in A o L 0:01:41.200 --> 0:01:46.520 to use this. In May seven, the company released AIM 0:01:46.560 --> 0:01:49.880 as a standalone download, at least for machines running on 0:01:49.920 --> 0:01:53.880 the Windows operating system. The AIM product competed with other 0:01:53.960 --> 0:01:57.640 messenger services like I c Q, which A L would 0:01:57.640 --> 0:02:00.800 acquire in and then eventually sell off again in T 0:02:02.080 --> 0:02:06.880 and MSN Messenger. The lead developers for AIM were Barry Appleman, 0:02:07.320 --> 0:02:11.440 Eric Bosco, and Jerry Harris. But here's the thing. They 0:02:11.480 --> 0:02:16.280 weren't supposed to build an instant messaging app. Aim was 0:02:16.400 --> 0:02:20.040 never supposed to be. They were doing it without the 0:02:20.040 --> 0:02:24.720 company's knowledge, let alone permission. Appleman and Bosco had been 0:02:24.800 --> 0:02:28.600 hired as programmers who specialized in the Unix operating system. 0:02:28.639 --> 0:02:31.200 Harris had joined a o L after the company had 0:02:31.240 --> 0:02:34.080 acquired the web browser company that Harris was working for. 0:02:34.720 --> 0:02:38.079 So Appleman had already transformed a o L a few 0:02:38.200 --> 0:02:42.200 years earlier by adding the Buddy List, which is a 0:02:42.200 --> 0:02:44.840 feature that just tells users if their friends happened to 0:02:44.840 --> 0:02:48.480 be online the same time that they are online. Because 0:02:48.480 --> 0:02:50.080 this was back in the day when you were only 0:02:50.120 --> 0:02:53.520 online when you were dialing up. You didn't have this 0:02:53.639 --> 0:02:56.800 sort of permanent online status. Broadband was not really a 0:02:56.840 --> 0:03:00.200 thing yet before the Buddy List, you would have to 0:03:00.280 --> 0:03:03.040 use a search tool with the exact screen names of 0:03:03.040 --> 0:03:05.760 your friends to find out if they were online or not. 0:03:05.880 --> 0:03:07.840 So that's what a lot of people were doing. They 0:03:07.840 --> 0:03:09.760 would go to the search tool, they would put in 0:03:09.800 --> 0:03:12.960 the handle for their friend and see if that person 0:03:13.040 --> 0:03:16.600 was online. But as I mentioned in the last episode, 0:03:16.639 --> 0:03:19.920 Steve Case had really positioned a o L to be 0:03:20.120 --> 0:03:24.480 an online community. He was stressing that part of America 0:03:24.560 --> 0:03:29.360 online business and their feature set, saying that that was 0:03:29.440 --> 0:03:33.240 the most important application of a o L over all others. 0:03:33.680 --> 0:03:36.600 This contrasted a o L with other services that were 0:03:36.600 --> 0:03:40.440 more focused on things like online shopping, for example. So 0:03:41.000 --> 0:03:46.200 people were encouraged to make communities online. They were eager 0:03:46.240 --> 0:03:48.640 to see if their friends were online at the same time, 0:03:49.080 --> 0:03:52.480 and so a L service was getting hit by tons 0:03:52.680 --> 0:03:55.920 of search requests and that was often enough just to 0:03:55.960 --> 0:03:59.240 bog down or even crash servers. Just people looking to 0:03:59.280 --> 0:04:01.160 see if they're friends happen to be online at the 0:04:01.200 --> 0:04:05.120 same time. So Appleman thought, what if we just made 0:04:05.120 --> 0:04:08.800 a tool that would give people this information that they're 0:04:08.800 --> 0:04:11.480 searching for by default. That way, they don't even have 0:04:11.520 --> 0:04:13.760 to ask for it, they don't have to send requests, 0:04:13.760 --> 0:04:16.920 will just tell them whether or not their friends are online. 0:04:17.560 --> 0:04:20.360 This would become a very important component of AIM as well, 0:04:20.480 --> 0:04:23.479 the buddy list that tells you who is online and 0:04:23.480 --> 0:04:25.960 who is available to chat. We see this on lots 0:04:25.960 --> 0:04:29.760 of online services today. For example, I once in a 0:04:29.760 --> 0:04:33.760 blue moon get a chance to play games on Xbox 0:04:33.880 --> 0:04:37.400 or on Steam, and both of those have buddy list 0:04:37.440 --> 0:04:39.800 features that tell you who happens to be online at 0:04:39.839 --> 0:04:43.680 that time. But this was a new thing back in 0:04:43.720 --> 0:04:47.640 the early nineties. Now, the developers had determined that Aim 0:04:47.920 --> 0:04:51.240 should exist as a standalone service so that it didn't 0:04:52.000 --> 0:04:55.320 limit its adoption. That way, it wouldn't just be a 0:04:55.480 --> 0:04:58.560 o l users that could get hold of Aim. But 0:04:58.600 --> 0:05:01.080 the team quickly ran into it challenge. They had no 0:05:01.200 --> 0:05:05.280 resources because again it wasn't a sanctioned project. But a 0:05:05.400 --> 0:05:09.159 service has to run on hardware somewhere. It's not something 0:05:09.200 --> 0:05:12.159 that can just exist in the air. So Appleman called 0:05:12.160 --> 0:05:15.600 in a favor with a coworker who was getting ready 0:05:15.640 --> 0:05:19.360 to ship some old servers to HP. They had bought 0:05:19.400 --> 0:05:22.719 these servers. The servers were now kind of obsolete, and 0:05:22.760 --> 0:05:24.479 so the a o L was going to ship the 0:05:24.480 --> 0:05:27.720 servers back and get a small amount of money in return. 0:05:28.279 --> 0:05:32.480 So instead of shipping back the servers, his coworker friend 0:05:32.520 --> 0:05:36.440 quote unquote lost the servers and they actually went to 0:05:36.480 --> 0:05:39.000 Appleman and his team, and so that team was able 0:05:39.040 --> 0:05:41.760 to work on developing the messaging app. When they had 0:05:41.760 --> 0:05:44.120 a finished app, they decided to show it off to 0:05:44.120 --> 0:05:46.160 their bosses. They thought, well, we've got it all ready 0:05:46.160 --> 0:05:49.040 to go. Now we just have to convince our bosses 0:05:49.080 --> 0:05:50.720 that this was a good idea from the get go. 0:05:52.000 --> 0:05:55.080 A OL management was not thrilled about this. In fact, 0:05:55.080 --> 0:05:58.520 there was a real danger at first that the whole 0:05:58.560 --> 0:06:02.000 team might get fired because of their work on this project. 0:06:02.200 --> 0:06:05.440 They had built the product without telling anyone, They had 0:06:05.480 --> 0:06:10.120 allocated a server without permission, and they intended to release 0:06:10.160 --> 0:06:14.359 the app for free, and that really stuck in the 0:06:14.440 --> 0:06:17.359 craw of a lot of the leaders over at a 0:06:17.440 --> 0:06:20.880 O L. A o L was a subscription based business plan. 0:06:21.560 --> 0:06:23.599 The way all L made money in those days was 0:06:23.640 --> 0:06:26.880 that they would convince customers to subscribe to A O 0:06:27.000 --> 0:06:29.960 L service, and then the customers would use the A 0:06:30.120 --> 0:06:33.800 o L interface to dial in and get online. That 0:06:33.920 --> 0:06:36.279 was the way A O L made money Primarily. They 0:06:36.320 --> 0:06:39.480 also did some advertising stuff, but that was minor compared 0:06:39.480 --> 0:06:42.400 to the subscription service. So to give away stuff for 0:06:42.480 --> 0:06:46.960 free seemed antithetical to A O l's business plan, But 0:06:47.080 --> 0:06:49.479 ultimately the leadership at A O L was convinced to 0:06:49.520 --> 0:06:53.880 give it a try halfheartedly, so they launched AIM in May. 0:06:55.839 --> 0:07:00.880 Released by the way, launching in fact would be really generous. 0:07:00.880 --> 0:07:04.160 What the leadership actually agreed to do was make AIM 0:07:04.240 --> 0:07:08.920 available on a file Transfer Protocol or FTP service. Now 0:07:08.960 --> 0:07:14.240 this FTP service wasn't actually positioned as a public facing service. 0:07:14.360 --> 0:07:16.800 It wasn't meant to be something that the average person 0:07:16.880 --> 0:07:21.000 would use to get access to files. But Internet geeks 0:07:21.000 --> 0:07:23.400 in the know were aware of it, and in fact, 0:07:23.480 --> 0:07:26.679 we're always keeping an eye on the FTP service because 0:07:27.120 --> 0:07:30.000 as things would be added to the service, it gave 0:07:30.040 --> 0:07:32.520 them an idea of what was coming down the road 0:07:32.760 --> 0:07:35.120 for A O L in general, So it's kind of 0:07:35.160 --> 0:07:38.200 a way of getting insider information but from the outside 0:07:39.000 --> 0:07:43.040 so a well initially just made AIM available through this 0:07:43.720 --> 0:07:46.640 and didn't promote it in any way, So AIM came 0:07:46.640 --> 0:07:50.240 out with no support and no fanfare. Even so, on 0:07:50.280 --> 0:07:56.320 that first evening there were nine hundred simultaneous connections on AIM. Now, people, 0:07:56.840 --> 0:08:00.080 that's incredibly small when we think about the Internet. But 0:08:00.120 --> 0:08:02.200 when you think about the Internet in the days when 0:08:02.640 --> 0:08:06.040 folks still weren't really sure what the Internet was, most 0:08:06.040 --> 0:08:09.360 people were using dial up to access it, and no 0:08:09.440 --> 0:08:14.200 one was advertising the fact that this messenger service even existed, 0:08:14.760 --> 0:08:17.760 it's pretty phenomenal. Now the programmers had built in some 0:08:17.880 --> 0:08:20.640 clever features and AIM that made it awfully hard for 0:08:20.720 --> 0:08:24.320 i T administrators to block it, and as more people 0:08:24.440 --> 0:08:27.280 discovered the app, i T departments looked for ways that 0:08:27.320 --> 0:08:30.840 they could block it because they were worried that employees 0:08:31.000 --> 0:08:34.600 or students or or whatever would waste time chatting with 0:08:34.640 --> 0:08:36.600 each other instead of doing what they're supposed to do. 0:08:37.240 --> 0:08:40.480 But if they tried to block off the port the 0:08:40.520 --> 0:08:44.960 Internet port through which AIM was communicating, it would automatically 0:08:45.000 --> 0:08:48.680 start to scan the other ports on the machine it 0:08:48.760 --> 0:08:51.880 was installed on until it found one it could communicate through. 0:08:52.320 --> 0:08:54.640 So if you blocked one port. It would just say, 0:08:54.679 --> 0:08:56.800 all right, well that's that doors closed. Let me look 0:08:56.840 --> 0:08:59.360 and see if any other doors are open. So does 0:08:59.360 --> 0:09:03.280 some ad and AIM was essentially corporate backed malware because 0:09:03.280 --> 0:09:05.040 there was no easy way to shut it down, and 0:09:05.120 --> 0:09:07.440 people were downloading it and using it to chat with 0:09:07.480 --> 0:09:10.920 each other, and it got wildly popular. Now I might 0:09:10.920 --> 0:09:13.640 as well stick with AIM for right now, before getting 0:09:13.640 --> 0:09:16.160 back to a o L at large. A o L 0:09:16.320 --> 0:09:19.800 would go on to buy Morabilous, which operated the I 0:09:19.960 --> 0:09:24.120 c Q chat app. AIM would power Apple's first eye 0:09:24.160 --> 0:09:27.480 Chat app, although that would change in later versions of 0:09:27.520 --> 0:09:30.880 eye Chat, and Microsoft, in an effort to take some 0:09:30.920 --> 0:09:33.880 of the steam out of a o l's engine, built 0:09:33.920 --> 0:09:38.480 a version of MSN Messenger that could communicate with AIM users, 0:09:39.080 --> 0:09:43.640 so you could use MSN Messenger and send chats to 0:09:43.880 --> 0:09:46.000 people who are using AIM and they could talk back 0:09:46.000 --> 0:09:51.199 to you. This actually made the AIM team really angry 0:09:51.240 --> 0:09:53.280 because it meant that people would be able to communicate 0:09:53.280 --> 0:09:58.600 with AIM users without actually downloading AIM themselves, and so 0:09:58.760 --> 0:10:01.240 began a back and forth or in which ao L 0:10:01.280 --> 0:10:05.040 would block Microsoft's chat app and Microsoft would engineer a 0:10:05.080 --> 0:10:08.600 new version of MSN Messenger that would get around this block, 0:10:09.120 --> 0:10:13.240 and that happened more than twenty times back and forth 0:10:13.720 --> 0:10:17.920 until the A o L team sent a threat to Microsoft. 0:10:18.000 --> 0:10:21.760 They essentially said, if you insist on making the ms 0:10:21.960 --> 0:10:26.200 N messenger app compatible with AIM, we will use that 0:10:26.280 --> 0:10:31.040 connection to infect your servers with malware. The threat commenced 0:10:31.040 --> 0:10:34.880 Microsoft to back down. Also, yikes, that's like some sort 0:10:34.880 --> 0:10:38.320 of nerd gangster stuff right there. This is a nice 0:10:38.360 --> 0:10:41.199 computed database, he guy. Here'd be a real shame with 0:10:41.320 --> 0:10:46.320 someone that I don't know infected it with viruses. I 0:10:46.360 --> 0:10:50.840 apologize for the terrible accent. AIM always existed a little 0:10:50.920 --> 0:10:54.479 outside of a o L because it was a standalone 0:10:54.520 --> 0:10:57.079 app that wasn't in the walled garden of the A 0:10:57.200 --> 0:10:59.920 o L experience. It was seen by A o L 0:11:00.040 --> 0:11:02.680 executives as being a bit risky. Over on the A 0:11:02.760 --> 0:11:06.120 o L side, the company could curate the customer experience. 0:11:06.240 --> 0:11:09.439 The stuff that they would see before they would connect 0:11:09.480 --> 0:11:12.640 to the Internet at large was completely under the control 0:11:12.679 --> 0:11:14.920 of the company, so they could censor it. They could 0:11:14.960 --> 0:11:18.800 make sure that there was no objectionable material showing up 0:11:18.840 --> 0:11:21.000 in front of people, right they would just make sure 0:11:21.080 --> 0:11:25.680 that it was all company approved content. But AIM was 0:11:25.760 --> 0:11:29.720 outside of this garden, and you couldn't control what other 0:11:29.800 --> 0:11:34.360 users might say or share. AIM kept in adding features 0:11:34.360 --> 0:11:37.920 like file sharing, voice support, stuff like that. Many of 0:11:37.960 --> 0:11:41.640 them would be copied into later tools like Skype, but 0:11:41.760 --> 0:11:45.040 over time AIM began to lose influence. Other tools were 0:11:45.040 --> 0:11:48.000 popping up. Some would allow users to communicate through multiple 0:11:48.080 --> 0:11:52.560 chat services using a single client. Some were connected to 0:11:52.679 --> 0:11:55.800 the blossoming social networking sites, and that was where allowed 0:11:55.840 --> 0:11:59.280 the chat was moving to. AIM became less relevant over 0:11:59.320 --> 0:12:02.000 the years, starting in two thousand two, a o L 0:12:02.080 --> 0:12:05.080 began to scale back the AIM team. This happened each 0:12:05.160 --> 0:12:08.400 year from two thousand two to two thousand five. Then 0:12:08.400 --> 0:12:11.400 in two thousand twelve, the only team members who were 0:12:11.480 --> 0:12:14.880 kept on were support staff, who just made sure that 0:12:14.920 --> 0:12:17.959 the service wasn't going to collapse on itself. By then, 0:12:18.320 --> 0:12:20.880 AIM had less than one per cent of the market 0:12:20.880 --> 0:12:26.360 share of customers for internet messaging services. On December fifteen, seventeen, 0:12:26.840 --> 0:12:30.000 A O L or rather OATH but we haven't gotten 0:12:30.000 --> 0:12:32.480 to the part where ao L becomes OATH. That will 0:12:32.520 --> 0:12:35.079 be in the next episode anyway, they announced that a 0:12:35.200 --> 0:12:39.800 O L Instant Messenger had been discontinued. Further, there are 0:12:39.840 --> 0:12:44.760 no announced plans for any sort of replacement. The messaging app, 0:12:44.840 --> 0:12:47.720 which had at one time been the most dominant of 0:12:47.760 --> 0:12:51.720 its kind online, just didn't have enough people using it 0:12:51.760 --> 0:12:55.240 to justify the expense of maintaining it. Now, when I 0:12:55.320 --> 0:12:58.160 come back, I'll switch over to A O L and 0:12:58.160 --> 0:13:00.680 what was in store for the company at large. But 0:13:00.840 --> 0:13:04.120 first let's take a quick break and thank our sponsor. 0:13:11.559 --> 0:13:16.320 In November, A O L announced it was buying Netscape 0:13:16.320 --> 0:13:20.559 Communications Corporation, which was the company that created the Netscape 0:13:20.679 --> 0:13:24.960 Navigator web browser. Netscape Navigator is a fascinating story all 0:13:24.960 --> 0:13:26.800 on its own, and I'll have to do a full 0:13:26.880 --> 0:13:30.000 birth to death episode on it in the future, but 0:13:30.080 --> 0:13:33.360 here are some high points. Mark and Dreason, who while 0:13:33.360 --> 0:13:36.560 at college had worked on an early web browser called 0:13:36.679 --> 0:13:39.680 n c s A Mosaic, saw the potential in a 0:13:39.720 --> 0:13:42.920 web browser for the average person. He partnered with Jim 0:13:42.960 --> 0:13:46.920 Clark of Silicon Graphics to start a new company ultimately 0:13:47.000 --> 0:13:51.640 called Netscape Communications Corporation and bring this vision to life. 0:13:52.240 --> 0:13:55.680 The first version of this browser was called Mosaic, but 0:13:56.000 --> 0:14:00.080 after some threats of legal unpleasantness, they would change it 0:14:00.160 --> 0:14:05.679 to Netscape Navigator. Now, this all started in nine by 0:14:06.120 --> 0:14:10.520 it had become the dominant web browser, largely because there 0:14:10.559 --> 0:14:14.719 wasn't very much competition. If I'm being totally honest. Netscape 0:14:14.760 --> 0:14:18.400 became a publicly traded company in nineteen and had a 0:14:18.480 --> 0:14:24.360 company valuation of almost three billion dollars, a very early 0:14:24.480 --> 0:14:30.640 start up Unicorn. By things were different because Microsoft started 0:14:30.680 --> 0:14:33.960 to really go after the web browser market with its 0:14:34.000 --> 0:14:37.840 own web browser, Internet Explorer. Then there's all the different 0:14:37.920 --> 0:14:43.160 stuff about Microsoft incorporating Internet Explorer into Windows and uh 0:14:43.200 --> 0:14:48.080 and then also downplaying the ability to use other browsers 0:14:48.080 --> 0:14:50.560 on Windows based machines. We won't get into all that, 0:14:50.680 --> 0:14:53.960 but in ninety eight, Netscape announced it would release the 0:14:54.080 --> 0:14:58.600 source code that the company had used to build Netscape Communicator, 0:14:58.960 --> 0:15:02.200 which was a suite of programs beyond just the web browser. 0:15:02.640 --> 0:15:05.200 This in turn would become the action that would bring 0:15:05.360 --> 0:15:09.720 Mozilla into being, and Mozilla would eventually produce the Firefox 0:15:09.920 --> 0:15:13.360 web browser. Well. By the time a O. L announced 0:15:13.360 --> 0:15:18.720 intention of acquiring Netscape, Internet Explorer had already caught up 0:15:18.800 --> 0:15:21.720 and taken the lead in the web browser market share. 0:15:22.240 --> 0:15:24.600 But it wasn't like Netscape was down for the count 0:15:24.880 --> 0:15:27.320 it had been the dominant player. It was now number 0:15:27.360 --> 0:15:30.040 two there was every reason to think the company could 0:15:30.080 --> 0:15:32.320 come back with a new version of its browser and 0:15:32.360 --> 0:15:34.240 went back. Some folks so would go back and forth 0:15:34.280 --> 0:15:39.120 between Netscape and Internet Explorer, so it was definitely still 0:15:39.200 --> 0:15:43.160 an attractive company. When A o L made its proposal, 0:15:44.040 --> 0:15:48.440 which was for four point two billion dollars, a princely 0:15:48.640 --> 0:15:51.600 some this deal would end up being a not so 0:15:51.680 --> 0:15:55.880 good one for either party, though it's not the very 0:15:55.960 --> 0:15:59.000 bad deal that I referred to in the episode title. 0:15:59.240 --> 0:16:01.760 Anyone who has been through a merger or an acquisition 0:16:02.360 --> 0:16:06.480 knows there's always an adjustment as different departments hash things out, 0:16:07.080 --> 0:16:11.080 cultures attempt to merge. There's some consolidation, maybe people are 0:16:11.160 --> 0:16:15.720 let go as as redundant departments are are put together. 0:16:16.200 --> 0:16:19.480 The effect on Netscape was that it slowed down the 0:16:19.520 --> 0:16:23.640 browser development process, and that was already running behind before 0:16:23.720 --> 0:16:26.000 A o L purchased the company, and just a minute 0:16:26.040 --> 0:16:28.280 took even longer for Netscape to come out with the 0:16:28.280 --> 0:16:31.760 next version of its browser. Netscape six did not come 0:16:31.760 --> 0:16:35.680 out until April two thousand and Netscape seven followed two 0:16:35.800 --> 0:16:39.240 years later in two thousand two. By two thousand three, 0:16:39.560 --> 0:16:42.680 A o L had shut down most of Netscape laying 0:16:42.680 --> 0:16:46.480 off nearly all the employees. The decision from the top 0:16:46.680 --> 0:16:50.320 was to shift and focus on Mozilla's Firefox code as 0:16:50.320 --> 0:16:53.600 the base for web browsers. A o L would outsourced 0:16:53.640 --> 0:16:58.240 Netscape browser releases to a Canadian company called Mercurial Communications. 0:16:58.800 --> 0:17:02.360 That company produced nets eight Browser eight and Netscape Browser 0:17:02.440 --> 0:17:05.719 eight point one in two thousand five and two thousand seven. 0:17:06.320 --> 0:17:09.200 A o L did put together an internal development team 0:17:09.240 --> 0:17:12.680 for one last push to make the old browser relevant 0:17:12.720 --> 0:17:15.360 again in a world that had little interest in it, 0:17:15.760 --> 0:17:20.280 and they released the AOL developed Netscape Navigator nine. But 0:17:20.359 --> 0:17:23.000 that wasn't enough either, and a o L finally shut 0:17:23.040 --> 0:17:27.440 down Navigator for good and for certain in February two eight. 0:17:28.080 --> 0:17:30.639 So that was definitely not a great business deal. The 0:17:30.720 --> 0:17:34.280 four point two billion dollars was not money well spent. 0:17:34.840 --> 0:17:36.440 And I'm sure when I do a full episode on 0:17:36.520 --> 0:17:40.960 Netscape Navigator, I'll dig much deeper into that story. Let's 0:17:40.960 --> 0:17:43.440 get back to a O L. It made another purchase 0:17:43.480 --> 0:17:47.520 around the same time as it bought Netscape. In A 0:17:47.640 --> 0:17:51.160 O L bought the company movie Phone. That's the telephone 0:17:51.160 --> 0:17:53.880 service that provides movie information to people who call in, 0:17:53.880 --> 0:17:57.199 including information like screening times and also gives them the 0:17:57.200 --> 0:18:01.119 opportunity to purchase tickets at certain theaters. The deal was 0:18:01.160 --> 0:18:03.520 done in A O L stock and it was valued 0:18:03.560 --> 0:18:07.480 at three d eight million dollars, which again princely some 0:18:08.400 --> 0:18:10.960 A O L would hold onto movie Phone for nearly 0:18:11.080 --> 0:18:15.359 twenty years. The company or the new company that is, 0:18:15.720 --> 0:18:18.879 the one that holds A O L, sold movie Phone 0:18:19.160 --> 0:18:22.600 to the beleaguered company movie Pass back in the spring 0:18:22.680 --> 0:18:26.520 of So how much did movie Pass pay to get 0:18:26.560 --> 0:18:29.160 this property that A O L had purchased for three 0:18:29.920 --> 0:18:33.359 eight million dollars in stocks? Well, the agreement was for 0:18:33.440 --> 0:18:37.080 a million dollars in cash and two point five five 0:18:37.280 --> 0:18:40.720 million shares of the parent company for movie Pass, which 0:18:40.800 --> 0:18:45.280 is called Helios and Matheson Analytics. Those shares were worth 0:18:45.280 --> 0:18:48.000 about eight million dollars at the time of the announcement. 0:18:48.240 --> 0:18:50.800 Oh and they also agreed to another two point five 0:18:50.880 --> 0:18:54.280 five million shares at the exercise price of five dollars 0:18:54.280 --> 0:18:57.320 fifty cents per share. That would add another fourteen million 0:18:57.359 --> 0:18:59.840 dollars on top of the deal if the share price 0:18:59.840 --> 0:19:02.120 were to actually reach that level, which puts the whole 0:19:02.119 --> 0:19:06.800 deal at around twenty three million dollars, or so twenty 0:19:06.840 --> 0:19:10.920 four million that's not great. A O L was buying 0:19:10.960 --> 0:19:14.600 movie Phone for three and selling it for twenty four. 0:19:15.800 --> 0:19:18.000 It might not have been the most profitable deal ever. 0:19:18.720 --> 0:19:21.520 And movie Pass, just in case you're curious, has continued 0:19:21.560 --> 0:19:24.880 its trend of changing pricing and services throughout the year 0:19:25.280 --> 0:19:28.640 in an effort to win customers and become semi stable. 0:19:28.920 --> 0:19:31.520 I'm amazed it hasn't collapsed in on itself yet. I've 0:19:31.520 --> 0:19:33.600 already talked about movie Past this year, so I won't 0:19:33.600 --> 0:19:38.000 go back over it. But holy cow. A O L 0:19:38.480 --> 0:19:42.640 then invested nearly a billion dollars in Gateway PC after 0:19:42.680 --> 0:19:46.159 announcing that the company had outperformed all of its earning projections. 0:19:46.640 --> 0:19:50.080 Al had, that is and all made a one point 0:19:50.160 --> 0:19:53.560 one billion dollar deal with the map Quest. Do you 0:19:53.600 --> 0:19:59.359 remember map Quest? Al L owns it. Also in A 0:19:59.520 --> 0:20:03.720 O L make a one point five billion dollar investment 0:20:03.760 --> 0:20:07.879 in a company called Hughes Electronics, which is another fascinating 0:20:07.920 --> 0:20:10.920 company and it traces its history back to the eccentric 0:20:11.040 --> 0:20:17.040 bazillionaire Howard Hughes. Huge Electronics owned Direct TV at that time, 0:20:17.560 --> 0:20:21.520 and as part of this agreement, the company would market 0:20:21.560 --> 0:20:25.120 an American online product called a O L TV, which 0:20:25.200 --> 0:20:28.680 was an interactive television service. A O LL in turn 0:20:28.800 --> 0:20:33.080 agreed to market the Hughes Electronics services Direct TV and 0:20:33.200 --> 0:20:36.760 Direct PC, which was a high speed satellite based internet 0:20:36.840 --> 0:20:41.560 access service. These days, that same service is called Hugh's Net, 0:20:41.880 --> 0:20:45.199 and the internet and TV businesses are separate entities. A 0:20:45.320 --> 0:20:48.840 T and T now owns the direct TV business. And 0:20:48.880 --> 0:20:51.919 now we get to the very bad business deal, the 0:20:52.000 --> 0:20:54.600 one that so many people have held up as being 0:20:54.640 --> 0:20:58.320 one of the worst in business history, particularly for companies 0:20:58.359 --> 0:21:02.560 in the tech industry. In two thousand, America Online had 0:21:02.560 --> 0:21:06.160 the opportunity to merge with Time Warner, which in itself 0:21:06.560 --> 0:21:09.200 was the product of a merger between the company's Time 0:21:09.280 --> 0:21:13.359 Incorporated and Warner Communications. Now, one day I'm going to 0:21:13.440 --> 0:21:15.400 have to do a series of episodes to explain how 0:21:15.440 --> 0:21:18.200 all of that came to pass, But here's a super 0:21:18.240 --> 0:21:23.800 short background on both big companies. Time Incorporated was known 0:21:23.840 --> 0:21:26.640 for being the owner and publisher of more than one 0:21:26.720 --> 0:21:30.719 hundred different magazines, with the flagship, of course, being Time, 0:21:31.119 --> 0:21:35.879 and others including stuff like Entertainment Weekly, Fortune, Sports Illustrated, 0:21:35.920 --> 0:21:41.520 and Southern Living. Warner Communications was a holding company, and 0:21:41.560 --> 0:21:44.560 they had a really super complicated history of its own. 0:21:44.840 --> 0:21:48.440 It grew out of the Warner Brothers motion Picture Studio 0:21:48.920 --> 0:21:52.679 and their various businesses UH that included movie theaters and 0:21:52.720 --> 0:21:56.679 a production and distribution business in the motion picture industry. Eventually, 0:21:57.119 --> 0:22:00.840 Jack Warner of the Warner Brothers was the only warn remaining, 0:22:01.320 --> 0:22:03.719 and in nineteen sixty six he decided he was going 0:22:03.760 --> 0:22:05.399 to get out of the business, so he sold his 0:22:05.480 --> 0:22:08.560 shares of the company to another company called Seven Arts 0:22:08.560 --> 0:22:15.520 Production Limited. That company also bought another media company, Atlantic Records. 0:22:16.320 --> 0:22:18.919 Then you had a guy named Stephen Ross who had 0:22:18.920 --> 0:22:23.240 built a conglomerate of businesses. He comes in, he acquires 0:22:23.320 --> 0:22:28.720 the Warner Brothers Seven Arts conglomerate, and now the whole 0:22:28.800 --> 0:22:32.920 mess Steven Ross's other businesses and Warner Brothers and Seven 0:22:33.000 --> 0:22:37.240 Arts all becomes known as Kinney National Services. But then 0:22:37.280 --> 0:22:40.280 there's a big scandal involving one of the businesses. It 0:22:40.359 --> 0:22:43.200 was actually a parking business and it was all about 0:22:43.480 --> 0:22:47.040 price fixing, and that led to Ross selling off most 0:22:47.080 --> 0:22:50.760 of the companies in the conglomerate. The remaining businesses that 0:22:50.920 --> 0:22:56.359 he kept were the media ones. It became Warner Communications. 0:22:56.400 --> 0:23:01.399 This was in ninete Time Incorporated and Warner Munications merged 0:23:01.440 --> 0:23:04.840 in nineteen eighty nine, and that's where we get Time Warner, 0:23:05.080 --> 0:23:08.239 which at the time was the largest entertainment conglomerate in 0:23:08.280 --> 0:23:13.520 the world. In this new company, Time Warner had acquired 0:23:13.680 --> 0:23:18.760 Turner Broadcasting System for nine point six billion dollars, and 0:23:18.800 --> 0:23:22.920 then in two thousand, America Online and Time Warner looked 0:23:22.960 --> 0:23:26.600 to merge together. A O L was essentially buying Time 0:23:26.640 --> 0:23:31.240 Warner for a hundred sixty five billion dollars. So that's 0:23:31.240 --> 0:23:34.680 how the transaction would look on paper, that A O L. 0:23:34.760 --> 0:23:37.960 The company was buying Time Warner for a hundred sixty 0:23:37.960 --> 0:23:41.520 five billion dollars. A O L's founder, Steve Case took 0:23:41.560 --> 0:23:44.280 the role of chairman of the board, and the new 0:23:44.320 --> 0:23:47.640 company would be A O L. Time Warner. The association 0:23:47.720 --> 0:23:51.240 wouldn't quite last a full decade, but it would really 0:23:51.280 --> 0:23:54.560 make an impression in its short time in the spotlight. 0:23:55.280 --> 0:23:59.359 I'll talk a little bit more about this troubled relationship 0:23:59.400 --> 0:24:02.200 between A L and Time Warner, but first let's take 0:24:02.240 --> 0:24:13.359 a quick break to thank our sponsor. In hindsight, we 0:24:13.440 --> 0:24:16.200 can look at the messy span of time from two 0:24:16.240 --> 0:24:19.400 thousand to two thousand nine when A O L. Time 0:24:19.440 --> 0:24:22.800 Warner was a thing, and we can say what were 0:24:22.800 --> 0:24:26.120 they thinking? But that's what the benefit of knowing how 0:24:26.200 --> 0:24:29.880 things played out. Let's rewind the clock a little bit 0:24:30.280 --> 0:24:32.960 and think about what things were like leading into this 0:24:33.200 --> 0:24:38.120