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Author: TParadiso Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 532  
Subject: Case Closed with AOL Date: 1/16/2003 9:48 AM
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This was a shocker. Steve Case resigning his position as chairman of AOL Time Warner was as surprising as getting bad advice from a Wall Street analyst. The reality is Case's fate was sealed when AOL's business tanked and possible accounting irregularities emerged. This, combined with the fact the concept behind the merger never got any traction, contributed to a plummeting stock value and internal chaos. All the top AOL managers have been purged from the organization and Case lingered solely for public relations reasons.

Predictably, company officials expressed the appropriate corporate sentiment: Steve has made an invaluable contribution… He will continue to assist the company to achieve its goals as a member of the board… We'll all miss his inspirational leadership… yada yada yada. What they really meant was: Thanks for selling us a bill of goods… Thanks for stealing Time Warner for pennies on the dollar… Thanks for screwing up our business. Now, haul your ass out of here before we call the cops.

Contrary to my opinion of many corporate leaders, Case strikes me as bright and capable. He recognized AOL's traditional business was headed for tough times and major changes would be required. With AOL's stock price at its peak, the timing of the merger was impeccable. That may have been serendipity. Still, you have to give him credit for selling the idea to Time Warner management. Lastly, his vision of old and new media convergence, which was the foundation for the merger, is absolutely correct.

So what went wrong? Case made three mistakes. First, he failed to recognize the market shifts that made it necessary to alter AOL's core product strategy. In other words, AOL's dominant market position made them complacent. This was a minor mistake compared to the next two.

A much larger mistake was in believing his vision of convergence would be immediate. This error is common among visionaries. All too often they believe what is obvious to them is obvious to all. They also have a tendency to minimize the barriers to their vision. This is the case with Case.

Will old and new media ultimately converge? Without an iota of doubt. Will media companies of the future look very much like AOL Time Warner? Bet on it. Will it take another 20 years? Probably. And therein lies the problem. Case is right, but his timing was a tad off.

The promise of convergence takes time. It requires consumers to change their behavior when most people tend to resist change. Thus, behavioral changes rarely happen quickly. More often, such changes happen slowly, in manageable increments. In this situation, convergence also requires a significant upgrade in technology and infrastructure in the form of ubiquitous and highly functional broadband. That is years away.

Still, Case may have been able to survive the poor timing had he not made his final mistake, one frequently associated with mergers of this magnitude. He failed to recognize just how critical the vast cultural differences were between the two companies and how those differences would sabotage the ability to execute on his vision.

In a sense, Case can be faulted for being too logical. To him, it was obvious where the market was headed. He may have never imagined cultural differences and corporate politics would be an inhibiting factor in achieving such a logical goal. Either that, or he was simply too arrogant to think anyone would stand in his way. Take your pick.
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