AOL Founder Accuses Time Warner

The recriminations flowed Monday from America Online founder Steve Case, as he catalogued a host of ways in which Time Warner botched the management of AOL after merging with the company in 2001. Specifically, Case complained that Time Warner failed to grow AOL's broadband users, develop a search engine, acquire other tech companies, and build out its Voice over Internet Protocol phone service, among other shortcomings.

"Instead of accelerating AOL's broadband push, [Time Warner] slowed it," stated Case in an online chat at WashingtonPost.com, one day after The Washington Post ran an essay by Case in which he advocated undoing the AOL/Time Warner merger that he had engineered six years earlier.

"Most people in the industry think it is odd--and a mistake--that Time Warner Cable continued to offer its own Roadrunner service instead of moving to AOL which is a better known brand with a wider range of services," Case said in the chat. Case--who resigned from the company's board in October, but still owns about $250 million worth of Time Warner stock--personalized many of his complaints. Time Warner's failure to migrate Roadrunner users to AOL broadband "was a big disappointment for me," he griped. And, he lamented, Yahoo!'s dominance in terms of traffic share "is hard for me to see."

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As to his own failure to advance change while at Time Warner, where he served as chairman until July 2003, he offered: "It is hard to push for strategic moves when none of the businesses report to you."

Case's comments come at a time when the battle for the future of AOL has become increasingly contentious. Not only are Microsoft and Google each vying to partner with AOL, but Time Warner board member Carl Icahn escalated his attempt to force Time Warner to spin off the company. Two weeks ago, the aggressive financier hired investment bank Lazard to explore strategic options for Time Warner.

In his essay on Sunday, and again in Monday's chat, Case repeatedly said that AOL would be better off on its own than as part of the Time Warner conglomerate. "Obviously I was a big believer in convergence and a big believer in cross-divisional collaboration to drive innovation and growth. ... But it has not happened, and I have reluctantly concluded it will not happen," he stated in the chat. "Plan A didn't work--let's admit that and move to Plan B."

Analyst Mark Stahlman of Caris & Co. chimed in Monday, with a report stating that Time Warner shareholders "would be best served" if AOL was independent.

But the report also concluded that this scenario was "unlikely." Rather, Stahlman stated that a joint venture between AOL and Microsoft "is likely to be a positive move for Microsoft"--which, the report states, "needs a jolt of new momentum in its online services business."

A possible Microsoft-AOL deal would mean that Google--which currently powers AOL's search engine--will lose a good chunk of cash; around 11 percent of Google's revenue in the first half of the year came from AOL. But the report also predicted that Google is in a good position to recover, as it expands into new fields.

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