AOL and Time Warner (with the Internet History Podcast)

On this extra-long episode of Acquired, Brian McCullough from the Internet History Podcast http://www.internethistorypodcast.com returns to discuss perhaps the most (in)famous merger of all time: AOL - Time Warner. Who doesn’t remember the soothing sounds of 56k modems and the timeless phrase, “You’ve Got Mail”? Join us all as we unpack how one of the biggest ISP’s of the 90’s tried to take over the world… and fell far short. Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Topics Covered Include: AOL’s status in the 90’s / early 00’sExplaining just what it is that AOL did at the height of their popularityHow AOL pioneered a number of internet paradigmsAOL’s persistent money troubles and bailouts from other companiesSteve Case foreseeing the coming era of broadband, inspiring AOL to pursue working with a cable companyEbay vs. Time Warner in a down-to-the-wire war for a merger with AOLWhy the money dried up for AOL after their merger with Time WarnerAOL and its value in the post-Time-Warner eraSpeculating about what would have happened had AOL and others stayed independent businessesAnd much discussion on how to grade this one… The Carve Out: Ben: Give and Take https://www.amazon.com/Give-Take-Revolutionary-Approach-Success/dp/B00BMBANYY/ref=tmm_aud_swatch_0?_encoding=UTF8&qid=&sr= by Adam Grant David: Season of the Witch https://www.amazon.com/dp/B005C6FDFY/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1 by David Talbot Brian: A Mind at Play: How Claude Shannon Invented the Information Age https://www.amazon.com/dp/B01M5IJN1P/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1 by Rob Goodman

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  So like $1,000 put in Domino's at its nadir has a better return than Apple.

• 0:06David Rosenthal?

  Wow. We're in the wrong business.

• 0:09Ben Gilbert?

  Yeah, I know.

• 0:11Speaker 00

  Bottom fishing is a dangerous game, though.

• 0:13David Rosenthal?

  Yeah.

• 0:26Ben Gilbert?

  Welcome back to episode 44 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. So today, back by popular demand, we've got Brian McCullough of the Internet History Podcast on the show for a crossover episode. So thank you. Thank you for joining us and hello, Brian.

• 0:47Speaker 00

  Hi, guys. Popular demand? Are you sure?

• 0:50Ben Gilbert?

  Yes.

• 0:52Speaker 00

  This episode, this episode was one of the more popular ones of this year. Did we do the other one this year? It's, it, trust me, it's, it's one, it's in my top 20 for sure. And I'm over 150 episodes at this point.

• 1:05Ben Gilbert?

  Wow. Sweet.

• 1:06David Rosenthal?

  Well, you are in our top five, so.

• 1:08Speaker 00

  I think that, I think the melding of the format sort of like makes us, all three of us up our games a little bit, you know?

• 1:16Ben Gilbert?

  It does. It does. I think, because it forced a little change for us. We were just talking about this before the show, but listeners, Dave and I were talking about how, you know, we do our research for these episodes with Brian, but knowing that he's got such a clear narrative around it, we sort of just have this spew of facts and we can sort of play, play the role of, hey, wait a minute, what about? Instead of actually structuring the narrative ourselves. Continuing a little bit here about, you guys probably want to know what the episode is about. So listeners may remember the last time we did this in episode 33 with Overture's acquisition by Yahoo. And today we're going back to kind of a similar time in a little bit before in 2000.

• 1:56Ben Gilbert?

  And we're going to be talking about the sort of legendary, potentially the biggest flop of all time. A legend in the world of M&A, the merger of AOL and Time Warner in 2000. So buckle in.

• 2:10David Rosenthal?

  The word I would use.

• 2:13Ben Gilbert?

  Notorious, infamous.

• 2:17Ben Gilbert?

  Cautionary tale, maybe all of the above.

• 2:20Speaker 00

  Well, let's just skip to the end when we all say worst acquisition of all time. That's the end of the episode. Thanks for having me.

• 2:28David Rosenthal?

  But today, we're gonna be looking at it from the AOL perspective. So was it the worst of all time or was it brilliant? We'll find out.

• 2:38Speaker 00

  Definitely have some thoughts on that.

• 2:41Ben Gilbert?

  So change in the format where David, David teases the audience into actually listening to the whole episode.

• 2:47David Rosenthal?

  Cue campy teaser now.

• 2:50Ben Gilbert?

  Yes, yes. Well, before we get into it, listeners, I want to mention we've got a Slack that is over 900 strong now. So if you like discussing M and A IPOs, major tech news that happens, come join us at acquired.fm and join the Slack. We also love reviews. So if you, if you feel so inclined, pop open Apple Podcasts. You actually can, can pause this episode right now and go and, and rate us on, on Apple Podcasts and it makes a world of difference. So thanks to those of you who have done that and encourage more to do it in the future. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

• 3:32Ben Gilbert?

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• 3:42David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT. And your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote unquote shadow AI running with no security review at all.

• 4:03Ben Gilbert?

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• 4:25David Rosenthal?

  In half? Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 4:43Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V A N T A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you. Now, without any further ado, Brian, would you like to take us into the story?

• 5:16Speaker 00

  Yeah, so AOL Time Warner, the notorious Titanic of especially dot com era shenanigans. We want to start with AOL because as I've learned by doing my show, people of a certain age have often said to me, thanks for doing episodes on AOL because I kind of never understood what they did, which I get because if you're in a time when the internet's all around you, it's in the ether, then oh, it was just an ISP. Why are they so valuable? You know, they only ever had 25 million subscribers at their height. So what is that? How is

• 5:59Speaker 00

  that compared to, you know, having billions of users like a Facebook has? So let's start with AOL and posit that AOL, over the course of the 90s, was probably the best stock to buy. If you were able to buy at its 1992 IPO and sell New Year's Day in the year 2000, your stock would have appreciated 80,000%. At its height, its market cap was about 150 billion, which was worth more than General Motors and Boeing combined, was worth more than, you know, obviously Time Warner, Disney, all sorts of people like that.

• 6:41Speaker 00

  It was estimated that more than 2,000 AOL employees were, on paper at least, made millionaires by AOL stock. So you know, you talk of Facebook billionaire, millionaires, sorry, you know, even Microsoft millionaires. AOL made people, a lot of people on paper, really rich. So AOL, yes, was an ISP.

• 7:06David Rosenthal?

  Back in our day, kids, you used to have to pay for the internet.

• 7:10Ben Gilbert?

  And it wasn't fast. And you couldn't make a phone call.

• 7:14Speaker 00

  You couldn't make a phone call because you had to dial in over your landline. Cell phones existed, but most people didn't have them. At their height, AOL had 25 million subscribers. That was 2002, so after this merger takes place. But they were accounting for, at various times, 60% of US internet traffic in the 90s. So there were other ISPs, you know, even indie ISPs, but in the 90s, there weren't cable modems. There wasn't broadband. I mean, there was.

• 7:46Speaker 00

  But most people dialed in and AOL was the main company that people dialed in with. AOL has a long, fascinating, tortured history going back to the early 80s. Again, I have a couple of episodes on AOL that.

• 8:03Ben Gilbert?

  They've got some serious name changes, right? I mean, they didn't, they didn't start as AOL.

• 8:07Speaker 00

  Controlled Data Corporation. There was The Source. Yeah, it's, you know, one man's pivoting is another man's failing at one business and jumping into another. And that's actually, you can look at AOL in two ways, like either it's one of the more tenacious and brilliant entrepreneurial stories because they basically lose money for the better part of 15 years, certainly more than a decade. And what they're chasing is the idea of online, but it's, they're so, they're so soon and so early that, that they have to wait for the world to catch up to them.

• 8:46David Rosenthal?

  I think the other interesting thing to point about, point out about AOL is it's not a Silicon Valley company. Its headquarters is in Dulles, Virginia.

• 8:56Speaker 00

  Exactly. Which isn't even New York or, I mean, it's DC, but so, right. It's not even because AOL, as we'll talk about, gets into especially Madison Avenue and creating content and Time Warner, obviously, but they weren't even New York based. They were in the middle of nowhere and everybody at the time always complained about that. Like going to Dulles was like going to Siberia or something. So, again, we're going back to the 80s. It's not till the early 90s when they kind of tie themselves to Microsoft and Windows that they sort of leap to the head of the pack. There's a whole pack here. There's CompuServe, there's Genie, there's Prodigy, there's all these.

• 9:38Ben Gilbert?

  And CompuServe, I was on CompuServe. So, my dad was a beta tester for CompuServe and for AOL. So, he's got free accounts. And I remember being on CompuServe and thinking it was better, but my understanding is that it was like only sort of for the super internet savvy nerds and AOL was much better at reaching the mass market. Does that, does that feel like sort of why AOL won there?

• 10:01Speaker 00

  A hundred percent. AOL had the derogatory or pejorative name of training wheels for the internet, but they actually embraced that and it makes sense. I mean, I've said on the show, like, you know, a lot of people's first email was AOL in a time when you didn't have email unless you were at a college or at work or something like that. But also AOL trained people how to live online. Like they gave you a screen name and you went into the chat rooms and you did dirty sex chat and things like that. And, you know, you could create an online identity, like, and this is what we should talk about, what AOL's

• 10:42Speaker 00

  business was. You know, they eventually basically made their money by allowing people onto the web, but they were also trying to curate the web and create this online experience that would like hand, handhold people into it.

• 10:57David Rosenthal?

  Yeah, it's really amazing. Like, we're kind of making fun of AOL in a lot of ways here for, you know, being a Dulles, Virginia company. Again, nothing against Dulles, Virginia, but not where you think of as a tech hub. But, but they really pioneered a lot of the paradigms of the internet that are some of the most valuable, you know, companies and products today. I mean, AOL Instant Messenger, AIM, you know, was basically Messenger. I mean, AOL was a lot like, like Facebook before Facebook.

• 11:26Speaker 00

  Uh, can we remember to bring that up at the end? Because actually, yeah. AOL is always about to run out of money perpetually. Because what they have to do in the early 90s is, you know, they create this, it's called a walled garden. So they, they go to people like Time Warner and they say, hey, can you give us Sports Illustrated content? They go to, um, you know, this magazine, that newspaper and say, hey, we'll pay you, you know, X millions of dollars. Allow us to, you know, republish your articles and your pictures and things like that in our walled garden. Um, and so there's all sorts of times when they get saved by an investment from, um, this company, uh, or like Paul

• 12:10Speaker 00

  Allen invests a lot and, and basically tries to take him over in the early 90s and they poison pill him. Again, coming back to this idea that they're either, they were either not really a smart tech company, or they were these insane scrappers that they held on to this idea that online could be a thing, and then positioned themselves that when the tidal wave came, they just rode it, right? Um, I've talked again on the podcast before about reasons why Prodigy dropped the ball, CompuServe dropped the ball, AOL, you know, picked it up and ran with it. But essentially, what you need to know is by 1996, essentially,

• 12:48Speaker 00

  AOL is the primary ISP, but it also has this huge amount of content that is, so what you would do is you would dial in and you'd be on AOL. You wouldn't be on the, the web. AOL would give you your email, they'd feed you their headlines, again, you know, paying the New York Times to provide headlines, that sort of thing. And then if you wanted to go to the web, then you'd bring up a browser or you'd go through them, like it was a channel that you would go to. So it was always something that they were...

• 13:19Speaker 00

  Sort of wrestling with, like, they wanted you to stay on their, in their walled garden, but then they also couldn't help but be most people's first introduction to the web and the internet, right? And they, they ride this through the 90s, through the-

• 13:36Ben Gilbert?

  And they, they did eventually have a browser in AOL, right?

• 13:40Speaker 00

  Mm-hmm, yeah. That's a whole nother story about how they double-cross Netscape and signed a deal with Microsoft and, right, and then they had, because they had bought a browser called Booklink and so, but the, but the point is, is that people aren't sophisticated in 96, 97, 98. For all they know, AOL is the internet. And so, when I say that they're sort of wrestling with this, they want to be, somebody describes it as they want to be the Carnival Cruise Lines for an online experience. So, they want to curate it for you. But then, at the same time, the reality is, is that most people getting on the web and doing things like going to Yahoo or whatever are doing it through AOL, and they can't

• 14:24Speaker 00

  conceptually tell the difference, right?

• 14:27Ben Gilbert?

  I, I, I'd literally, I'd love to hold on to this until tech themes later, but like, it's, it, over and over and over again, the only thing that I'm thinking is bundling and unbundling. Like, it is incredible how, you know, the entire internet, everything that we know as sort of the open web and various different protocols and things on various different platforms are all just bundled within AOL. And they were, you know, they were basically making all the revenue for that for, for a very long time before, before we started to unbundle it all into these separate services.

• 14:59Speaker 00

  Now, there's some also interesting things about AOL's past, which are not, AOL presented this sort of, you know, Steve Case and his khakis in Gap ads, this sort of wholesome all-American thing, but they made most of their money by originally charging by the hour, and most people were in the chatrooms doing sexy talk to each other. So, in, in the background, that's how they make their money. But also, they had a lot of things like accounting scandals where they get sued by even attorneys general, like, you're not reporting, I can't even remember the details, but they're like, reporting certain sales right away, even though it should have been, you know, over time and things like that. So, they kind of always were playing fast and loose, but you can-

• 15:44Speaker 00

  Feel like, again, these are scrappers that are staying alive, staying alive with this dream of online becoming a thing until it finally is a thing. And it's essentially 96, 97 that it is a thing. And they wake up and they have 10 million subscribers that, you know, 60% of internet traffic is going through their pipes. You know, in 98, or is it 97, you have, you know, you've got Mail, the movie like, again, we cannot under emphasize how much AOL was sort of the gateway for America embracing online and the web and the internet. They're also on the web, they're a portal like Yahoo is. By the year 2004, out of every five web users were visiting an AOL property at least once

• 16:28Speaker 00

  a month. And they start to make real money by 97, 98. So again, this is-

• 16:36Ben Gilbert?

  And when you say an AOL property, that's on the web, but something that's on by AOL outside of the AOL walled garden?

• 16:42Speaker 00

  You know what? I pulled that out of my notes and I don't actually know. But, but that's what I'm saying is that they're playing both sides of the fence. So, and we'll get into this, like, how, how they're starting to make real money. Like, they would sell you, okay, be on our AOL walled garden side, or be on our AOL.com side. They had all this stuff to sell. Actually, we're gonna get to that right in a second. So AOL starts to make real money in the dot com era, and no one is making real money in the dot com era. So that's one of the reasons why their stock starts to go through the roof. But then the other thing that Wall Street is seeing is like, okay, this internet thing is happening, and the majority of Americans are getting online via their pipes. So what do you want to do? That's the stock you want to be in.

• 17:27Speaker 00

  You know, there's a Henry Blodgett quote where he says, you know, AOL is the blue chip, is blue chippiest of the, of the internet stocks. And they're actually, you know, they're the first internet company to be included in the S and P 500. Guess what company they replaced? Actually, there could be a million. It was Woolworth. But, um, so, you know, as late as 1998, they're still under a $30 billion market cap, but then like everything else in the dot com era, within 18 months, you know, that's ballooned above 150 billion.

• 18:03David Rosenthal?

  And we've talked about this era on this show before, and you certainly have on your show, Brian, but like, I think it's worth like, again, as always, just pausing on this, like, as late as 1998, AOL was worth, you know, market cap of under $30 billion.

• 18:18Speaker 00

  And that was insanely expensive.

• 18:21David Rosenthal?

  And that was insanely expensive. And then, you know, 18 months later, you know, they're buying Time Warner and the combined company is valued over $350 billion. Like, that is how crazy that moment in time was.

• 18:36Speaker 00

  Well, let me tell you some more reasons why Wall Street was in love with AOL. What they're looking at is, you know, a lot of analysts called it like a three-legged stool or whatever. So they're getting money from the subscriptions. Again, I think by 2000, they hit 20, 20 million people paying $20 a month, right? And then they're a content platform. In the early days, when they had to go to New York Times and say, we'll pay you $2 million to get your headlines. By 97, 98, they can say to the New York Times, you pay us. If you want to be in our walled garden, we've got the eyeballs, we've got the real estate, you pay us. So they're basically a content platform. That's very lucrative.

• 19:19Speaker 00

  But the big thing, and this is going to be key to this whole conversation, is that by 97, 98, they're making tons of money on advertising. Because, again, they're basically where everybody goes, you know, we think of people starting their day on Facebook now or, you know, whatever. So that's where your email was on AOL. By 98, 99, that's where your buddy list was on AOL. And but this whole concept of people starting their day online, like AOL, again, sort of like trained people how to do that. So I just did an episode with an early Yahoo guy.

• 20:02Speaker 00

  All of the portals in this time period make money essentially by selling ads to other dot coms. The whole dot com bubble can be thought of as like just a snake eating its own tail. If you happen to be one of the portals, though, you're just, you're the one doing the eating. If you're one of these venture backed startups, you're, you're the tail.

• 20:20Ben Gilbert?

  Which is so funny. I mean, the, the parallels to Facebook are just like jumping off the page, right? That there was that, that era, um, like three, four years ago, where everyone was saying that, oh, yes, Facebook discovered this magical mobile news feed ad and they're mostly, um, you know, on this new format that's to install apps and all the apps are funded by venture capitalists that are just paying money to startups to pay money to Facebook to get this. I mean, it's, it's like hilarious how it's the same narrative around the company two decades later.

• 20:49Speaker 00

  Let me give you some brilliant examples of that. So here's a dot com company called DrCoop.com. C. Everett Coop was the Surgeon General of the United States. This is how crazy the dot com era is. They, they, DrCoop.com is a company that IPOs to do health, uh, make a health website, right? Uh, I don't know the date of their IPO. I, it's probably 98, 99, definitely 99, I think. They IPO and raise $85 million for their website. A month after they debut on the stock market, Dr. Coop turns around and basically spends all of that money by agreeing to pay AOL $89 million over four years to provide health content to AOL users.

• 21:33Speaker 00

  So all of the money they raised on their IPO, they turn around a month later and they hand it over to, to AOL. Because everybody thinks that AOL is where you've got to be. And so AOL in 98, 99 is starting to ka-ching like crazy. Like there's a company, a long distance phone provider called TeleSave that pays $100 million. And you know, this is, this is playing off dot coms every like, there's a company called Preview Travel that pays $21 million to be AOL's online travel agent. 1-800-FLOWERS pays $25 million to be the florist, although I had Jim McCann on the show and he said that

• 22:13Speaker 00

  that worked out very well for them. But AOL can play off Barnes and Noble, who pays $40 million to be the book selling partner in the walled garden section versus Amazon that pays 19 million to be part of the AOL.com web portal. eBay ponies up $75 million to be the exclusive auction provider. And it kind of works out for everybody. Like when Dr. Coop's deal is announced, its stock actually leaps 56% in a day. This is the dot com era, Fred. But everyone believes that they have to be on AOL, just like everyone believes you've got to advertise on Yahoo or whatever. So AOL's in this position, just

• 22:57Speaker 00

  start banking money. Like, all of a sudden, they're turning a profit where they hadn't for years, and they're meaningful profit and billions and billions of dollars. The guy behind this era is Bob Pittman, who I don't know if you, if that name rings a bell to you guys. He was a, one of the original founders of MTV. He became very famous for being the hard driving guy behind this AOL deal making machine. He was their COO, right? I think so. Right. We'll get to him later after the deal, the deal falls apart. Internally, his team of guys that would go around and shake the trees for these dot com deals were called the hunter gatherers because they quote, descended on the dot

• 23:42Speaker 00

  coms like scavengers and made them offers they couldn't refuse. And there's a quote where an anonymous dot com company says that the, it was like high pressure, just, you know, boiler room type stuff. Quote, for weeks, it was, you're great, you're great, you're great. We want to do business with you. And then one day, it turns out that we have to give them every last dollar we had in the bank and 20% of our company. Another dot commer says that AOL demanded 30% of her company, quote, and then for good measure, they tell us, these are our terms. You have 24 hours to respond. And if you don't, screw you. We're going to go to your competitor.

• 24:23Speaker 00

  So listen, these are crazy times. These are fat times for AOL. Again, I want to bring up this idea of culture and AOL being scrappers and doing whatever it takes to stay alive. So why do they stop when all of a sudden they're like in the catbird seat? They seem to be the nexus of this new internet economy. And their, Bod Pittman's army of dealmakers, you know, basically, basically drive what is essentially the thing that really makes Wall Street go nuts. So we're going to get into this again later, but everyone thinks that the AOL went away because people stopped

• 25:09Speaker 00

  doing dial-up or paying for dial-up and they moved to broadband and things like that. But the thing that we'll see actually has the deal sort of collapse and AOL's stock price collapse and things like that is the fact that what made their stock appreciate so much was that they had this insane growth in advertising. And that's where the money was coming from. That's where the actual cash flow was coming from. Sure, it's great to have in the background this recurring revenue of the, you know, the subscription revenue, but that's not what was actually moving the needle in terms of why Wall Street loves them.

• 25:45David Rosenthal?

  Yep. It was all of these, all of these deals they were doing with all these dot com startups that were giving them all of their money.

• 25:52Speaker 00

  Exactly.

• 25:53Ben Gilbert?

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• 26:07David Rosenthal?

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• 26:21Ben Gilbert?

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• 26:31David Rosenthal?

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• 26:48Ben Gilbert?

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• 27:05David Rosenthal?

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• 27:21Ben Gilbert?

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• 27:30David Rosenthal?

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• 27:41Speaker 00

  Well, interestingly enough to transition here, because they're doing all these deals with these dot com companies, they have sort of their ears to the ground and they can start to see when, you know, the money starts to dry up, VC money starts to dry up, IPOs start to go bust, they're the ones that know before anybody else that, listen, this bubble might be bursting. And so

• 28:10Ben Gilbert?

  And so what, in, from like a sort of macroeconomic perspective, why are the, David, you may actually know more about this, like, why are the VCs ceasing to invest there? So what's the signal to them to stop?

• 28:25David Rosenthal?

  It's hard to say. Again, because we're talking about such compressed timeframes here. If I were to speculate, I think it's probably just that so much money had gone into the system without, you know, real returns. And so you start getting to the bottom of the barrel.

• 28:43Speaker 00

  Well, actually, that's, that's it. They got great returns. Again, there's other things I don't have in front of me.

• 28:49David Rosenthal?

  Paper returns.

• 28:50Speaker 00

  Right, right, right. But, but see, for, for them, it doesn't matter because anything can IPO for a certain amount of time, right? And so, once you get past the lockup period, you can take actual garbage public and it doesn't matter, right?

• 29:02David Rosenthal?

  Yeah. I was thinking more from the limited partner perspective.

• 29:04Speaker 00

  Yeah. But, um, but what you said is exactly it, is that when they are taking garbage public, eventually, everything is garbage. And enough people have kind of gotten rich enough and fat enough that they're like, you know what, I'm gonna sit these out. You know, the, the seventh pet startup, I'm gonna sit this one out. And so, that, that, in my, my personal theory is that that was it. It's also a combination of people realizing that the returns on online advertising were not good, you know, the click through rates, you know, are plummeting, so the, the actual... That's always been such an underpinning of things, like, you know, ad rates, underpinning,

• 29:48Speaker 00

  it's sort of like, you know, the plankton in the sea, or whatever.

• 29:51David Rosenthal?

  Yeah. Well, I guess, that's, that's a key point, too. I mean, I think we come back to it. I'm sure that had a lot to do with it, too, is these companies that had been venture-funded and then even IPO'd, had given all their money to AOL and Yahoo and other portals, and with expectation that that would drive huge clicks and huge revenue. And then when it doesn't, then they go bankrupt, and then there's no more money to feed into the system.

• 30:13Speaker 00

  Well, there's also, it's, it's the 1999 Super Bowl, when I think there were 30 dot com companies, or maybe it was 2000, it makes more sense that it was 2000, that, you know, are paying $2 million apiece for your, your one Super Bowl ad. And that worked out for certain companies, like HotJobs famously, but then others, you know, you've never heard of again, and they, they blow, you know, their $2 million of the 10 million that they raised. And, listen, it, it, there's a reason why it's, it's called a mania. There's a reason why, you know, after a party, you have a hangover the next day, because you did some crazy stuff. But, um, that, that was the times. So...

• 30:52Speaker 00

  To come back to this, the, as I said, they know before anyone else because they can see this. They can see, well, listen, Dr. Coop's not going to raise another round. So, you know, when that deal is up in three years or whatever it is, where are we going to get another Dr. Coop? Right? So as early as, and I want to stop and mention, there's three great books on this. It's unusual that there's been this many books written about a dot com era thing. There's Kara Swisher's book, There Must Be A Pony In Here Somewhere. There's Fool's Rush In by Nina Monk, and there's also Stealing Time by Alex Klein.

• 31:33Speaker 00

  So in one of those, you can see, and there's quotes from internal memos after other later lawsuits. As early as December 98, internal emails show that like Steve Case and Pittman and the other lieutenants are kicking around the idea that they need to start thinking about a safe lily pad to kind of land this company on because they're seeing the bubble bursting. And so they're, this is 98, December 98, but so it's still another 18 months before the bubble actually bursts. So they think about other internet companies, and we'll get into this later, but they seriously consider eBay.

• 32:17Speaker 00

  But Case was generally, sorry, go ahead.

• 32:20Ben Gilbert?

  Didn't they like actually have Meg Whitman like waiting in a room or something?

• 32:23Speaker 00

  I'll tell that story.

• 32:25Ben Gilbert?

  Okay.

• 32:27Speaker 00

  But Steve Case was wary of doubling down on another internet company because that makes sense strategically. If you think the bubble's going to burst, why do another internet company?

• 32:36David Rosenthal?

  Two anchors tied to one another are just going to sink faster.

• 32:40Speaker 00

  So he says something like, let's look beyond the internet and quote, identify companies that have a profound impact on how people get information, communicate with others, which is our core business. Byproducts are entertained, et cetera. So there's major courtships with AT&T, the pre-singular merger AT&T. Disney, they went hard at Disney, but apparently Michael Eisner was a hard no. And the quote, I think this is from Swisher's book, one of the AOL guys says, "We all knew we were living on borrowed time and we had to buy something of substance by using that

• 33:22Speaker 00

  huge currency. We didn't use the term bubble, but we did talk about a coming nuclear winter." Well, one of their problems is that they also know that dial-up is a limited technology that's going to be eclipsed by broadband. Again, they're not stupid. As much as they're not maybe, you know, a Silicon Valley company, huge technologists, they know that broadband is coming either through DSL, which people thought would be a thing at the time, but mainly cable modems. So a lot of thinking went into, "We should get a cable company." Or that's probably why they were talking to AT&T, you know, AT&T had DSL at the time. Another quote from Kara Swisher's book is, an anonymous AOL guy says, "Cable was the

• 34:06Speaker 00

  driver of everything. Without it, no deal made sense." So Time Warner is the biggest of the media companies at this point in time. Also, they have a little thing called Time Warner Cable. So if Steve Case doesn't want to do an internet tie-up, he wants something that has more substance. No one's going to believe if they decide they're going to buy an oil company or something like that, though they could have. They had the market cap to basically buy anything at that point. So what he believes is Time Warner has the content. And remember, they spent a decade believing that content

• 34:47Speaker 00

  was the thing that would make it online, become mainstream, become a thing. And so it's, you know, content is key. How many times have we heard that over the decades? Time Warner has this, you know, Tiffany Platinum content going back hundreds of years. And by the way, they have a cable company. I think it was the third largest, maybe the second largest at the time. So I'm going to take an aside here and tell you the story of Jerry Levin and Time Warner. Jerry Levin, the CEO of Time Warner at this point, made his bones through technology. He basically, he didn't invent HBO, didn't come up with the idea,

• 35:32Speaker 00

  but he was the guy behind the strategy of, let's deliver this pay channel via satellite TV. He makes his name, rises up through the ranks via the incredible success of HBO. And Jerry Levin believed in technology because of that. And in fact, over the several decades at the company, he continued to try to pioneer technological advances, believing that there's untold new ways in the future that that technology is going to be able to deliver content and media and things like that. They invested in the full-service network in Orlando, which was sort of an attempt before the web took off

• 36:15Speaker 00

  to sort of do, you know, what they called 500 channels and, you know, shopping with your remote through your TV and things like that. Time, it was Time at the time before they bought Warner, spent about a billion dollars on that. They also, when the web comes around, there is a site called Pathfinder that they throw several hundred million dollars after. I have a lovely episode of my podcast about Pathfinder because it's gone down the memory hole, but it deserves to be remembered for all the things that it pioneered in terms of trying to deliver media on the web. But it also lost them a ton of money. Around this time, corporate America, there's a watchword,

• 36:58Speaker 00

  everyone needs an internet strategy. You know, Disney does the Go network. There was NBCI, there was all these initiatives. If you're a media company, you're trying anything you can do. Barry Diller tries to buy Lycos, or was it AltaVista? I can't remember. Everyone thinks that you're going to be Amazoned. You've got to come up with a way to either embrace the internet and the web or combat it or something. So you have Jerry Levin, who's always believed in technology, is going to change content and media.

• 37:33Speaker 00

  Time Warner has failed time and time again to come up with an internet strategy. And so in 1999, when the People's Republic of China is having its 50th anniversary and all of the, you know, the politicians and business leaders and it's basically Davos in Beijing for that period of time, everyone's in Beijing celebrating the 50th anniversary of the People's Republic of China. And Steve Case starts to seriously court Jerry Levin. Jerry Levin thinks this is great. This is gonna solve his, it's gonna prove him right, that if he can marry the greatest

• 38:14Speaker 00

  media company in the world to what everyone believes is the greatest internet company, his vision of technology changing media will come true. This is gonna be his legacy. There's, in the various books, it's a complex courtship. This is where I believe the eBay thing comes in. My theory is that they kept talking to eBay because they were using it as a stalking horse. Like, actually, I'm gonna open up the Kara Swisher book here. The week before, it might even be the day before, they actually announced the merger, the deal with Time Warner.

• 38:54Speaker 00

  Meg Whitman and their Goldman Sachs people are at AOL headquarters and they're in one conference room, this is the main conference room, trying to work out a deal so that AOL's gonna buy eBay. In what's called the Malibu Room, on the opposite end of the floor is Time Warner and their lawyers, and they're, you know, working on the deal that's eventually gonna go through. So it's a comical scene, this is quoting Swisher, "Executives are shuffling in and out, alternatively apologizing to and ignoring Whitman and her team who are sitting there cooling their heels, wondering what..." They're not quite sure what's going on, is this just the way AOL works? They're famously flaky and like aggressive at various times, like sort of passive aggressive almost.

• 39:37Speaker 00

  And so, spending a day there where nothing really gets done, and lawyers are running out of the room and disappearing, and where are they going? They don't really know. They don't know that Time Warner's in the other room. So, at the end of the day... Whitman and the team is leaving. She goes into Bob Pittman's office to say goodbye. And she says, quote, "You've got a lot going on here, it seems." And of course, she had no idea. I think it's the next day that they announced the Time Warner thing. But so, yeah, they basically, now, this is, this is definitely an aside. What if they had done the eBay deal? Because eBay survived the dot com bust better than everybody.

• 40:15David Rosenthal?

  Huh. Well, and in large part due to because of PayPal, which of course came later.

• 40:21Speaker 00

  And then that's a counterfactual would if, if, if, would AOL have been smart enough to have allowed the PayPal acquisition? But, but if you look, if you look at eBay's stock, like it basically, it goes down some, but then it reaches its height. It surpasses its dot com bubble height in like 2003, 2004. It's like the only stock that does, like in a time period when Amazon's down to like $5. Because eBay's business basically never dipped. They, so in retrospect, which we'll get into, buying eBay was the way to go. They should have gone with a, with an internet company.

• 41:00David Rosenthal?

  So I'm gonna, I'm gonna save this. I'm gonna come back in tech themes. This is my tech theme here, but you know, this is, well, I'm gonna say much more on this later. Suffice to say that, you know, eBay was the much better business for the internet, certainly than Time Warner.

• 41:18Speaker 00

  Well, believe it or not, guys, I'm gonna wrap this up. I'm, I'm, let's, let's, let's do it. The, the, I promised 20 minutes. I'm way beyond that at this point. The deal is announced, January 10th, 2000. It's the merger of $164 billion AOL with $83 billion Time Warner. The, the deal, it's announced as a merger, but the reality is AOL shareholders controlled 56% of the merged company and Time Warner shareholders 44%. So it's an acquisition in all but name.

• 41:52Speaker 00

  And you know, I actually remember very vividly this happening. And in my memory, I forgot to look this up. Like Jerry Levin and Steve Case are on Charlie Rose that night. Like, they were everywhere. Charlie Rose. Yeah.

• 42:07Speaker 00

  Steve Case vowed that one day AOL Time Warner would have $100 billion in revenue, would be the world's first trillion dollar market cap company. There's a quote from Roger McNamee, the venture capitalist, who says, quote, "Let's be clear. This is the single most transformative event I've ever seen in my career." Kara Swisher has a quote from her book where she says, quote, "In one major move, the two companies had seemingly addressed both of their weaknesses and intensified their strengths. I won't deny that I really believe that, as did many others, many of whom now pretend they never did."

• 42:44Speaker 00

  So, I mean, this is January of 2000. This is the height of the bubble. What's also happening around this time, the Microsoft antitrust trial has come to an end. It looks like Microsoft's about to be broken up. Who looks like is the new, you know, king of the technology hill? It's AOL of all people.

• 43:04Speaker 00

  What happens is, so the, the deal is announced in January of 2000. On four days later, the Dow Jones Industrial Average peaks at a level that it would not return to for more than six years. On March 10th, 2000, the NASDAQ peaks and at a level that it would not reach again until March of 2015, losing 80% of its value at its low. The, the bubble bursts.

• 43:35Speaker 00

  And we'll get into why the, culturally, why the acquisition was a disaster. The merger was a disaster. But again, the reality of it is, not that people stopped doing dial-up. Actually, until 2002, the dial-up subscriptions were still growing. It peaked at 26.7 million. The thing that kills this deal is that as soon as it happens, all of those deals that AOL did with the dot-com companies.

• 44:09Speaker 00

  Disappear, evaporate. And I'm not just saying that the three-year deal runs out. I'm saying that the companies are bankrupt and are not going to be sending you any more checks. So essentially, that insane growth in advertising that had so excited Wall Street. At some point, Wall Street was estimating that AOL by 2003 would have more advertising revenue than an ABC or a CBS in television. Like, they're thinking, this is it. This is the next big thing. Goes away almost from the moment that the deal happens.

• 44:43Speaker 00

  Culturally, you know, I don't know how interesting this is, but you know, those AOL cowboys move in. They try to tell the Time Warner guys, you know, okay, we're going to run this like a tech company now. And it's like the host body rejecting an organ. Time Warner was always notorious for having these warring fiefdoms of like, you know, I control magazines, you control cable, you control book publishing, you know.

• 45:08Ben Gilbert?

  And not dissimilar from AOL. I mean, I think AOL had the internal fiefdom culture too. I mean, you mix two of those together, that can't go well.

• 45:17Speaker 00

  Well, and then with AOL coming in as the conquering heroes and being like, we know, we know this new, this new media game better than you yahoos, you know.

• 45:28Speaker 00

  But like literally.

• 45:30Ben Gilbert?

  You yahoos, no pun intended.

• 45:32Speaker 00

  True. There's practical things about culture clashes. Like if, in one of the books, like Sports Illustrated just refuses to play ball. Like, we're not going to give our content to you. We're running our own. In fact, Sports Illustrated famously never really gave much to the web anyway. Or think of, there's a story about like Warner Studios, after the merger, refuses to let AOL take over the Harry Potter website and the online promotion for, the Harry Potter movies are just getting going, right? So that's why Warner Studios is, so when AOL says to them, okay, let's take this over. Warner Studios says, no, right? And then the thing that AOL wanted the most, like to save their skin,

• 46:16Speaker 00

  was AOL's, or I'm sorry, Time Warner's cable division?

• 46:21Speaker 00

  Time Warner had Roadrunner famously, which is another thing like they couldn't even get Warner to give them license them the Roadrunner cartoon. That's, that's the infighting that is at Time Warner. But so when, when AOL says, okay, listen, let's, let's brand AOL into your, your, your, you know, expanding cable internet service. Time Warner Cable says, get bent. Right? So even though they're the acquiring company, essentially, the, the entrenched power brokers at Time Warner just tells these guys to screw off and basically waits them out until the, the disaster of the merger becomes evident and, and get kicked out.

• 47:07Ben Gilbert?

  Well, and if you think about like the, the power dynamics generated by the, the revenue, like I think AOL's total revenue in 2000, right before the merger was like 9.5 billion or somewhere in that neighborhood. And, and you know, Time Warner had a much more narrow price to earnings ratio where they, you know, of that, what were they, what were they valued at? Like a 150 million or something?

• 47:32Speaker 00

  160 billion, yeah.

• 47:34Ben Gilbert?

  Yeah. Sorry. 160 billion. Like they had real material revenues such that that had to be like a three X or something, not like a, you know, ridiculous multiple like AOL.

• 47:45David Rosenthal?

  Ben, I know what article you found because I found that one too. I think that was adjusted for inflation, but it's even worse. AOL had less than five billion in revenue.

• 47:54Speaker 00

  Right. It was that small.

• 47:55David Rosenthal?

  Yeah. And Time Warner had over 25 billion. So, you know, over five times as much and AOL's quote unquote revenue is, as we've talked about was, you know, the, the snake eating its tail.

• 48:07Ben Gilbert?

  So you can see how you're like a Time Warner mid-level exec and you still feel like you have all the power in that organization.

• 48:14Speaker 00

  Or you should by right, you know, there's also, think, think of this strategically. So AOL thinks, well, we'll have a cable company and then that, you know, that'll solve our problem with the transition to broadband. But then if you're Comcast, why do you want to play ball with AOL now? Right? Like if AOL had been independent, they were trying very hard to do things like go to Adelphia Cable or Comcast and say like, let's co-brand AOL and we'll take, you know, a certain percentage of the monthly fees and you take it, but we'll value add to this and so, but once they're with Time Warner, then, then. Why would any other broadband player play ball with them? Right?

• 48:56Speaker 00

  So in a way strategically, that never made sense. But then, like we've been saying, essentially, the money just dries up. Not again because of the dial-up subscriptions are drying up. But the, it's all of that ad money. It's all of that, when they could charge the New York Times to deign to be on their screens and things like that, just evaporates in the nuclear winter of the dot-com bubble bursting. And so just a year, the one-year anniversary of the merger being announced, the combined

• 49:37Speaker 00

  companies are only worth $147 billion. At the time of the announcement, AOL was worth $160 billion. So essentially, the combined companies a year later are worth less than AOL was at the time of the announcement.

• 49:53David Rosenthal?

  Yeah. And I think they continue to go down from there. They go down below $100 billion, even I think below $50 billion for the combined companies.

• 50:03Speaker 00

  Yeah, I had a bunch of stats on that, too. The only thing that's relevant, I think, is, so essentially, they, it's because the AOL side of the equation is delivering no profits and the revenues are shrinking.

• 50:17David Rosenthal?

  And they stole 55% of the company.

• 50:20Speaker 00

  Exactly. So the write-downs, $54 billion write-down the company has to announce in 2002, which was the largest ever at that time, might still be the largest ever, I don't know. $55.5 billion in 2003. The overall loss for 2002, this says, is $99 billion. So I don't know if that's like a fiscal year versus calendar year thing. So basically AOL, everything valuable about that company is completely an illusion. And Wall Street notices. And so it's announced, what is it, January of 2000? By December of 2001, Jerry Levin steps down.

• 51:05Speaker 00

  The AOL people are still thinking that they're in charge at this point, so they want to take over the CEO ship of AOL, the control of AOL specifically. And actually, that's where Bob Pittman really was the guy that thought he was going to take it because he was feeling like Steve Case would step down at some point. But no, as we know, it went to Dick Parsons. And so Bob Pittman is out by July of 2002. Steve Case finally leaves in May of 2003. September 18, 2003, Time Warner officially drops AOL from its name. The combined company was called AOL Time Warner officially, but just three years later,

• 51:50Speaker 00

  AOL or Time Warner basically wants to pretend like AOL never happened.

• 51:56Ben Gilbert?

  And at this point, they still own the asset. Like, they're not saying, all in one fell swoop, oh, we're going to spin it out. Like, it's still in the company, it's just not doing anything.

• 52:05Speaker 00

  Well, you, as you always hear those numbers now and again about however millions of people are still paying every month for AOL dial-up. I mean, it's-

• 52:15Ben Gilbert?

  Oh, yeah. I've actually got the number. As of Verizon's bid in May 2015, they're still making $606.5 million in dial-up revenue. And I looked up some, it really actually hasn't shrunk much today. So they're really actually still maintaining that.

• 52:33Speaker 00

  Well, you know, there's other, there's other assets in there. Remember, they bought Netscape only to-

• 52:40David Rosenthal?

  Little company called Netscape?

• 52:41Speaker 00

  Yeah, yeah. I mean, so, you know, every, there's a reason why Kara Swisher's book is called There's a Pony in Here Somewhere. It's, in this, if there's a mountain of shit this big, there's got to be a pony somewhere. So they tried, man.

• 52:57David Rosenthal?

  It was a little pony.

• 52:58Speaker 00

  Well, actually, it was a huge one. And you remind, I'm glad you reminded me of this. I made a note.

• 53:06Speaker 00

  AOL Instant Messenger.

• 53:09Speaker 00

  At its height, I think, has over 100 million users. Okay, so like 2003, 2004. People have a buddy list. It's your social graph. Okay. You know, for the research that I've done on Facebook. Basically, they, they wrote Facebook. They, they didn't talk to each other. They sat across tables from each other. They're on AIM, chatting at each other. Like, that's how Facebook.

• 53:35Speaker 00

  There's quotes that I found, like, you know, people in charge of AIM and things like that are like, "Yeah, we had social networking." You know? So, again.

• 53:42David Rosenthal?

  And again, AIM came from ICQ and, which, which I think AOL acquired ICQ.

• 53:47Speaker 00

  AOL acquired. It didn't actually come from ICQ. It's, ICQ was another thing. No one knows why they bought it. AIM, it's an interesting story. Was an internal thing that AOL didn't want to do. But like, people thought it was cool and they put it through.

• 53:59Ben Gilbert?

  Why are messaging platforms always internal things? Slack, Discord, AIM, that are like, not actually going to be a product? And then shocked, like, we should be less shocked by now that messaging platforms make good spinout clients.

• 54:11Speaker 00

  And AOL should have known because they're the ones that, I didn't say this before, but the reason they beat Prodigy is because they let people chat. Prodigy tried to, you know, don't do sexy stuff. Like, so AOL.

• 54:23David Rosenthal?

  People want to do the sexy stuff.

• 54:24Speaker 00

  Just let people talk. The number one thing, if you have a pro, if you, if you have a technology product, a new technology paradigm, the thing that will be the company, the first successful company, is the one that just lets people talk to each other. I guarantee you, the first billion dollar software platform or whatever company coming from VR is just the one that allows people to talk to each other in VR the best. You know? With the iPhone.

• 54:50Ben Gilbert?

  Couple of solid bets on that, yeah.

• 54:51Speaker 00

  Yeah, yeah, with the iPhone, what are the things that came through? You know, things like, you know, WhatsApp and things like that. Yes, any, any paradigm in technology, allowing people to talk to each other is the safest first bet.

• 55:04Ben Gilbert?

  I didn't know that number, the 100 million number for AIM, but it makes sense. Like, I had formative, formative, like, growing up experiences where I, you know, had social, like, the first experience socializing with people, you know, at least people online, and also actually meaningful relationships, even when we, like, went to the same high school or middle school, like, we'd chat on AIM until, like, 2:00 in the morning, and you, like, get to know people, and you, like, care about what's in your, your profile, and you care about away messages, like, that was before Facebook wall posts, and, like, you, you have all these things where, like, it's social status, it communicates your personality, it, the number of people on your buddy list, and the way you have it sorted is, like,

• 55:44Ben Gilbert?

  representation of strong and weak social ties, like, that was an essential fabric of life.

• 55:50Speaker 00

  Well, you know, I, I would even say that same thing from the business perspective, you know, my, my three startups were mostly in the 99 to 2005 era. So before even Skype becomes a thing, like, like, that's how we did business, you know, Skyping people all the time, it was people's, if you knew their, their instant messenger screen name, I'm gonna talk to Om Malik next week, and, and, but, like, he was famous for that, like, he would give that, like, that's how, if you wanted to get on GigaOm, you, we were talking earlier about, you know, promoting startups and things like that, like, if you knew Om Malik's instant messenger, and I think Michael Arrington was the same way, like, that's how you-

• 56:28Ben Gilbert?

  His was Skype, I think. I remember him being a huge, yeah.

• 56:33Speaker 00

  Yeah, but, so, right, you know, business was done over that. Again, it's the social graph, it's like, it was your Rolodex, it was your, it was how you kept up with people. Yeah, it was everything. So I need to do an episode on that. I gotta, I gotta track down some AIM guys and have them basically-

• 56:49David Rosenthal?

  Oh, totally. I mean, it's incredible, like, it was, and we joked about it earlier, but, like, it was Facebook, WhatsApp, you know, WeChat, like, you know, all of this, Snapchat, like, Instagram, well, not Instagram, photos weren't as big a part of it, but, like, all of the most important-

• 57:08Speaker 00

  Oh, you could, you could trade files. I don't know if you remember that, you could-

• 57:11David Rosenthal?

  Well, you could trade music.

• 57:12Ben Gilbert?

  It would, it would fail all the time, like, it was one of those things that was, like, yeah, give it a shot, but we'll see if it actually happens.

• 57:18David Rosenthal?

  But it was, you know, for all the, you know, lots of people, ourselves included, make fun of these, you know, non-technologist cowboys in Virginia, like, they invented the internet, to borrow an Al Gore phrase.

• 57:33Ben Gilbert?

  It's a little, I mean, it's a sad thing to watch, really, because like, you know, Facebook was their opportunity to squander. And I mean, it's, as you sort of study network effects and how people build defensibility around their business, there's some fascinating stories about, I think it was ICQ trying to reverse engineer the AIM protocol so you could chat AIM people from the ICQ client. And these basically engineering wars going back and forth of how could they keep tweaking the protocol to keep the other guys out and keep their network effect to themselves.

• 58:04Speaker 00

  There was a whole Cold War between AOL and Microsoft because you had MSN chat, you had Yahoo chat.

• 58:11Ben Gilbert?

  Oh, that's what it was.

• 58:12Speaker 00

  Yeah, that's what it was.

• 58:13Ben Gilbert?

  MSN Messenger.

• 58:15Speaker 00

  Right, as soon as MSN Messenger would crack the code, AOL would change it. And, right.

• 58:20David Rosenthal?

  And you saw these network effect, you know, local network effect dynamics taking place, like, just like there is today. I mean, MSN Messenger and Live was the dominant network in a bunch of countries, and AIM was the dominant network in the US. And, you know, it's just like iMessage and, you know, and Facebook Messenger here versus WhatsApp in Europe.

• 58:41Speaker 00

  Well, listen, remember, Steve Jobs famously told us that they were going to open source FaceTime.

• 58:49Ben Gilbert?

  FaceTime Protocol.

• 58:50Speaker 00

  Yeah, I haven't seen that happen.

• 58:51Ben Gilbert?

  I think that's actually less of a business decision and more of an engineering decision. I think the, as the lore goes, the team that built FaceTime was sitting in their row when he, they heard it for the first time when he announced it on stage, and they all looked at each other like, "What?"

• 59:05Speaker 00

  Yeah, I think I heard that too, yeah. Well, all right, that's my, I'm sorry I droned on so much, but that, I will hand it back.

• 59:12Ben Gilbert?

  No, no worries.

• 59:13Speaker 00

  I will hand the keys back to you guys.

• 59:15David Rosenthal?

  Where do we even pick up?

• 59:17Ben Gilbert?

  I know, I know. I mean, well, David, do you want to talk into anything at all, any more acquisition history and facts, or should we go into the acquisition category? And I can kind of frame that up a little bit.

• 59:29David Rosenthal?

  The one thing I want to add, nothing more on the history and facts of this itself, but it's just such a... It was such a fitting coda to this whole story is history repeating itself, you know, again, and look where we are today and AOL is owned by Verizon. AOL spun out of Time Warner in 2009. It was valued at just over $3 billion versus the astronomical heights of, you know, nearly 10 years before that.

• 1:00:00Speaker 00

  And that's mostly because they had all this ad tech that they've bought over the years.

• 1:00:04David Rosenthal?

  Yep, yep. So they get acquired by Verizon. And then on the Time Warner side, the deal hasn't been approved by, um, by the government yet, but they are in the process of getting acquired by AT&T. So, you know, there were all these jokes about, you know, the worst merger of all time. And, you know, this tech internet company AOL, you know, merging with an old media company. And here we are in 2017 and both of them are owned by phone companies. Really, really hard to imagine.

• 1:00:36Ben Gilbert?

  All right, listeners, now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:00:49David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:01:06Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:01:21David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:01:44Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:02:03David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months. Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with

• 1:02:45David Rosenthal?

  a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 1:02:58Ben Gilbert?

  Well, for acquisition category, I think, why don't we actually take a stab from both directions? So let's say first, because it actually was AOL taking over Time Warner, what kind of acquisition was that for AOL? Our standard categories are people, technology, product, business line, asset, or other. Brian, if I may be so bold as to voice what I think you would say, this is actually an other because it's not necessarily acquiring, if anything, it's maybe acquiring a business line, but it's like acquiring stability and liquidity?

• 1:03:41Ben Gilbert?

  It seems to be what you're applying, like applying an exit strategy?

• 1:03:44Speaker 00

  So see, here's what I would say. The rationale is that they're buying the business line of the, or the technology. It's murky to me what the category is, but they want the cable company so that they can transition into broadband. That's their rationale. What are they really buying? The assets. They're essentially trying to say, listen, if our stock is ephemeral, we need to convert it into something that'll last forever. Time Magazine has been around since the 20s. Warner Brothers has been around since the 20s. So it's the asset of content is king that they were really in their heart going after.

• 1:04:28Ben Gilbert?

  Yeah, well put. Man, and as a little aside, like if you are at the negotiating table there and you're AOL, how do you keep a straight face through all this and really represent what you're in this for and?

• 1:04:41Speaker 00

  Well, we can get into speculating on that later.

• 1:04:46Ben Gilbert?

  All right, I'll save it. So then let's let's take a stab from the other side.

• 1:04:49Speaker 00

  Well, actually, actually, before you do, David, do you agree with that? What was your take on it?

• 1:04:53David Rosenthal?

  Well, I think I think I'd classify it as I think you guys are totally right. But to me, that I'd classify it as an other because I'm trying to rack my brain here about any other deal we've covered on this show where the rationale for it has literally zero to do with the business. There is nothing going on here, except, you know, it's not an asset that's valuable to AOL as a business. It's certainly not technology. It's not people. It's, you know, business line, sure, but like, that's just tons of business lines. They're essentially buying a conglomerate. The only reason they're doing it is to just sort of, you know, save their own, you know, net worth, personal net worth.

• 1:05:37Speaker 00

  This might be a crazy analogy, but the analogy that springs to mind is, you know, how like, you know, like Dubai and all the Gulf countries, they know that oil is going to run out someday, so they're trying to turn into tourist destinations. So that has nothing to do with energy or natural resources, but they're like, yeah, we know. We gotta do something that's sustainable, you know?

• 1:05:59David Rosenthal?

  Yeah, exactly. And I think that's what's going on here.

• 1:06:04Ben Gilbert?

  It's like it's like Snapchat today, if they were to decide to go buy land in Manhattan.

• 1:06:12Speaker 00

  Right, or or an oil company.

• 1:06:14David Rosenthal?

  Which famously Zynga did when they bought their headquarters in San Francisco, right in the heart of Soma. It's right, a huge building, right across the street from Airbnb, and is by far the most valuable part of Zynga.

• 1:06:27Speaker 00

  Well, the most valuable part of New York Times is their their building, or which, did they sell that already? I don't know.

• 1:06:33David Rosenthal?

  They sold it and they leased it back. Yeah.

• 1:06:35Speaker 00

  Gotcha. Gotcha. Okay, so let, okay, let's do do the reverse. So you guys go first, then I'll go last. So what is what is what is Time Warner thinking it's doing?

• 1:06:48Ben Gilbert?

  So in my head, you know, I'm wondering if they're, if they're buying technology or they think they're buying technology, or if it's really buying distribution that like they've somehow missed out on the internet and you know, they, they need this way to distribute their content and it's much better to actually own it than to, to partner and you know, by, by buying AOL or by, you know, getting bought by AOL, then suddenly, you know, AOL has all these dial-up customers, they're in, they're in all these homes and they have a brand-new channel to get their content to them. I, I think if I was gonna try and rationalize it from, from Time Warner's side, that's what I would go with.

• 1:07:30David Rosenthal?

  Yeah, I mean, I think there, there are just some amazing quotes, you know, doing the research here from all the principals involved and from media and observers at the time. And, but I think it's kind of like, you know, Kara Swisher, you know, as, as you quoted Brian from her book, you know, she's the one who's honest about this. Like, yeah, at the time, like, you know, people were riding high on, on something and, and they thought that this made sense. And, you know, Jerry Levin, the CEO of Time Warner, and then, and then CEO of the combined company, you know, he has this quote from the, when the deal gets announced, I think he, I think he said this to, maybe there was a big Washington Post article, I think it was in this, might've been written by, by Kara.

• 1:08:13Ben Gilbert?

  Yeah, she was with them at the time, yeah.

• 1:08:14David Rosenthal?

  Yeah, yeah. He says, "This new world of valuations in the internet economy is something I accept." So, I mean, he's basically saying, like, this company that's buying us, like, it kind of has no business. I don't understand the business, but like, there's the new normal, you know, and that's how people talked back then.

• 1:08:35Ben Gilbert?

  Absolutely.

• 1:08:36David Rosenthal?

  So I think it's just like, you know, I don't want to be too disparaging of them because really, as Kara said, like, everybody believed it then, but like, they drank the Kool-Aid. They thought that there was, you know, a new reality there.

• 1:08:51Speaker 00

  Jerry Levin bought the Kool-Aid.

• 1:08:53David Rosenthal?

  Yeah.

• 1:08:54Speaker 00

  Which is why I'm gonna make the argument bizarrely enough for people, because that's what he thinks. He thinks, you know, he's coming to the end of his career. This is gonna be my legacy. I was the guy that was smart enough to hitch this company to the, to the horse, the, the, the thoroughbreds are gonna take it into the 21st century, right? And so, it's, it's, it's not people because he thinks that, you know, they're, they're these brilliant businessmen. It's just that they have cracked the code of something that we old media people can't, haven't been able to figure out, and we've been trying to do it for 10 years, you know? So it's people in that sense.

• 1:09:29David Rosenthal?

  And there's such a great quote from, from Bob Pittman from AOL, who, they're totally like the pushers, like, just, you know, feeding more supply into, you know, these guys, you know, via, you know, mainline. He says, he's quoted in the press at the time, saying that, this is, I think it might be from the same article, "The slow-moving Time Warner would now," this is the, the author of the article writing, "would now take off at, quote, 'internet speed accelerated by AOL.'" And then Bob Pittman comes in with the quote, "All you need to do is put a catalyst to Time Warner, and in a short period, you can alter the growth rate. The growth rate will be like an internet company."

• 1:10:06Speaker 00

  Right.

• 1:10:07David Rosenthal?

  I mean, this is like the, this is like...

• 1:10:11Speaker 00

  It's alchemy. Alchemy, alchemy via, you know, buzzwords, essentially.

• 1:10:17Ben Gilbert?

  Here, David, pass some of that over here.

• 1:10:19David Rosenthal?

  Totally. This is like when the, the Beatles period, when, you know, they went and lived in India and like, you know, started doing their heavy drugs, like...

• 1:10:28Ben Gilbert?

  I mean, it does feel like, like, literally nothing in that sentence is grounded in reality, like, and you can understand in broad strokes how you look at a tech company and you look at the way that it grows, but like, zero of that was connected to, like, the intrinsic value and why tech companies get the multiples they do and why they have the growth rates they do. And like, any discussion of zero marginal cost, it's like, well... catalyst, you know?

• 1:10:51Speaker 00

  Well, can I make a point here? In my research of the dot com, the bubble generally. What you have to understand is everyone was was saying, okay, this is a bubble. This is a bubble. This is a bubble. This is a bubble. This is a bubble. This is a bubble. This is a bubble, you know, from 97 on and kept being proven wrong. And like, you know, in in my book, like, there's a thing, you know, where there's quotes from like, you know, bears on Wall Street or whatever. Eventually, everyone just capitulates because you've been wrong for so long. You know, when, when, when, when you're like, there's no way Yahoo is a $10 billion company. And there's no way they're a 30. There, there's no way there's a 50. When they're over $100 billion, at some point, you've just got to be like, well, shit. So it was, and you know what?

• 1:11:35Speaker 00

  There's all sorts of theory about bubbles and things like that, that that's when the bubbles burst. When you finally slay the last bear, you know, when people's careers have been destroyed because they've been Cassandras for so long. And it's like, listen, I've been listening to you and I missed out on like a 500% upside. You know, like

• 1:11:53Ben Gilbert?

  So I guess I'm buying Bitcoin at 4,600.

• 1:11:58David Rosenthal?

  I was just thinking this whole time, this will maybe transition to what would have happened otherwise. I would have loved to have like, had a conversation with Steve Jobs during this period and been like, dude, what do you like? What's your take on this? Like, I can only imagine what he would have said.

• 1:12:18Speaker 00

  Yeah, I don't know. I have thoughts on that in the sense that he, I mean, because what his, what happened in history is that they waited until the, till the, everything exploded. There's ashes on the ground and they sort of rise up in a, in a place where no one thought, you know, hardware, or no one thought anything was going to be, everyone is going to be on the web.

• 1:12:44David Rosenthal?

  Well, but Steve's laying the groundwork for that all through this period. The next acquisition is at the end of 1996.

• 1:12:51Speaker 00

  And then they have the sort of that, that hub, the, the, the digital hub strategy.

• 1:12:56David Rosenthal?

  Yep.

• 1:12:57Speaker 00

  Yeah.

• 1:12:57David Rosenthal?

  With the iMac.

• 1:12:58Speaker 00

  So they kind of do ride with the iMac.

• 1:13:00David Rosenthal?

  It's when this is happening.

• 1:13:02Speaker 00

  Yeah, they, they do kind of position themselves as we're the best computer maker for this new web era. So.

• 1:13:08David Rosenthal?

  Well. We had a few, few counterfactuals throughout history and facts about what would have happened otherwise, but maybe, maybe a word on like, what would have happened had these companies stayed independent?

• 1:13:22Ben Gilbert?

  Yeah, so that the one thing that I really want to explore here, I think we sort of have a, we could talk about AOL, but I think my, my just base assumption there is that it goes to zero or close. But the thing about, the thing I'm curious about is, is Time Warner potentially, do they end up in a way better spot today in 2017 if they hadn't gone through this? Or did this have some kind of positive effect on them that we haven't really talked about?

• 1:13:51Speaker 00

  They gained some DNA, maybe, or some thinking. Yeah, I don't know. I would actually, again, my most recent episode was with a Yahoo guy that, you know, Yahoo's surviving the dot com bust. Like, they had the same issue of all of their dot com advertisers going away. So where are they going to get their, their money from? And, you know, they, they basically Hollywoodize themselves, but they, they successfully turned the business around. So it's, it's almost like that idea of if you do have to struggle, you're forced into creativity to find ways. So I'm not saying that AOL would have, you know, succeeded in, in anything, but you know, maybe if they're desperate, they do take a look at the one

• 1:14:34Speaker 00

  thing that's actually still growing, AIM, and try to figure out, you know? It's, it's sort of like, it's, if you've got the parachute, then you just kind of enjoy the ride down and you're not, you're not hustling.

• 1:14:48Ben Gilbert?

  Well, I think we covered the, the counterfactuals there. I don't have anything else for what would have happened otherwise?

• 1:14:53David Rosenthal?

  Should we move on to tech themes?

• 1:14:55Ben Gilbert?

  Yeah, let's do it. Let's do it. There's a few that we've talked about, but I- One that we haven't talked about yet, and AOL is completely notorious for, is a lot of their rise, and especially in branding and then brand recognition, and then in distribution, is really like one of the earliest internet growth hacks ever, and that's distributing the CDs. And it's doing something that other people aren't to get noticed and to get distribution, because they're... The point I want to make here is, there are... There's a trick, and then the earliest people make out like bandits, and then everybody realizes what's going on,

• 1:15:37Ben Gilbert?

  and then it becomes the normal thing, and then there's basically a CPM race to the bottom, and then you're competing against everybody else in sort of a commodity, highly efficient marketplace. Like, if you're buying Facebook ads now, and it's not in any of the new formats, you're not jumping on whatever the new flashy thing is, like, you can basically, depending on your category, understand what your cost of customer acquisition's gonna be. And if you're AOL, and you do a very brilliant marketing move of putting these CDs at the checkout, where no digital company, and really no company, is doing their distribution, like, it's in movie theaters, it's in blockbusters, like, all these unconventional places,

• 1:16:22Ben Gilbert?

  and you're giving away something, you know, the benefit of AOL is 100 hours or 1,000 hours for free, like, there's so much that they can give away for free, because it's the internet, and it's software, and it's, you know, reduced marginal cost relative to hard goods, that it's shocking to people. And for the first time, they're like, "Oh, my God, this seems like a crazy deal, and I've never... No one's ever tried to reach me at this point before." So, to me, it's like, a lot of times, companies succeed because of the initial, basically, distribution hack, or, you know, I guess, growth hack, but really, like, figuring out how to get in front of people where no one else is getting in front of them.

• 1:16:59David Rosenthal?

  I love that image of, like, the, you know, Virginia suburbs AOL, you know, 80s and 90s guys being the original growth hackers.

• 1:17:12Ben Gilbert?

  Well, hustlers, that's what I always say.

• 1:17:14David Rosenthal?

  Yeah, hustlers. I mean, they are definitely hustlers.

• 1:17:18Speaker 00

  David, you wanna do a?

• 1:17:20David Rosenthal?

  Yeah, so mine, I mean, I alluded to this a little earlier, but I think, I think this episode for me is a great counterfactual illustration to, I've been thinking a lot about this recently, what really is like the power of the internet, right? Like, they, this merger is everything, getting everything wrong about the internet. And what I mean by that is like, the internet connects people. We were, you know, Brian, you were talking about AIM and like letting people talk to one another and like, how do you, you know, how do you build value and create platforms on the internet? Like, as we've learned over

• 1:18:01David Rosenthal?

  the last 20, 30 years, like, you let people talk to one another, you let people connect with one another. And AOL, instead of doubling down on that side of what they were doing, they doubled down and they bought a media company. The thing about a media company is there, it's a manufacturing-based, you know, analogy. Like, you're not manufacturing physical goods, but you're manufacturing media. Like, you're making movies, you're writing journalism, you're making music. Like, that stuff, you gotta pay and make and sell. And like, that's, you can build great businesses doing that, of course. Like, Time Warner is a great business, not to knock it, but like, that's not the internet. What

• 1:18:42David Rosenthal?

  works on the internet and why, you know, the promise, the dream of the 90s, right, was, you know, what has been realized now, which is Facebook, Google, YouTube, Airbnb, Uber, Twitch, you know, like, Amazon. Amazon originally wasn't this, but now is this. They don't make stuff. Like, they connect people.

• 1:19:04Ben Gilbert?

  Facebook is a bundle of content and they don't pay for any of it.

• 1:19:07Speaker 00

  That's exactly what I was gonna say. So, what, what, what actually succeeded in the next decade, it was Facebook and Google, who essentially make money off of everybody else's content by doing nothing.

• 1:19:20Speaker 00

  Well, I mean, they sell the ads, they sell the ads against it and they're the platform that people find it. Essentially, where do I find my Sports Illustrated article or my whatever, in my Facebook feed, right? Or I, you know, do a Google search for something and some evergreen article from somebody's website, you know. But, right, so AOL is going after the content because they think, well, that's the evergreen thing, that's the actual value.

• 1:19:48David Rosenthal?

  Right, but they're getting in a worse business by doing that.

• 1:19:51Speaker 00

  And the value of that content has been completely undermined because of what the Facebooks and the Googles did. Now, thinking about that, why is everyone getting into content? Why is AOL, why is, why is Apple gonna buy James Bond?

• 1:20:10David Rosenthal?

  Yeah, I don't understand it, honestly.

• 1:20:12Speaker 00

  So either, either we're not smart enough to know how the worm has turned, or people are making similar mistakes, or what? Because we're now entering an era where, you know, Twitter and NFL games on, like, what is it? Is content valuable, or isn't it?

• 1:20:28David Rosenthal?

  I don't know. I guess the only thing I could say, I'm not smart enough to opine. Although, you know, I think back to our episode on BAMTech, which was really fun to dig into. These companies, the Apples, the Amazons, the Facebooks, they're a little bit playing a different game now, that they're so big. They are so big, they have so much money. And I think in a little bit, they're playing defense versus like, versus offense, and that's something we've talked about on the show, like, defense in that like, they wanna keep people, they need to keep people on their properties. That's how the merry-go-round

• 1:21:10David Rosenthal?

  keeps spinning. And by going out and buying these super expensive manufactured content, I think the hope is that that'll attract and keep people on the, on the platform. That'll attract people, or retain people on the platform, and then they'll stick around for, you know, all the stuff they're not making, which is making the wheel go around. But if they, if they move to a paradigm where they're paying for all the content on their platforms, like, that, that's a worse business.

• 1:21:37Ben Gilbert?

  I think it might be, there's like a TikTok thing here, right? Where first, everybody's free and open about their content being aggregated because they like, I mean, if you just look at what Disney was doing for the longest time, they're like, well, we create content and it needs to be viewed everywhere because we're horizontal. And so then they spend five to 10 years executing that strategy. And then suddenly the world starts to change and people start locking up their content vertically, integrating, and then you're like, well, okay, now we need to change our whole strategy and, you know, own every dollar that comes from serving our content. And it's, it's the aggregators that lose out in that world where the content starts getting locked up. And so when you see a, you know, Apple or a Netflix or any of these, you know,

• 1:22:21Ben Gilbert?

  Netflix so much more so because they started as a pure aggregator. You need to make your own stuff because if everything's living in silos, you gotta have a good silo.

• 1:22:29Speaker 00

  The history repeating itself lesson is that Yahoo, this is going back to our previous episode we did together, Yahoo and the portals wanted to keep everybody on their pages. Google found a way to make money by being like, no, leave our page. That's fine. We'll still make money off you. So the question actually is, is that a dead paradigm? Is the open web a dead paradigm? Because if it is, then it's all walled gardens all the way down from here on out.

• 1:23:00David Rosenthal?

  It's turtles all the way down.

• 1:23:01Speaker 00

  Turtles all the way down. Or, or is that sort of freedom of digital makes everything a commodity?

• 1:23:12Speaker 00

  Uh, something that always comes back and rears its head?

• 1:23:17Ben Gilbert?

  No, I mean, high, high quality content is very expensive to make and very valuable. And it's only gotten even more magnified in this world where everybody is, is, is talking about the same thing at the same time.

• 1:23:28Speaker 00

  They've been saying content is king since the 90s, my friend.

• 1:23:32David Rosenthal?

  Yeah, well, but I think it is like the the promise of the internet, though. I don't know, maybe we are, you know, talking back into a world where content is the most valuable. But but what Facebook and Google, you know, and others proved is like before them, you know, content was king, but it's not king anymore. Like, being the platform is king. And that's not the same as distribution. Like, it was always content is better than being the cable company, the dumb pipe, but being the platform where you control the user experience and funnel and you control attention. That's better than making the content.

• 1:24:16Ben Gilbert?

  So it's the news feed versus the, you know, I'm thinking about it like, rather than me having the choice in my RSS reader of choosing from any of the feeds I subscribe to, Facebook slams something down my throat and I say like, yep, I'll read that. And so if you're, you know,

• 1:24:34David Rosenthal?

  Yeah, because then you get all your news from Facebook.

• 1:24:36Ben Gilbert?

  Yeah, yeah.

• 1:24:38Speaker 00

  I don't know, sharp listeners might, we might have all argued both sides of this at this point.

• 1:24:44David Rosenthal?

  We might have, yeah. We might have.

• 1:24:48Ben Gilbert?

  Well, but David, I'll give you credit for that, that point. I've never thought about that before, that distribution is, you know, if you're going to make a line and say, content or distribution, there's something sort of different in being one of these platforms that dictates where your attention goes.

• 1:25:03David Rosenthal?

  I'll use another analogy before I give up the ghost here. Airbnb, right? Like, the analogy, right, would be like, you know, it would be great to be Joie de Viv, like, or a boutique, really high-end hotel chain. Like, you'd do really well, you'd make money. But like, it's way better to be Airbnb, because then you, you know, you don't have to make the hotels, you don't have to build them, you don't have to run them, but you can access everybody and you can open up all this new supply that didn't exist in the marketplace before. Like, that's, to me, that's like the dream of, you know, the internet.

• 1:25:40David Rosenthal?

  Going and buying, you know, if Airbnb were to go and buy the rights to list, you know, Fairmont or Ritz, you know, Carlton hotels on their platform, because it's super premium, super exclusive content. That seems odd.

• 1:25:57Speaker 00

  So again, I'm confused. Are we arguing that content is?

• 1:26:00David Rosenthal?

  Well, I'm arguing, I'm arguing that content is not king. That's what I'm.

• 1:26:03Speaker 00

  Right, right. Okay, gotcha, gotcha. Yeah. Yeah, I don't know. You guys are still in this game. I'm not.

• 1:26:12Ben Gilbert?

  I withdraw formally.

• 1:26:15David Rosenthal?

  All right. This is great. This is our first like, not first, but in a long time.

• 1:26:19Ben Gilbert?

  Oh, wait.

• 1:26:20David Rosenthal?

  Debate on acquired.

• 1:26:22Ben Gilbert?

  Wait, Brian, do you mean, do you mean because you're, you're a, an author?

• 1:26:26Speaker 00

  An author now, yeah.

• 1:26:27Ben Gilbert?

  Podcaster now?

• 1:26:28Speaker 00

  I'm moving on to being a historian author. Yeah, exactly. No more starters for me.

• 1:26:34Ben Gilbert?

  Then I just withdraw from, from this specific argument.

• 1:26:38David Rosenthal?

  All right.

• 1:26:39Ben Gilbert?

  All right. So, so, so moving on to grading.

• 1:26:43Ben Gilbert?

  The funniest part about this whole thing is since AOL is actually the acquirer. Like what I thought I was going to grade, like I came into this thinking like, well, this will be a fun first F. But like for AOL. I mean, it's, it's like an A minus, right?

• 1:27:00Speaker 00

  That's the question. Okay. And anyone that has access to a Bloomberg terminal, like I do not. I don't know that anyone's done the math on that. So if you're an AOL shareholder. And you have 10 shares before. The acquisition, before the merger. What is the value of that? And then what is the value, say of the day that they remove AOL from the AOL Time Warner name? Now, it's got to be less. We know that, right? But how much less? And then if you compare that to like, you know, the counterfactual of if they had never combined, would AOL have gone to zero? So is it actually a success?

• 1:27:43Speaker 00

  There are lots of people, you read these books, you get the, the quotes from the Time Warner insiders. They absolutely believe this was money laundering. They absolutely believe that they got held up. The AOL Cowboys come in with their hugely valuable stock. They laundered it into this, you know, actually valuable Time Warner stock. And they got away with a heist, essentially. That's, that's the view of a lot of Time Warner people. But I actually don't know the math on that. And, and if someone can do it, like, so even if, even if like that, that 10 shares of AOL, even if it only goes down by 60%, that's better than going down 99%, right?

• 1:28:26Speaker 00

  So is it actually a success?

• 1:28:29David Rosenthal?

  Yeah, well, I mean, I think so. Like it's, in the one sense, you could look at, without doing the math on share prices and holdings, you know, if AOL was worth whatever it was, 200 ish billion, you know, before the merger. And then, you know, ultimately got spun out of Time Warner at a value of 3 billion and got acquired by Verizon for 4.4 billion in, you know, 2015 or whenever it was. Okay, so that's like a huge loss in value.

• 1:28:58Speaker 00

  But you still had your Time Warner shares.

• 1:29:00David Rosenthal?

  Right, but, but instead you got shares in AOL Time Warner. And then after the spinoff, you kept your Time Warner shares and Time Warner just got acquired for, you know, is in the process of getting acquired for about 85 billion dollars, I think. So, you know, you now have joint about $90 billion versus five. That seems good if you were an AOL shareholder. I mean, of course, you could have just, you should have just sold at the top and like, put your money into, you know, Amazon, but, or Domino's Pizza.

• 1:29:34Speaker 00

  Or a Priceline Domino's Pizza, yeah.

• 1:29:36Ben Gilbert?

  That's right. I was gonna say, the only way this could be better for AOL is if they had actually bought a growth company like eBay.

• 1:29:43Speaker 00

  Yeah, that could have been a win. But then, like we said, listen, the Cowboys come into eBay, tell them how to run things. Would they have been smart enough to buy PayPal? PayPal was the real valuable business there.

• 1:29:59Speaker 00

  It's gotta be an F, guys. It's got, there's a reason that people call it the worst merger of all time, because it destroys.

• 1:30:09David Rosenthal?

  So much value. Well, it destroys a ton of value for Time Warner, for sure.

• 1:30:13Speaker 00

  It destroys $100 billion worth of value in the end.

• 1:30:17David Rosenthal?

  Yeah, yeah.

• 1:30:18Speaker 00

  But the problem is, is that, was that all from AOL?

• 1:30:24David Rosenthal?

  It feels, it feels crappy to like, consider giving them an A just because like, the AOL, you know, management team and shareholders like, save their own, you know, personal wealth, essentially.

• 1:30:35Ben Gilbert?

  Well, but isn't that what we grade on? Is it was, was this a good, a good thing that, for the shareholders of the acquirer?

• 1:30:42David Rosenthal?

  Oh, well, this is, this is good. If shareholders, or is it a good thing for the business? Terrible for the business, good for the shareholders. What do we do?

• 1:30:51Speaker 00

  It's better for the acquiring shareholders than it could have been. It's bad for all of the shareholders involved in the end. Because essentially AOL is a, is a sinking ship that just grabbed another ship and brought it down with it.

• 1:31:10David Rosenthal?

  And didn't sink as far.

• 1:31:11Ben Gilbert?

  Slower, slower.

• 1:31:14Speaker 00

  You don't reach the bottom, but you're still underwater for...

• 1:31:20Speaker 00

  There's, there's gotta be, there's gotta be 30 Harvard Business School case studies that are telling us that this has to be an F. If this is the first F, if you're ever gonna give an F to something in this show.

• 1:31:31Ben Gilbert?

  There's also gotta be some nice case studies and some sort of like, like, business epistemological thought. I don't even know if that's the right word that I'm trying to think of. But basically around that question David just asked, is it, is it the shareholders or is it the business? And, and David, is there a difference?

• 1:31:51David Rosenthal?

  Well, um, corporate behavior of the past 50 years would imply no. But I think if you look back farther in history than that, there absolutely is a difference.

• 1:32:06Speaker 00

  If you, if you can't save the patient, you know, like shareholder, but like if the enterprise itself dies.

• 1:32:14David Rosenthal?

  Yeah.

• 1:32:15Speaker 00

  So keeping the enterprise itself alive, even in some sort of mutated form is valuable.

• 1:32:21David Rosenthal?

  Because I guess.

• 1:32:23Speaker 00

  If the patient is dead, they're dead.

• 1:32:25David Rosenthal?

  Well, it's sort of like, I mean, I think what we're coming to here, and we have been for the whole episode is like, exactly what you said, Brian, like they were drowning and they grabbed a, you know, a life vest. And that kept them from drowning. On the other hand, it didn't get them to shore. They didn't catch a boat. They grabbed like a piece of driftwood. I think I'm, I think I'm ready to put fourth grade. I think I give them, I give the acquisition a C for AOL shareholders. Because of that, like, yeah, you, you, you did, you know, keep the business alive. You, you preserved shareholder value relative to the alternative.

• 1:33:11David Rosenthal?

  But you didn't, you know, relative to what, you know, our two best acquisitions of all time on this show that we, that we've rated thus far, Next and Instagram, like those are businesses that, to use, um, to use Bob Pittman's, you know, drug pusher like analogy, uh, you know, accelerated their company, you know, their acquirers at internet speed. Like there was no acceleration happening here. There was just, uh, you know, buoyancy.

• 1:33:42Speaker 00

  I'm going to do F. Because if, if there's, if there's never been an F on this show, you're never going to get a better chance. No one's gonna, no one's gonna begrudge you giving this the F.

• 1:33:57Ben Gilbert?

  Like we kind of send a, set a bookend, set the scale.

• 1:34:00Speaker 00

  Listen, yeah, the scale doesn't have any meaning unless there's a top and a bottom.

• 1:34:06David Rosenthal?

  Well, if it were Time Warner acquiring AOL, absolutely F.

• 1:34:09Speaker 00

  Yeah.

• 1:34:11David Rosenthal?

  No question about it.

• 1:34:12Speaker 00

  I do have sort of a logical reason for it, which is that the, again, it's sort of what we said about what happens in the next decade. It's not like being in the magazine business, being in the television business, being even in the movie business has, was not actually the evergreen thing. They, they didn't grab something that turned out to be the thing that, look, movie attendance goes down, television watching goes down, magazines are basically on life support, newspapers are essentially dead. Like, so this idea that they jumped into media that would always be valuable was not right.

• 1:34:58Speaker 00

  And they were, they were a part of the disruptive force that made that happen. And so I, this, this plunges us back in this, this argument about the value of content and things like that. But I think it's a bad thing because in the end, I would view it as two doomed businesses. Or at least two, not doomed, let's say extremely challenged businesses.

• 1:35:26Speaker 00

  Embracing each other and so a successful get out of jail by AOL would have been a better company, an eBay or something, but would have been staying independent, struggling, what's the one thing we've got? It's AIM. So, so the, the failure is two companies that were, were going down, embracing each other. So it's, it's, it's bad to me because they, they, they clung on to the wrong lily pad. How many mixed metaphors can I?

• 1:36:02David Rosenthal?

  Love it.

• 1:36:03Speaker 00

  Love it.

• 1:36:06Speaker 00

  Well, you know, I was trying to think, what would my F be?

• 1:36:11Ben Gilbert?

  And I think, you know, what an A is, a business is dying and acquires something and then can become the most valuable business of all time. So that's Apple. Or I'm sorry, an A plus. And then an F would be a company is do is the best business of all time and acquires something and that acquisition manages to sink it to zero.

• 1:36:30Speaker 00

  Bankrupt them. You're right. You're right. You're right.

• 1:36:33Ben Gilbert?

  Yeah. And so with our scale, you know, it's almost sort of like logarithmic toward the top because we often are like, well, we gave Instagram an A, so this thing has to be like a B plus. And like, there's, there's very successful acquisitions that we don't give As. I think, you know, I think like I've given, and I, we may have to go back and revise at some point, but I've given YouTube a C because like, it didn't, I was worried about the opportunity cost of focusing on that for Google when it was a break even

• 1:37:08Ben Gilbert?

  business. And so to me, like, well, I don't know if I could go F because AOL didn't completely crater their own business by making this acquisition.

• 1:37:24Speaker 00

  But Time Warner did.

• 1:37:26Ben Gilbert?

  Time Warner did, but they're the acquiree. I mean, I'd have to go like D, D minus, because, you know, I think had buying Time Warner destroyed AOL, then it's an F. But it's certainly worse than a C for me. So I'm like, and way, way worse. So I'm gonna go like D minus. And like, I hope to one day find something on acquired where something went from like a Fortune 10 to destroying themselves. Well, I don't hope, but you know, if we ever have an F, that's what it would be.

• 1:37:54Speaker 00

  Like some company that buys something that causes cancer for $10 billion.

• 1:38:01Speaker 00

  Which actually, I shouldn't joke about that. That's probably happened or something. Well, all I want to do is, as for, as, as long as this show goes on, I'm the one that first gave an F. Let's put that in the record.

• 1:38:14David Rosenthal?

  Great. You're forever, you know, you have, you can put in your trophy case, the original.

• 1:38:21Ben Gilbert?

  We'll change the Twitter bio.

• 1:38:22David Rosenthal?

  Yeah. Original app. Carvouts?

• 1:38:25Ben Gilbert?

  Awesome. Carvouts quick, yeah. So, mine is a book that I'm almost done listening to on audiobook and I'm gonna be really bummed when it's over because it's really nice to have a dose of this kind of reminder in my life every day on my commute. And that is Give and Take by Adam Grant. And it's really making the rounds right now, so I'm sure a lot of listeners have already heard of it or had people tell them they should read it. It's so awesome. It's research-backed descriptions of the behaviors of givers, takers, and matchers in our lives and what the results are of those personality types and a litany of examples of givers and what they've done and how they've succeeded in their careers.

• 1:39:07Ben Gilbert?

  And the super interesting thing that pops out from the book is if you look at sort of a spectrum of people's success in their careers, takers, if you look at a span from 1 to 5, where 1 is not succeeding at all and 5 is succeeding fantastically, takers occupy 2 and 4, matchers occupy 3, and givers occupy 1 and 5. And so it's this interesting dissection of, just by being a give-first person, it doesn't guarantee that you're gonna end up on top or bottom, and it tries to sort of tease apart what are the traits of givers that can, you know, make you someone that ends up ahead

• 1:39:50Ben Gilbert?

  in the long run just because you truly care about people and you're truly a, you know, someone that looks out for the interests of others. And it's just a really interesting... It's interesting to understand something that I never had a mental structure for before, and it's also like, just like a good little kick to be a better person. And it's nice to have that voice every day. And the narrator sounds like Craig Federiki, so if you like watching Apple Keynotes, you'll like listening to this guy's voice.

• 1:40:18David Rosenthal?

  My carve out, which is appropriate for this episode with Brian and the Internet History Podcast, and has been a deeply historical episode. Another book, a great one that I'm also a little over halfway through reading and can't wait to finish, called Season of the Witch.

• 1:40:38Speaker 00

  And I have that on my Kindle. I haven't read it yet.

• 1:40:42David Rosenthal?

  Oh, you'll, you'll love it. It's, it's the history of the dark history of the dark side of the counterculture and San Francisco and what happened to San Francisco in the 60s and in particular in the 70s. You know, the Manson murders, the Zodiac killer, the zebra killings, everything that was really the, the not often told, you know, we remember the 60s as like peace and love and it's the 50th anniversary of the summer of love. In the, in the city, in the city this summer and, you know, what gets celebrated is, is the, the happy, the psychedelics.

• 1:41:23David Rosenthal?

  But there was a true, true dark side and it's very, very fascinating to read about and really shaped the city. And, you know, again, like we've talked about on this podcast too. It was the tech movement in Silicon Valley that really came out of the next period in, in history in this area. And it was shaped by, you know, by the dark side as well.

• 1:41:47Speaker 00

  Is the, is the tech angle in the book?

• 1:41:49David Rosenthal?

  I, I, not thus far. And I don't know, because I haven't gotten to the end yet. So I'm curious to see, but I'm also started reading another book called What the Dormouse Said.

• 1:41:59Speaker 00

  Oh, yeah.

• 1:42:00David Rosenthal?

  Which you've probably read, which is about the tech angle and, and the 60s and the counterculture.

• 1:42:07Speaker 00

  I just watched for the first time recently, the Zodiac movie, David Fincher's Zodiac. And I had always heard it was a good movie, but I tend to, you know, avoid serial killer movies, but that really is a good movie.

• 1:42:21Speaker 00

  I was gonna do a book anyway, so I'm not gonna buck this trend. But Claude Shannon, people might know from the book The Information, but also basically the guy that invented information theory. You know, Alan Turing knew the dude and like he shows up at the intersections of all sorts of things with computing and the internet and things like that.

• 1:42:50Speaker 00

  The, I think it's the first full, comprehensive biography of him. It's called A Mind at Play: How Claude Shannon Invented the Information Age. The authors are Rob Goodman and Jimmy Sony. I have not read it at all, but it is number, it's the top of my list to read. And so I think that since that's my sort of gig is, you know, the history of technology and things like that, I'm eager to learn about the minds that shaped information technology and Claude Shannon. If you've read The Information, you should know about him.

• 1:43:31Speaker 00

  Basically formulating the theory behind essentially coding and how logic goes into programming and things like that and taking it from the philosophical into the practical. So yeah, I haven't read it yet, so I can't say that it's great, but I want to know more about Claude Shannon and you should too, probably.

• 1:43:53David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:43:59Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:44:10David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:44:30Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system. So teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:44:43David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences, or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:44:54Ben Gilbert?

  Well, that's, that's it for our show. One thing I forgot to mention earlier that might be interesting to listeners is, you know, we spent a couple of episodes asking you guys to, to fill out a survey and we posted, posted the results on acquired.fm/audience. So if you're interested, we've got some interesting stats on there. Two thirds of our, our audiences is based in the US. 24% of you are engineers. 26% of you are currently or have started a startup and there's loads of other good information in there. So if you're curious about basically acquired listenership, check out acquired.fm/audience.

• 1:45:30David Rosenthal?

  Yeah. And one more bonus slash super carve out for the end of the episode is of course, the internet history podcast. As, as we have told you guys many times on this show, you know, Ben and I are both huge fans, Brian, of your work. It's awesome. And this has been so much, I think even more fun than last time, having you on the show.

• 1:45:53Speaker 00

  I think we, I think we got to know each other. Like, I totally was so geeked to do this because I was like, okay, I know, I think we're good together. So I knew, I knew the rhythms. And so like, I was like, oh, this is gonna be great.

• 1:46:07David Rosenthal?

  The peanut butter and jelly of tech history podcasts.

• 1:46:13Speaker 00

  Well, thank you. And since I'm gonna just basically post this on my side, completely unedited, I promoted it last time. I know I got feedback, a bunch of you listened and subscribed and listened. You can hear that these guys are, are smart and they come at it from a different angle than I do. And it's fantastic. Acquired, acquired FM, right?

• 1:46:35David Rosenthal?

  Acquired.fm.

• 1:46:36Speaker 00

  Yeah.

• 1:46:37David Rosenthal?

  On the internet, AOL or otherwise.

• 1:46:40Speaker 00

  Yeah.

• 1:46:42Ben Gilbert?

  AOL Keyword Acquired.

• 1:46:43Speaker 00

  I was gonna say, they used to have keywords. You could buy keywords. Yes. Like, literally, if you wanted books, you didn't have to... It wasn't... It wasn't Google AdWords or AdSense. It was, literally, you would type "books" into the AOL search bar, and they would give you, not webpages, but just what they had in their system in terms of books, and you could buy that keyword. I think I did it once, actually.

• 1:47:10Ben Gilbert?

  Well, guys, that's it. If you aren't subscribed and want to hear more, you can subscribe from your favorite podcast client to Acquired or the Internet History Podcast. And if you feel so inclined, we would love a review on iTunes. Have a great day.