AOL Behind Him, Steve Case Bets a Fortune on His Own Savvy
By David A. Vise
Washington Post Staff Writer
Wednesday, May 4, 2005
Taking a break from his efforts to build a new health care and luxury resort business, Steve Case recently went for a swim in the ocean off the Hawaiian islands. It wasn't long before a giant wave came heading toward him. Rather than diving underneath, Casey tried to ride it to shore.
"He jumped on a big wave and got slammed," recalled David Cole, his business partner. "I said to him, 'It looks like wellness boy has decided to add sand to his diet.' "
Case increasingly is throwing himself into unpredictable waters these days, as he attempts a comeback after his fall from grace in the aftermath of the troubled America Online-Time Warner merger. The question is whether things will go smoothly this time around for AOL's co-founder, or whether he will encounter the sort of turbulence that followed the mega-deal he now describes as disappointing.
The return of Case, a self-described "serial entrepreneur," to the business scene marks the beginning of the next phase of his career, following two decades at AOL. He said he enjoyed his first 10 years at AOL, when he was more hands-on and the company was smaller, much more than the second 10 years at the helm of a large enterprise that needed to be managed.
Case has a clear strategy this time around. He wants to buy early-stage, consumer-oriented businesses that he can shape, develop and turn into profitable engines of growth. Already he has purchased control of several firms in the resort and spa industry and partnered with existing business owners, who retain a minority stake.
He calls his newly established holding company Revolution LLC.
"This is my thing. This is what I do. Maybe I'll go to 'Entrepreneurs Anonymous' someday, but right now I'm doing what I love and working harder and having more fun than at anytime in the past five to 10 years," said Case, casually dressed in green slacks, a short-sleeved shirt and loafers.
In an interview at the firm's glass-enclosed offices in downtown D.C., Case said he spends much of his time traveling to look at potential business or real estate acquisitions. No matter where he is, Case sends his small cadre of colleagues dozens of e-mails, often keeping them up late into the night responding to his flurry of questions, much the same way he used to do at AOL.
No detail at Revolution appears too small for his attention. He wrote the copy on the company's Web site himself. "I wanted to make sure it reflected my perspective and my voice," Case said. And he spent a month going back and forth with an outside firm that produced dozens of different designs of Revolution's logo before he signed off.
"The name said a lot, so we wanted to be conservative, mainstream, on the logo itself," he said. "The logo is a big deal."
Case hopes the Revolution name and logo eventually can be spread across his various business holdings, creating additional value.
In the meantime, the 45-year-old entrepreneur said he is betting more than $500 million of his own money that he will be able to transform the way consumers are treated in the health care and hospitality industries, a feat that has eluded many others before him. The Revolution team includes Donn Davis, a former top lieutenant at America Online; a pair of former Time Warner acquisitions specialists; and Ron Klain, Revolution's general counsel.
Thus far, Case has purchased majority stakes in Wisdom Media Group Inc., a health-oriented radio and television broadcaster, and two upscale businesses: Exclusive Resorts LLC, a vacation club offering luxury accommodations for the rich; and Miraval, a high-priced resort and spa that competes with industry leader Canyon Ranch.
In 18 months, Exclusive Resorts has grown from around 50 members who vacationed at a dozen mansions to more than 1,200 members and more than 200 residences owned or under construction. Members pay $375,000 to join Exclusive Resorts, plus annual fees of up to $30,000, giving them access to luxury accommodations around the world with concierge-level service. They can get 80 percent of their initial deposit back.
For rich consumers, the pitch is a hassle-free, luxury vacation. For Case, the strategy is to break even, and to profit in the long run from the increase in real estate value. Case recently flew around Costa Rica in one long day, looking at every undeveloped parcel of land greater than 200 acres he could find. Most acquisitions for Exclusive Resorts are at least $50 million, enabling Case to purchase large swaths at a lower price than if he did smaller deals.
Case also controls tens of thousands of acres of land in Hawaii, where he was born, in part through one of Hawaii's biggest public companies, Maui Land and Pineapple Co. (He is the largest shareholder; David Cole runs the business.) The firm is rebuilding an upscale resort on Maui adjacent to thousands of acres of parkland and constructing housing, schools and a medical clinic for its employees. Through this venture and others, Case has won over many locals, who once feared he would be just another ruthless developer.
At Revolution, Case is aggressively pursuing potential health care acquisitions. His interest in tackling problems in the industry was triggered by the puzzling experiences his late brother, Dan, had while battling brain cancer.
From filling out forms with the same information dozens of times to having vital records lost or misplaced in the maze of doctors and hospitals, Case said it became clear to him that consumers needed to be empowered. Further research confirmed there was money to be made in the process.
"It seems odd to me people don't really have any sense of quality," Case said. "There is no transparency in terms of which doctors or hospitals are better or worse. It is easier to pick a restaurant than to pick a doctor."
But like others before him, Case knows he could fail in attempting to change the entrenched health care system. "I am not suggesting it is our destiny to think that the clouds will clear to fix the systems," Case said. "There is risk associated with it."
Case is taking the long-term view. "The real test," he said, is "what does Revolution Health look like 10 to 15 years from now?"
Case's pitch has won over a number of business owners already. After identifying an acquisition target, Case's modus operandi is to swoop in, meet with the owners, get the key decision-makers together and then close a deal rapidly. In some cases, people who had never met Case before have agreed to sell him control of their companies in less than 48 hours.
Bill O'Donnell, one of the major owners of Miraval, a luxury resort and spa in Arizona, recalled just such an experience. Case contacted him, flew to Chicago to pick him up and talked about the business and Case's vision for its growth. Case then flew him to Arizona, and by day's end, they had agreed upon the basic sale terms. Having been spurned by the owners of Canyon Ranch, Case was determined to buy control of Miraval, a top-rated spa he checked out personally by staying there with his wife.
O'Donnell instantly liked Case and his ideas. But recalling the bitter controversy surrounding the AOL's purchase of Time Warner, O'Donnell picked up the phone and called his college roommate, who worked at Time Warner, to ask him about Case.
"He had met Steve once or twice and was stung by his [Time Warner] stock options losing value," O'Donnell said. Other than that, his roommate didn't have a view, so O'Donnell went with his own instincts.
Within two days, he and Case and the other Miraval owners had a handshake deal, and they completed the transaction, with Case buying 70 percent, within weeks. "The fact that he had gone to Miraval with his wife made a difference to me," O'Donnell said. "He knew the product."
Immediately after buying control, Case met with Miraval's 300 employees, telling them he was convinced of the opportunity to increase business at the under-promoted Arizona spa. By passionately sharing details of his own stay, Case connected with what O'Donnell described as the "touchy, feely" employees.
"I couldn't have scripted it better," O'Donnell said.
Throughout those early encounters, O'Donnell said he got the feeling Case wanted to prove that his success building AOL was no accident. "Whether it is golf, or business, or sports, there is that feeling some people have of, 'Gosh darn it, I was there, I got knocked down, and I want to get back up and show that I have still got it.' There is a bunch of that there."
Case said he has not found it difficult to go from being on the cover of national magazines to being in a lower-key role. He was never as good, he said, or as bad, as his press clips indicated.