The AOL Exodus Effect

By Zachary A. Goldfarb and Kendra Marr
Washington Post Staff Writers
Monday, February 18, 2008

Barry Schuler moved to Washington from Silicon Valley to join AOL during its golden days, one of the many top technology professionals the Internet giant recruited to the region. But when the former chief executive left in 2003, he returned to California to become an investor and start a technology company, following other executives who have drifted away from the region.

"We gravitated back to our roots," Schuler said. "This area, the Bay Area, continues to be the epicenter of emerging technology."

Departures like Schuler's are one reason Washington's technology industry is still struggling to mature a decade after Dulles-based AOL became a magnet for talent.

Without schools such as Stanford or MIT, Washington counted on AOL to build up the local consumer tech industry, just as Microsoft did in the Seattle area. And for a time it did just that, becoming the country's best-known online company and recasting the region's image as more than a sleepy town of opaque government contractors.

But AOL has suffered a long decline, and as it moves its headquarters to New York in a business realignment, a debate is stirring over whether the industry that grew up around AOL will also diminish. The question became a bit more urgent when Sprint Nextel, the troubled wireless carrier, announced last week that it is moving its headquarters, from Reston to Overland Park, Kan.

"A leading company attracts a steady flow of top talent to a region, some of whom eventually spawn new ventures in the area that then grow to be leading companies," said Adam Lehman, a former AOL senior vice president and Bethesda venture capitalist. "In the absence of having an Internet leader here, we risk the negative version of the cycle, where quality talent migrates elsewhere, with innovation, capital and employment growth following them."

These days, a network of executives, venture capitalists and technology lawyers are trying to make sure that doesn't occur. Former AOL chief executive Steve Case's Revolution, a company trying to use technology to transform health and other industries, is the best known and has generated national buzz. AOL alumni also have had a hand in dozens of other local technology companies -- such as ad firm Mobile Posse and online widget maker Clearspring -- though these hardly have become household names.

"We're trying to target major industries that we think are ripe for significant change," Case said. "We're hopeful that one or more of them will emerge as iconic companies in the D.C. region."

It isn't the first time the region has tried to build a long-lasting technology sector, but for each step forward there been steps back. The local telecommunications industry that matured around long-distance giant MCI never fully rebounded from the company's merger and eventual breakup with WorldCom.

"We just don't have the high-end Googles and Facebooks that are monsters. We tend to have doubles and triples here," said John May, who heads a Vienna network of investors in tech start-ups. "AOL gave rise to the hope that we could have multiple killers here. When it reversed fortune, we weren't able to use that as a building block to have mega hits."

For its part, AOL notes that it is still one of Northern Virginia's largest employers. "We are a global company and in 2008 we will be headquartered in New York, but that doesn't mean we've lost sight of this community and our ties to it," AOL spokeswoman Anne Bentley said.

Still, AOL has shrunk its local headcount from about 5,700 employees to 3,000. And AOL recently said that it would be scaling back its community investment, pulling funding from local outreach and education programs, and slimming its community investment office.

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