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Q. How do you find Microsoft as a competitor in that field?
A. Well, Microsoft is an interesting company, and our relationship with them is an interesting relationship. I would say Sidewalk is off to a reasonable start, best I can tell. Some things better than others, well, and some things not so well. But it's like any of us launching things Digital City's first version is OK. And the next version will be a lot better. Some people kind of evolve these things and it's sort of part of the process.
And I think they seem to be committed to that strategy. I think they have learned in this whole Internet online space that they have to earn their right as opposed to it being bestowed on them. And just because they create something doesn't mean people will flock ... there. There's got to be some there there.
More broadly, our relation with Microsoft is ... we compete with them and we partner with them. And we just need to keep those two apart. We continue to work with them on a lot of core technology. The Microsoft Internet Explorer is our primary and default browser.
And we're doing other things with them as well. We've just moved to an active desktop, for example. At the same time, we believe they are a primary competitor even though they got off to a somewhat slower than expected start with MSN. And we have no doubt that over the next few years they will hit their stride. And when you're sitting with $170 billion market cap and ten million dollars of cash in the bank, and you put a billion dollars here ... and half a billion dollars here for Web TV and it's like lunch money, you know, you gotta take that, you know, pretty seriously. So I think they're trying to, they're girding for the next battle and trying to accelerate the battle beginning. And I think they are seeing that as a convergence of broad band technology, particularly cable modems and consumer appliances, particularly Web TV. We did better than expected in the narrow band PC world and they're trying to get ready for the next world.
Q. Are you less hostile because you're so much of a partner than some of the other people who've come to the table?
A. Our view is a little bit, I think, biased by a consumer-centric view of it. As I said at the very beginning, we think the best technology is invisible technology, and so we are in favor of coalescing standards and having Netscape, Microsoft, essentially 99 percent the same browser, and then taking it seamlessly into our service.
Because there's some sort of other bigger picture that we're looking at. We're more trying to figure out a way to kind of quietly get some alliances built on some things that will help build the consumer medium.
Q. To follow up on Microsoft, they have ten times the money you have in the market capital. How have you been [thinking about them]?
A. Well, you take it very seriously. And it's not just Microsoft. We talked about that. But when I wake up in the morning, I look at the fact that just about every communications company in the world AT&T, VoiceTelecom, what have you about every media company in the world Time Warner, Disney, and so forth about every technology company not just Microsoft, but lots others are all staking their claim to this new connected world. So it is, I think, going to be an intensely competitive market, and it's only now beginning. So we can take all of these competitive threats seriously. And, indeed, when we passed 10 million members, we basically made it very clear internally and externally that we not spend any time patting ourselves on the back and celebrating. Because we're really saying, "There's still a lot to be done. This really is a marathon."
What we do is focus on consumers and try to do a better job than anybody else in creating services easy to use, useful, fun, affordable, reliable, and so forth. And we've been making progress on that. And we invest in new technology and establish partnerships with companies to make sure that we have a path to the future, whatever the future might be. And in some of these new areas-broad band consumer appliances-we believe AOL at this stage in markets development brings a lot to the party, and, indeed, makes some of those parties. But some of the things-they're not there yet.
The total number of people using cable modems in this country is less than 100,000, which is what we had in a typical week. So we think the AOL brand can bring a lot to that party. And we work to try to balance the desire to be there early, to make sure nobody cramps us, with the desire to be there right, making sure AOL has a prominent role in that.
Prematurely investing in things sometimes can take a little while. Five years ago, we went public, for example. Our strategy was to expand beyond PCs to multiple access devices and to multiple communications conduits. We started doing work with Apple Newton and General Magics and Magic Cap device and wireless and so forth. We were way early in investing in those areas, which are still not yet grown.
Q. . . The single biggest complaint I get about AOL these days is e-mail. Slow delivery, messages get lost. Is the infrastructure set up for the rapid growth we've been seeing? Things do seem to get there sooner or later.
A. Well, I think, obviously, I couldn't say it's perfect, because we've had problems. But I would say that overall I think we've done pretty well, even though I'm embarrassed by some of the problems, given that in the last couple of years, e-mail more broadly overall users but e-mail in particular has just gone through the roof. We presently every day deliver 80 million e-mails. That's a lot of e-mails.
Even more broadly on the issue of passing, we've been adding over the past year, typically 20,000 to 25,000 new modems a month.
So there are some huge, huge infrastructure challenges we face, and we do the best we can. We work with a lot of companies that try to make things happen, and we make some mistakes. But a lot of that is because the pace of our growth is driven by consumer demand, and a lot of that is because we are on the leading edge of a lot of these technologies.
We're the ones that have such huge capacity; demands far greater than anybody else on the market. But the partners we work with, the software companies, server companies, communications companies, we're the ones to find the problems in their products and then work with them to fix it.
So some of it, I think, goes with the territory, but ... I'm not rationalizing away the mistakes.
Q. Are you satisfied with the current state of affairs?
A. I'm probably never going to be satisfied with anything we do. I think there's always the possibility of doing better. And I'd say we're doing better than we were a year ago, in terms of delivery and quality of service, but nowhere near what we should be doing.
Q. What is your opinion on the Business Enterprise unit, and why you got rid of it? Do you have any future plans on going back out into the business market?
A. Getting rid of it is probably not the way I would characterize it. The business initiative exists in a different context. So what we often do we did this with a lot of our Internet technologies is launch things as stand-alone units just to get focus and traction in that area and then integrate it at some point into the kind of the base plan operations.
So we still are selling, but basically AOL Enterprise has focused on private AOLs for companies. We are selling private AOLs for companies, and some of the alliances that we have formed in the last few months are designed to help facilitate that. But there is less of a need for an independent business unit and more desire to integrate it with marketing and partner with companies that have corporate sales forces. But we never believed that a huge corporate sales force was going to be necessary or appropriate for us to have.
Q. Back to long-distance telephone service. It's such a revolutionary possibility. If anybody can implement a standard technology with a critical mass of subscribers, it's you. I remember in the summer of '96, when the AOL Deathwatch was predicting that AT&T was going to defeat you, you stood in front of all your employees, and you said, "Well, two can play at this game." ... And you were predicting that it would be implemented in December of '96. So what changed? Was it the crush of business signals or just the potential demand?
A. Well, it may have been a little bit [hyperbolic] sometimes we [get that way at] company meetings. That said, a couple examples. The busy signal [thing] is an absolute problem. We basically went from looking to add new features to looking to keep the basics in place and add more capacity, because people were basically screaming at us saying, "I don't want to hear about your newfangled innovations. We just want the stuff you already promised us to work." So that did drive a lot of our development efforts over the past year.
Q. Let me ask you something, an adjacent question. In the future, do you see AOL as being also usable in a mobile environment?
Q. Could you talk us through that? What are you doing right now?
A. Well, I think our view is that as people move more into this connected interactive society, whatever you want to call it, they'll want to be able to connect to AOL all the time, no matter where they are. So it will be a multiple location, multiple device, multiple access. ... As I said, five years ago when we were going public, we were talking about this notion. What's happened is that the devices haven't really happened yet. There are some that are coming out that will do a better job of integrating small little devices and wireless communications. It just hasn't really happened yet. The consumer appliance ... connected with the TV has not yet really happened yet. It's getting more interesting.
Q. Well, we seem to be right on the verge of something. Are you working on U.S. Robotics or Nokia or Ericsson for these types of devices?
A. We've talked to everybody. But I think it's reasonable to assume that if our view of the world is we want AOL to be the choice for the mass market of consumers, then part of what they'll seek is sort of a ubiquitous environment where they have as many options [whether] they happen to be at home in the kitchen or the living room or the den or happen to be traveling. They would want to be able to connect with packages, services that you're offering because they've learned to rely on it and, of course, we're going to be in multiple places. The question is, how and when and with whom? And that comes down to trying to gauge the likely evolution of these technologies. At what point does it make sense to make serious investments as opposed to kind of frittering away time and money. And what is the right kind of partnership structure and what is the right point of negotiate something.
Yeah, I think you'll see a couple of different things. Last year has been a pretty simple year. It's basically been a year of execution where we basically said OK, we've changed our pricing, we've got a lot of problems here with busy signals, we've got to focus on that first and foremost. Nothing else matters. We talked to Wall Street about this evolving business model. ... It really was a lot about doing those basics well. Over the next year I think there'll be a greater recognition that we're trying to play a role along with other companies in leading this medium in a way that we'll be a positive force in society and I think a lot of things will happen to support that. That we're not on a one-trick pony but our corporate [strategy] is different and growing like gangbusters, but we want to be a major player internationally. We want to play in ... technology, we want to play in the studios with the content providers. So I think we'll be viewed as a broader kind of company.
Q ... You were talking about trust before in terms of credit cards and I think an issue that has come up a lot in terms of trust and online services is kids and [pornography]. How do you deal with that, first of all, internally? I mean, you must think about this issue, and secondly, what do you do with your server so that even just from a business standpoint people with kids will continue to buy it?
A. It's a big deal. We take it very seriously. I mean, you can't not take something like these incidents seriously. I mean, we recognize that we're basically a city with 10 million residents and when you have a city with 10 million residents anywhere New York, Washington there might be some activities and behavior, that's illegal or inappropriate. And to an extent that goes with the territory. But any one of these incidents is a huge problem. And so what we're doing is saying, look, take a step back here. What can we do to make it a safer environment. And that's been a lot of focus today, in the past year or so, and much of that came to fruition [with an Internet summit at the White house] where we basically announced a series of programs with AOL.
One is [substantively] improving what we call parental control. They do allow parents quite a bit of flexibility, depending on the age of their child, to block some things or everything. ... So there's no notion of stalking or something that you see in the chat room. YOU can block access to the chat rooms. YOU can basically say, these 12 people who are your child's friends or relatives or what have you, can send mail to your child, nobody else can. Block everything else. YOU can block access to some web sites, or all web sites. So there are lots of different choices that parents make and we've made improvements in the flexibility we give parents. But a lot of the other part of it, which I think is helpful and the media coverage that you and others gave it was very helpful, is educating parents that these options exist and they should take the time to use them. Like having a seat belt in your car, but [if] you don't put your kids in the seatbelt, well, it doesn't do much good. So a lot of this is about parental education.
One of the things we did [start recently] but I think is helpful was now if you set up an account, you have five different screen names on AOL. You still have an account for your child. You're automatically asked to set up controls. So the combination of better tools to give parents more choices about what their kids can and can't do, better education within AOL coupled with broader industry education efforts. One part of it is going to be a major teach-in next fall for the Department of Education to visit schools ... and educate people about the Internet and the benefit it provides, which obviously is significant, but also some of the risks and how to get the benefits without the risks. So we take it very seriously and I think we've made good progress in the last year. Not just AOL but, more broadly, the industry in trying to make it a medium that's safe for kids and increase the odds that we'll meet our real objective here, which is create a medium that does have a positive impact on society.
Q. You think that your brand name is the brand name that has been passed off at some of these incidents?
A. I think it hasn't helped. I worry less about painting [AOL with a broad brush] but even more about trying to do the right thing to build the medium we can be proud of. I think parents [are concerned]; there has been a fair amount of attention on some of these issues. That notwithstanding, we've added nine million customers in the past three years. So I think parents, the evidence seems to suggest, and even our own research, the parents recognize that the service we're providing brings terrific value to their families and is a great thing to be connected to. At the same time, they recognize there's some risks associated with that and I think they've been anxious about that. Some take the time to learn about other controls, some don't. There's been this sort of anxiety, nervousness about it, but I think on balance, in spite some of these risks, they've decided that it's good for their family. And I think as they see that we really are committed not just to doing more interesting things to make it more useful, valuable, helpful, educational, what have you, for the the family, but also try to do some things to try to neutralize some of the risk.
Q. Doesn't some of this flow naturally from the fact that you all pioneered easy decoding of photographs, pictures? Fact is, e-mail was easier, photo access was easier, and so people flocked to it because they could create pictures and they weren't all pictures of [kids and their dogs].
A. Actually, no. I think it's an unintended consequence of the technology. ... When millions of people have taken advantage of some of the technology, some will use it will use it appropriately and some inappropriately. You have Federal Express and the Postal Service and AT&T and others. Every day there's criminal activities that happen through the use of those distribution systems. I think that's what they say. It doesn't get all the publicity. You know, drugs go through Federal Express and illegal gambling and drug, what have you, are done through the phone system. But on balance, the benefits those capabilities provide outweigh the misuse of it. And it's not just an AOL issue, I think it's not just the ease of use we brought but part of the problem exists more broadly. Indeed, I think we're doing a better job of mitigating the risks of the problem with the efforts that we're doing within the AOL. Things like controls. Generally speaking, on the issue of unintended consequence, lots of people are using this in lots of novel ways, some of which we never would have envisioned.
Q. Talk to us a little bit about your thoughts on customer service? Access issues aside from a year ago. One of the things we, when I talk to AOL users and get sort of unsolicited phone calls and e-mails about the way you guys treat your customers, there's a perception that you guys have gotten very big and now you can sort of jerk people around a little bit. We saw a little bit of that last summer when this whole telemarketing issue came up and customers felt that, oh, we've been given all this personal information to AOL and now they're selling it to make a fast buck. Other people say that it's tough to sort of get through on some of the phone lines. There's not always a benefit of the doubt being given. And, you know, there are sort of two schools of thought, talking to analysts, one is that, you know, AOL could kind of be more like a Nordstrom's, you know, give people a benefit of the doubt. ... The other is that in a sort of a thin margin business that, you know, buy kind of, you're stringing the customer along by making it a little harder to sign off. I know you implemented a program to reduce defection by trying to give people some free time to try to talk them through the problems. Some people perceived that as sort of strong-arm tactics to prevent the ability to sign off. Talk to us a little bit about how you sort of think through those customer service issues and respond to some of that perception.
A. Well, I think perception exists to an extent. ... I do think there's a tendency to accentuate the negative on these things. I do think when you have online customers and are growing as rapidly as we have, and we try to do the best we can but we're not perfect, and [we've had] e-mail problems or you're on hold waiting for a customer service person. There are going to be problems. ... We were growing faster and therefore we have more infrastructure challenges than anybody else. It's not that surprising that we would have more complaints of people than the other folks. That doesn't mean that we're not worried about it. We're making huge investments in that. We've gone through customer service. Five years ago we had 20 people; now we have over 5,000 people.
So it's a major, major effort. We spent hundreds of millions of dollars on system infrastructure build out in the past few years. I think [our customers] are actually smarter than most people give them credit for. They recognize their options and are picking AOL by pretty significant margins. I think there is a sense that [AOL] is doing a better job on average, even if not perfect, than other people are in meeting my needs and therefore I'm going to continue with $10 to $20 a month. That's opposed to [the notion that we've] cleverly tricked them into, you know 10 million people are paying us money even if they don't want to. So I think we can do better. We're trying to do better. We are doing better if you look at the econometrics a year ago. Hold times when you called customer service were sometimes very lengthy. Now they're not. We're doing a better job of training people to understand how we fit the permutations. There's thousands of computers and modems and the things that can go bump in the night and as we've built in terms of kind of problem-solving customer service is, I think, improved a lot. But there's more that we could do, there's no question about it.
Q. The other day I had to hit the no-thanks button five times before I got to the main menu. Does anybody ever hit yes?
A. Obviously, yeah. But you shouldn't hit five things. I'm not sure why there were that many. But we do provide flexibility for members. You can, for example, ask us not to send any of those pop-ups to you. There's a preference in the marketing area to basically say, Don't send me those things. People, generally speaking, like that stuff. They figure the offers we're providing are, generally speaking, of interest to people. Not always everybody, but there's not the backlash you might imagine. I think people also recognize that there is a desire on our part to create the best possible service and offer it to the widest possible audience at the lowest possible price. And part of that is we have to develop revenue streams of people other than the customers support for development of this medium and this is in television, they kind of got used to, actually you don't watch an hour show, you watch a 51 minute show. There's nine minutes of ads. Or in the newspaper, the percentage of ads in the Post is pretty high. You know, people recognize that's part of the, they'd rather have the ads in the Post than, you know, pay $50 a month for the newspaper. So there's some pragmatism to it.
Q. You're the head of publicly traded company and it's covered by Wall Street analysts who have potentially two interests. One in conveying accurate information to investors but, two, in cultivating the investment business with America Online. Is it just a coincidence that some of the analysts who are most bearish on your company have a hard time even getting into your quarterly financial conference calls while some of those analysts who are most bullish on the company need to have access to real inside information about the company that they get a jump on in their reports to their clients? And, for that matter, in this age of instant communications, which you're pioneering, is there any reason why the whole world shouldn't get simultaneous access to your quarterly conference calls and financial disclosures instead of relying on the filter of those Wall Street analysts who may not be entirely . . .
A. Well, ... I think you're being a little paranoid. First of all, I think there's 25 companies, research firms that follow AOL. ... I think they're much more interested in delivering a reasonable service to their corporate customers. Simply it's institutional investors who are giving the money every day [versus whether] we'll give it a little bit of money a few years from now. So I think that premise is inaccurate. I think figuring out a way to opening it up to a broader audience is perfectly reasonable. When you have a call and it's an hour and you can only take 10 questions, you want to have them be reasonably informed, insightful questions and balanced. I do sessions from time to time with members and if we just open it up randomly and there's a million people on the call and we just took 10 calls randomly, I don't think on balance people would be as happy with the calls. As some people who are following the company and therefore understand the issues, they can ask questions which are of interest to people.
I think there's near perfect dissemination of information about AOL, though not just through our calls but through forums. There's half a dozen message boards and others where there's a very informed dialogue about the issues. I think people have a pretty good sense of the company and the strengths and weaknesses. I'd also add that one of the most bearish analysts a year ago, you know, switched firms recently and picked up coverage very positively and I think he just recognizes that some of the things he was considering about a year ago we've addressed in a way that he now is comfortable with. He just basically said, you know, a year ago there was a lot of things I was worried about how company was going to do this or do that or not do this or not do that, and I'm feeling pretty good about it.
Q. The other big complaint I get from readers and my own experience with AOL account is junk e-mail, spam, coming in from the outside. I've gotten every pitch imaginable from every cretin in the universe in my account. ... It seems that AOL has a worse problem than other providers. ... Why do you think AOL has been hit so hard with this, and do you see this problem as anything that's likely to get better anytime soon?
A. Well, there's no question why we're hit hard, just because we're the big audience and therefore anybody interested in this area of compiling junk e-mail lists, we're the obvious. ... So sort of like bees flocking to the honey. It's just the way it's going to be. I therefore think we need to be more aggressive in dealing with it and I think we tried a lot of things over the last year and initially focused just on technology solutions.
. . . And it's particularly unnerving because as you just alluded to, if a parent has the ability to block access to the e-mail site from a preset list, or ... if they don't do that and e-mail comes in and it's promoting a site that's already blocked ... Nevertheless, most parents probably wouldn't take the time to set up those controls to block that access, would choose not to set up those controls. And there would be a bunch of junk e-mails. So it's a problem. We're looking at some other solutions. I do think we'll make progress over the next year.
Q. Coming from technology, legislation?
A. Probably both.
Q. Coming back full circle to something we were talking about right at the beginning of the discussion: Your role, movement onto the Internet from the proprietary [service].
A. Are you trying to get a news story tomorrow?
Q. Hey, no, no. Talk to us a little bit about your strategy.
A. Just go ahead. Say it. Our strategy on the Internet?
Q. And you know the things you might be doing generally in the nearer term in terms of embracing and extending the presence to the Internet.
A. Well, really, two general areas. The first and it was done pretty well if you're one of our 10 million members, you've got a great Internet experience. Adding to that, there's really the Internet and a whole lot more. And I think we're doing well on that. And we'll continue to enhance what we're doing in a variety of ways for our next software has some enhancements. ... The other which we have not done as much of or as well in over the past couple of years I think we'll do a better job in the next couple of years is the world outside of AOL. We recognize and the good news is most of the consumers connected from their homes are connected through AOL but there's lots of people who are connected through offices or through schools or through some other forum that basically has AOL sort of on the periphery. We feel we get an opportunity to play a broader role outside of the specific role we've got. And we've stepped up those efforts in the past six months or so. AOL.com, which is a web site that originally was designed to be a dashboard from AOL into the Web, is being enhanced through a variety of different things to make it more of a competitor to the outlook site Lycos kind of search engines and content aggregators.
We have launched four or five months ago a buddy list capability. AOL is the messenger. That's off to a very strong start. As a web product, you know, it's free. You can basically send instant messages to anybody using that software on the Net or on AOL itself. Or we've added a lot of distribution partners, more recently with Netscape and Lotus to support that. We are continuing to launch content plans that are distributed on AOL but also distributed more broadly.