The Dulles corridor awoke yesterday to the news that America Online, its flagship technology company, had become part of a new Internet and media leviathan with Time Warner, raising as yet unanswered questions about how power and leadership in this New York-based partnership will ultimately be shared.
America Online Inc. Chairman Steve Case, who will hold the same position at AOL Time Warner, will remain at his company's sprawling Dulles campus. In an interview, he said that immediate layoffs there are "unlikely" and that he is planning for continued rapid expansion of AOL's operations in the Washington area, where it employs about 3,000 people.
An AOL spokeswoman said the new company will be based in both locations but its corporate headquarters will be in New York, its board will meet there and its top operating executives will be based there as well.
Washington area business leaders and industry analysts said they were confident that AOL's Dulles-based executives and technicians will play a paramount role in the new company, bringing Time Warner's media holdings to a global Internet audience.
But one potential risk to the Washington area's technology future, some analysts said, would be a split in operations that left AOL with the "back office" parts of the enterprise.
"I would not like to see them say to AOL, 'You're the network, the dumb pipe,' while the strategic decision-making, the content and e-commerce activity are in New York," said Bill Whyman of the D.C.-based Legg Mason Precursor Group. The Washington area "doesn't want to be stuck with the lower value-added part."
AOL has been the keystone of the Washington region's bid for recognition as a center of technology as well as politics and government. It has led the way in an economic transformation, particularly in Northern Virginia, where jobs in technology companies swelled by nearly 17 percent between the first quarter of 1998 and the same period in 1999 and continue to grow at double-digit levels, analysts say.
The news of the merger hit AOL employees this morning like a thunderclap and in many cases, surprise gave way to pride.
"I was taking vitamins in my kitchen and listening to the Today Show and they said they'd come back in a moment with the AOL Time Warner news," said Heather Perram, director of special programming for AOL. "I just about did a spit take."
For Perram and other AOL employees, the acquisition of Time Warner by its much smaller partner, was the ultimate statement of the Internet's ascendancy.
"It's a vindication of the importance of this industry," she said.
Jimmy Lynn, a director of account services in the interactive marketing group, heard the news yesterday morning on the radio. "My first reaction was just, 'wow,' " he said, "I was surprised to hear it."
Lynn manages sports and news and therefore is eager to get his hands on the Time Warner assets of Sports Illustrated and CNN, for example. "I'm thinking this is a great, great move," he said.
Washington area business leaders took a similar upbeat approach, hopeful that the AOL Time Warner deal would not strip the region of another marquee headquarters firm, as happened with the acquisition of Mobil Corp. by Exxon Corp. and WorldCom Inc.'s purchase of MCI Communications Corp.
"There's a great opportunity for this region to snag more of the operations of this massive company," said John R. Tydings, chairman of the Greater Washington Board of Trade.
One upside is that the deal with Time Warner is likely to encourage many of the scores of millionaires within AOL to cash in on their vastly appreciated stock holdings and leave to start new ventures, some analysts predicted.
An AOL representative said that stock options held by most employees--giving them the right to buy shares at below-market prices--can be exercised one year from consummation of the merger. That shortens the waiting period for many employees considering selling AOL stock.
"People who made money with AOL stock--a lot of them are very entrepreneurial. They've got the bug, and they're going to be resources in building new companies here," said Roger Stough, director of the Mason Enterprise Center at George Mason University.
The outlines of the new company describe side-by-side enterprises with their separate specialties, said analyst Ken Kiarash of the Buckingham Research Group in New York, not two companies mashed into a stew.
"The technology innovations will most likely come from the Dulles side," he said. "The content will be developed and distributed in New York. I think they're both equally critical functions. Dulles is not a back office. It is about innovating and creating the means of [online] delivery."
As the history of mega-mergers has proved time and again, blending distinct corporate cultures into a new enterprise is fraught with problems. "Do we expect that here? I certainly hope not," Kiarash said. "I don't think it will happen, especially because of the way the power has been divided."
"The future of that company is really dependent [on] doing things that AOL is particularly skilled at doing--taking media to consumers online," said analyst Gary Arlen. "They'll keep that around here."
Mario Marino, a Washington area software pioneer and philanthropist, said the challenge of bringing the full range of Time Warner's media holdings to the Internet should greatly enrich the networking and telecommunications expertise that is the Washington area's greatest high-tech strength.
"It will have a ripple effect that's all positive," Morino said. "It's pretty wild."
CAPTION: AOL Chairman Steve Case will remain at his company's sprawling Dulles campus, shown above, after the company acquires Time Warner.