He built AOL into a juggernaut and engineered a megamerger with Time Warner. Then his brother got sick, the merger turned out to be a bust, and Steve Case was a billionaire but out of work. No more. He’s going to try it again.
In the California Pizza Kitchen on Connecticut Avenue, I am sitting across the table from Steve Case.
With a personal net worth of near $1 billion, he is the richest man I’ve ever eaten with. He’s probably wondering what he’s doing in a California Pizza Kitchen with me. I picked this place because it is where his newest venture was conceived.
The onetime boy wonder who began building America Online into a colossus at the age of 33 is, at 48, tall and well built. I expected him to be pudgier. He vaguely resembles the actor George Clooney. He seems to lack the trappings and eccentricities of most billionaires.
He is wearing khaki pants and a blue shirt unbuttoned at the collar. He bypasses the pizzas and orders a plate of Thai noodles. He says he hasn’t eaten at the lawyer-and-lobbyist-filled Palm restaurant in ten years. Most days he eats at his desk. When he does dine out, the Tabard Inn on N Street is a preferred location.
Case is worth half what he was five years ago, according to the annual compilations of billionaires by Forbes magazine. That’s when he engineered high-flying AOL’s takeover of media conglomerate Time Warner. In the years since, as the stock price of the combined company has tanked, he has lost more money than most people ever dream of having. In his mid-forties, he was at the top of the most powerful media empire of all time—heading the company that owned Time, Fortune, Sports Illustrated, People, CNN, HBO, Warner Brothers studios, and lots of other properties, including the Cartoon Network and the Atlanta Braves.
Then it seemed that Case might wield more influence over the economic life of 21st-century America than Henry Ford did over the 20th. But now much of it was gone. AOL itself, the company he helped create, the brand he exemplified, had slipped through his fingers. After two years at the helm, he was forced out.
Now, as we walked through the crowded restaurant to a back table, I saw not one eyebrow raised in recognition of this titan of modern capitalism. All the power, all the recognition had faded. Of course, nearly a billion dollars is some consolation.
On this morning, like most mornings, Case had awakened early at his home near Chain Bridge Road and the George Washington Memorial Parkway in McLean.
Case and his wife, Jean, live with their four daughters from previous marriages—Case’s son, Everett, is at Williams College—at Merrywood, the nine-bedroom mansion that was the childhood home of Jacqueline Bouvier Kennedy. It was bought by Jackie’s stepfather and mother, Hugh Auchincloss and Janet Bouvier Auchincloss, and later occupied by Auchincloss stepson Gore Vidal, who described it in his novel Washington, DC.
Case doesn’t like attention or publicity, particularly about where he lives, so it is not clear why he bought the historic seven-acre estate, for which he paid $25 million, unless it was for the indoor basketball court and the pool. Case likes to swim.
His neighbors include his buddy and fellow AOL founder James Kimsey, an Arab diplomat, and a few millionaires.
Case used to live off Georgetown Pike in a gated community called the Reserve. His house was tucked behind a guard station. He had looked at Merrywood six years ago, before it was sold to Carlyle Group managing partner William Conway. But Case was busy then acquiring Time Warner for $165 billion in AOL stock.
To say that Case doesn’t want to talk about his house is an understatement. He bought it through a shell corporation to avoid having anyone find out that he lived there. He refuses to discuss the property or its history and is adamant that no photographs be taken of him and his wife, Jean, at the house. When I ask if he has any plans for renovation or changes, he says those questions are too personal. He was furious when the Washington Post reported that he had bought Merrywood. He seemed to think no one would find out.
Case is not exactly a Howard Hughes–type recluse, but he is a private man with few apparent passions outside of work. He’s occasionally seen at Washington Wizards games but says he isn’t much of a fan. Buying the high-profile seats next to the team bench, he says, was business partner Donn Davis’s idea. “It’s a little more out front than I really care to be,” Case says.
A confusing pattern begins to emerge. He buys a historic home and tries to hide the fact that he owns it. He buys expensive seats right next to the players, then says he doesn’t want people to notice him.
When I mention that he recently has been seen at a high-profile private-school auction, he throws cold water on that, too. Ted Leonsis, the gregarious AOL exec and owner of the Washington Capitals, “dragged me to that,” he says.
Hobbies? Collections? Sports? Nothing seems to click. He works out in the morning on a treadmill and sometimes rides around on his Segway. He drives a metallic-blue hybrid Lexus SUV. He likes to instant-message his friends, he says. That’s it. He seems not to understand why readers would care about such things.
I’m thinking to myself: This is the guy who owned People magazine?
My experience is not too different from that of other journalists. Mark Leibovich, then with the Washington Post, complained that Case provided little access for a story he wrote six years ago—then complained loudly about an insignificant anecdote in the article about his playing basketball as a boy growing up in Hawaii.
Nina Munk, author of Fools Rush In, a book about Case’s misadventures in buying Time Warner, has called humanizing Case “an impossible burden.” Says an attorney who has worked on AOL cases, “He’s a very dull person who surrounds himself with very interesting people. That’s the most interesting thing about him.”
The facts of Case’s life have been chronicled in several books. He was born on August 21, 1958, and grew up one of four children in a wealthy suburb of Honolulu. His father was a lawyer, his mother a schoolteacher. His younger brother, Jeff, is in the insurance business in Hawaii, his older sister a teacher in California. A cousin, Ed Case, was the Democratic congressman from their home district but was defeated in a primary race for the Senate.
It was the perfect 1960s life, full of newspaper routes, lemonade stands, and afternoons on manicured Pacific lawns. From kindergarten through 12th grade, Case attended Punahou, a private school across the street from his house. “We called it the 13-Year Club,” he says of those who went all the way through. A fellow member, though a few grades behind, was Barack Obama, now a US senator from Illinois and likely presidential candidate.
Punahou has a new middle school, the Dan and Carol Case Middle School, built by Steve in honor of his parents.
Steve’s defining relationship was with his older brother, Dan, who left Honolulu for Princeton, where he graduated Phi Beta Kappa. By the time he was 33, Dan was the managing director of one of the nation’s most successful venture-capital firms, Hambrecht & Quist, which eventually was swallowed up by banking giant JP Morgan, a deal that netted Dan $95 million.
“Other kids played tag,” Steve says of the relationship. “We played business. He was the financier, I was the entrepreneur. I would go broke, and he would bail me out.”
Steve, like his father and cousin Ed, attended Williams College. When I ask if Ed and Steve are close, a Case spokesman says, “Ed is a Democrat; Steve is a Republican.” Steve says he sometimes votes for Democrats, such as former Virginia governor Mark Warner.
A B-minus student by his own admission, Steve was an entrepreneur even in college, starting companies such as one that persuaded parents to buy fruit baskets to send to their darlings during exams. He graduated in 1980 with a degree in political science. Case says he would have majored in marketing at a larger university but at a liberal-arts college like Williams, political science was as close as he could get.
After college he worked for Proctor & Gamble, where his specialty was trying to build brand names for products such as Abound, a wet towelette. He then got a job in Wichita, Kansas, with Pizza Hut, where among other duties he tried to come up with ideas for new toppings.
The Case legend says that at Pizza Hut he began to think how cool it would be to communicate with all his friends outside of Kansas via his personal computer. So he subscribed to the Source, the first online service created in the United States. Although the literature often seems to suggest that Steve Case was the first person to conceive of intercomputer communication, in fact he was pondering pepperoni while others built the first online networks.
His brother Dan had put Hambrict & Quist venture-capital funds into a start-up company called Control Video Corporation. In 1983 Steve, then 25, joined Dan at the annual electronics show in Las Vegas. Dan introduced Steve to the real founder of online networks, William von Meister, creator of the Source.
Von Meister, whose offices were in Vienna, Virginia, was working on a project that would allow people to download games onto their Atari home game machines. He hired Steve as a marketing consultant. Von Meister, who lived in Great Falls, died in 1995 at the age of 53, so there is no way to find out now whether he was simply bowled over by the young marketing guy or whether the fact that Dan Case was one of his biggest financial backers persuaded him to hire Steve.
Steve Case moved to Northern Virginia, where he has stayed for 23 years.
Control Video faltered, and von Meister was forced out of management. Washington businessman Frank Caulfield, one of its biggest investors, asked his friend and fellow West Point graduate Jim Kimsey, who owned several restaurants and bars, to come in and stabilize the company. With Atari going out of business, Kimsey reorganized Control Video as Q-Link to market online communications. Steve Case was named director of marketing. He immediately made a contribution by going to Cupertino, California, and camping out at the offices of Apple Computer until the company agreed to provide Q-Link services to buyers of Apple computers, a service that became known as Apple Link.
Case then did a couple of company-saving deals with IBM and Tandy, persuading them to build modems into their PCs so users could communicate over telephone lines.
Case returned to Vienna a hero. When Apple had second thoughts about licensing the use of its trademark in Apple Link to a third party, Case and Kimsey in October 1989 changed the name of the service from Apple Link to America Online. They liked the sound of it so much that they used it to rename the company.
Case and Kimsey were off and running, a fact brought home in 1991 when CompuServe, which was also building a worldwide online network, offered to buy AOL for $50 million. Kimsey was all for it. He could go back to running his restaurants and bars a wealthy man. But Case convinced him that $50 million would look like chump change in a few years. If Case was not the man who invented online service, he was prophetic about its future. Over the next eight years—from 1991 to 1999—AOL, with Case succeeding Kimsey as president and CEO, became one of the great success stories of American business and the greatest in the history of Washington.
By 1999 some 2,000 ordinary AOL employees, out of a workforce of 13,000, had become millionaires through the growth in value of AOL stock. Forbes listed Case’s net worth as $1.5 billion, a sum that put him in the league with the Mars candy family, the tool-making Rales brothers, the Marriotts, and Chevy Chase Bank’s Frank Saul as the richest people in Washington.
The AOL juggernaut changed the face of Northern Virginia, creating an economic boom of car dealerships, new brick mansions, private-jet sales, and restaurant openings. No segment profited more from AOL’s success than the area’s divorce attorneys. Infused with wealth, AOL employee-investors cashed out their first wives and acquired new ones, generating complicated questions about how to divide stock options that a handful of attorneys were able to exploit. The lawyers called them “AOL divorces.”
Case epitomized the trend with his own messy divorce from his wife, Joanne, who had been with him since Williams College. They’d married in 1985 and had three children. Eleven years later, in 1996, Case announced that he was having an affair with Jean Villanueva, a fellow executive of the company since the days of Q-Link. Admitting the relationship was one of the most jolting experiences of Case’s carefully controlled personal life.
In 1999 AOL was riding the Internet boom. Case’s dream was one day to use the value of AOL’s stock to buy Apple Computer. But first, AOL insiders and advisers believed the perfect merger would be with Time Warner. Marrying AOL’s Internet platform with Time Warner’s print, television, music, and movie content would be the dawn of an online Aquarian age.
The deal was consummated in January 2001. Case became chairman of the new company, 55 percent of which was owned by AOL. Time Warner head Jerry Levin continued as chief executive.
The merger was plagued by bad timing. By the time AOL Time Warner was officially born, the Internet bubble had burst. Online companies that had sold for $300 a share plummeted to a few dollars. The Time Warner deal saved AOL shareholders: Owning a company with assets like Time and CNN protected them against the total meltdown of the pure Internet stocks. The investors who got taken were the shareholders of Time Warner, whose stock had sold for $90 a share at the time the merger was announced. A few months after the final approval, AOL Time Warner stock was $12 a share.
The Securities and Exchange Commission investigated allegations that AOL had inflated its stock value through phony advertising and revenue-growth figures. None of the “synergies” that were supposed to propel the combined company to untold prosperity came to fruition. Advertising revenue failed to meet projections, and profits disappointed investors and Wall Street analysts.
The AOL–Time Warner merger would become known as one of the greatest business failures of all time. In Fools Rush In, Munk says executives of the new company blamed Case for being “aloof, distant, almost extraterrestrial” as the company went down.
Case says he was chairman of the company, not chief operating officer, so the blame wasn’t his: “I didn’t think my role was to meddle in the operations of the company.”
Jerry Levin, the CEO, had his own problems. His son had been murdered in 1997, and he was deeply affected by the September 11, 2001, attack on the World Trade Center. He began to develop a dislike for Case, whom he considered cold and unfeeling. In time Levin left the business, married a psychologist, and moved to California to operate a Buddhist-oriented holistic mental-health institute, Moon View Sanctuary.
In early 2001 Steve’s brother Dan was diagnosed with a brain tumor. Steve took an apartment in San Francisco to be near him and help guide him through the maze of medical opinions and options available to someone with unlimited funds. Dan had surgery on March 23, 2001; that May he stepped down as chairman of JP Morgan Hambrecht & Quist. A little more than a year later, he was dead at the age of 44.
In his eulogy, Steve predicted that he and his brother would be reunited as “Case Industries” in heaven.
Few at AOL–Time Warner were aware of how serious Dan Case’s situation was or even that Steve had moved to California. He told me that during his tenure as head of the world’s most powerful media company, he visited its New York headquarters only two or three times a month.
Munk’s book portrays Steve during the postmerger period as aloof. She writes that Jerry Levin felt “Case could not possibly know or feel the pain of losing a loved one.”
Case wasn’t communicating a lot with his Time Warner colleagues. They thought he was AWOL. He thought he was at the side of a dying brother.
By the beginning of 2003, Levin’s successor, Richard Parsons, had forced most of the AOL types out of management. Two years after the grand merger, Steve Case was gone as chairman of AOL–Time Warner. With AOL–Time Warner stock in the midteens, Forbes cut its estimate of Case’s net worth to $740 million. But he is still the largest individual shareholder of Time Warner stock, which has been rising in recent months.
Case’s last official act as chairman was to sit for an interview with CNN’s Paula Zahn. Zahn asked, “How badly do you feel about almost $200 billion worth of shareholder value that has been wiped out?”
“It’s never over till it’s over,” Case replied.
Case’s seeming indifference to shareholders’ losses angered many longtime Time Warner investors. Not until an interview last July with Charlie Rose did Case admit that the merger had been a mistake. “I’m sorry I did it,” Case acknowledged.
The weekend he returned to Washington from New York after being forced out as chairman, Case called a longtime friend and former AOL executive, Donn Davis. Could Davis meet him for lunch?
Davis and Case had met when Davis was a young attorney working for the Tribune Company in Chicago. The Tribune was one of the earliest media organizations to sense the power of the Internet and try to make money by spreading its content onto Internet platforms. Davis was named president of Tribune’s media-venture division. One of his first deals was a linkup between the Tribune and AOL. He thought Steve Case was one of the sharpest guys he had ever met. When he went to Tribune management for approval, recalls Davis, “what it came down to was we were betting on the person.”
The admiration was mutual. In 1998 Case asked Davis to become a vice president at AOL, an offer he accepted. Through the traumatic two years following the merger, Davis and Case remained close. Back in Washington without his mantle as chairman of AOL Time Warner, Case called his friend. “Why don’t you and I do something together again?” he asked. Davis agreed to meet Case for pizza and iced tea at the California Pizza Kitchen near the Case Foundation offices.
“There’s only two restrictions on us,” Case said between bites of chicken-barbecue pizza. “No media, no Internet.”
Although Case had not signed noncompete agreements, he was still the largest shareholder in AOL-Time Warner, and he felt it would be bad form to get involved in something that could be seen as competition with his ex-colleagues.
As Case and Davis talked, their focus narrowed to two areas of the economy that Steve felt had not entered the modern age: medical care and the hospitality industry.
As Davis recalls, they spent a lot of time talking about the business of summer homes. Case thought it was odd that people spent millions of dollars on a summer house to use only a couple of weeks a year. He bought FlexCars, which rents cars by the hour to give consumers the freedom to drive without the hassles of ownership.
Case was also big on the concept behind NetJets, a company that makes planes available to wealthy people when they need them. Warren Buffet, the billionaire investor from Omaha, already had scooped up NetJets.
Doing something similar with vacation resorts seemed promising. Case also expressed interest in doing something to improve medical care in the United States.
“You know, the healthcare system in this country is broken,” he said. “I’ve got a decade or two left to try to fix it.”
The following Monday, Davis recalls, Case walked into the Case Foundation offices with his arms full of printouts from the Internet. He had spent the weekend exploring the vacation-resort business and discovered Exclusive Resorts, a company in Colorado that was leasing resort properties to millionaires. He e-mailed the owner, Brent Handler, requesting information about its services.
When Handler got the e-mail, his first thought was “Is this the Steve Case?” He replied to the e-mail with a phone call, and soon Davis and Case were on a plane to Colorado. Case and his wife stayed for a couple of days at an Exclusive Resorts property in Los Cabos, Mexico. A few weeks later Case bought half the company for $5 million; he bought another 30 percent later.
Case and Davis built Exclusive Resorts, buying more properties and soliciting more members, but Case’s mind was still on healthcare. He couldn’t understand why there were so many forms, why everything was so complicated, why information was so hard to come by and so contradictory. If he and his brother, two of the richest men in the country, couldn’t figure it out, what about everybody else?
He began to think about creating a new America Online, but this time an online community devoted to healthcare, insurance issues, and “interactivity” that would disseminate information from top centers such as the Cleveland and Mayo clinics.
Six months before his brother’s death, the family decided to do something about what they saw as the inadequate treatment brain-cancer patients received. With Dan and Dan’s wife, Stacey, Steve and Jean created Accelerated Brain Cancer Cure, known as ABC2. Case says that his experiences with his brother’s illness and ABC2 led him to believe that he could improve the healthcare system. He incorporated a new company called Revolution in 2005 to do just that.
Case vows to change the experience his brother Dan had to endure: duplicative forms, lost medical records, long waits for tests, and confusion over the availability of new therapies. “I don’t want to just complain about the healthcare system,” says Case. “I want to do something to fix it.”
Among Case’s first hires was Ron Klain, his longtime attorney from the California-based law firm O’Melveny & Myers. Klain was chief of staff to Vice President Al Gore and a 2004 adviser to Democratic presidential nominee John Kerry. Shortly after sunrise the morning after Election Day 2004, Case called Klain and said, “What are you going to do now?” A month and a half later, Klain left O’Melveny & Myers and became Case’s right-hand man.
Case has brought in three notable figures as a brain trust: former Fannie Mae chief Franklin Raines, ex-Hewlett-Packard CEO Carly Fiorini, and former Secretary of State Colin Powell. All serve on the Revolution Health Group board and are investors. Like Case, all three are looking for comebacks. Fiorini was deposed after a hard time at HP. Raines was forced out of Fannie Mae and is now being sued by the government for allegedly inflating financial reports—the same charge made against Case by Time Warner shareholders. Finally, there is Powell, who hopes to improve his legacy after failing as secretary of State to stand up against a war he now acknowledges was wrong.
Case meets with the trio every other month. A Case aide says Powell “has every kind of gadget” and also “understands everything about healthcare, since the military is the biggest user of healthcare systems.” Fiorini brings marketing expertise. Raines, once White House budget chief, brings a strong perspective on healthcare policy because so much of the federal budget is devoted to healthcare.
To organize and operate the Revolution Health division, Case hired John Pleasants, former CEO of TicketMaster. The company rented space on Connecticut Avenue upstairs from California Pizza Kitchen and began construction of what Case hopes will become one of the world’s most useful Web portals. Some 300 computer experts are building the Web site. All around them, deals are being hatched with medical-care providers and advertisers.
Case has acquired 14 companies that will operate under the Revolution Health umbrella. “Some billionaires collect fine wines or great paintings,” says a friend of Case’s. “Steve is collecting businesses.”
Revolution Health launched a “preview” of its free Web site in January. For an initial membership price of $9.95 a month, Revolution subscribers receive a panoply of health-related services. Case says the company will go beyond providing information and in time will negotiate and advocate on behalf of its members with HMOs and insurance companies. He says the new company will “be an advocate for consumers, store medical histories online, make them accurate and accessible—digitized, customized, and privacy protected.” The company not only will “revolutionize” healthcare in the United States, he says, it will dwarf the financial success of AOL.
In addition to his online strategy, Case has bought a healthcare-services company called RediClinic. In December 16 RediClinics opened in Walgreens drugstores in Atlanta.
Case also has put $20 million into a Colorado–based company called Gaiam, which among other things makes yoga mats similar to those on the floor at Levin’s “sanctuary” near Los Angeles. And Case is doing a deal with tennis legends Andre Agassi and Steffi Graf to put Agassi-Graf tennis centers in some of Case’s resort properties.
All around downtown DC, Steve Case is quietly trying to disprove Scott Fitzgerald’s declaration that there are no second acts in American lives. At Revolution Health on two floors of an office building on Connecticut Avenue, at Revolution LLC and the Case Foundation nearby on Rhode Island Avenue, and at FlexCar headquarters on 14th Street, more than 300 Case employees are working around the clock to change the world. The Case Foundation, now run full-time by Jean Case, explores ways to end global poverty and provide clean drinking water for African populations.
Revolution is not setting out into virgin territory. WebMD, with 720 employees and a $2.2-billion market capitalization, is already well established; competition between the two companies may ultimately prove damaging for both. Ironically, WebMD has a “strategic alliance” to share medical information through AOL, though the arrangement expires in May.
Case has committed $500 million of his own money to Revolution; he’s already poured $100 million into it. Raines and Powell, both of whom served on the board of AOL in its glory days, also have made substantial investments, as has Fiorini. Case, who owns 80 percent of the company, says he isn’t worried about WebMD or anyone else: “It’s a wide-open market.” He likes the role of underdog. He reminds me that AOL was once the little guy on the Internet, way behind CompuServe and fighting Prodigy, which was backed by Sears. In fact, he says, he might not have been well suited to running a conglomerate.
“I’m an attacker, not a defender,” he says. “When I was chairman of AOL–Time Warner, we were the big boys, and I was put into a defensive posture. That’s not fun for me. I really liked the first ten years of AOL better.”
Starting Revolution might be challenging and fun, but will it restore his lost luster, to say nothing of that lost billion? No one who watched his success with AOL in the early days would bet against him. But few who saw his performance after the Time Warner merger would bet on him.
If this were sports instead of business, Case’s record would be even—one win, one loss. His next act, Revolution, will decide whether he is lucky or good.