Steve Case searches for another iconic brand

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By Paula Squires

A few months shy of 50, Steve Case wants to build another company that will change the world. Sounds ambitious for a midlife boomer, but Case has done it before. This is the guy who made “You’ve got mail,” a mainstream phenomenon, nurturing America Online into an indispensable product that connected millions to the Internet.

So, what’s the encore? Five years after stepping down as chairman of AOL Time Warner Inc., following the companies’ calamitous merger, Case is prepared to invest as much as $500 million in new startups. From resorts to health care, wellness and financial services, he’s back in the garage, tinkering with new businesses.

“That’s the part about AOL that I liked,” he says, “… the pioneering, peering around corners, figuring it out, rolling up your sleeves kind of thing.”

The billionaire businessman (Forbes magazine pegs his net worth at $1.2 billion) isn’t flying solo. He’s bringing in other high-profile investors to help birth another transformative brand. 

One of them is Ted Leonsis, a longtime friend and former colleague. The outgoing 52-year-old vice chairman emeritus of AOL likes to tell the story of how he was hired.  “Steve recruited me over an instant message,” he says. That was back in 1994, when Case bought Leonsis’ digital marketing firm, Redgate Communications, for a reported $33 million. “And then I got my reviews on instant message,” adds Leonsis. “Steve said, ‘You’re doing a good job. You can stay another year.’”

Opposites in many ways
Spend an hour with the two executives at Case’s new corporate headquarters in Washington, D.C., and their mood is as light as the Koa wood (from Case’s native Hawaii) that covers the walls. There’s an easy give and take, although the men are opposites in many ways.

Case is tall and lean with boyish good looks, despite graying hair at the temples. Leonsis is shorter than Case and heavier. He has thick, dark hair, a moustache and goatee.  Impeccably groomed, Leonsis wears a suit and tie, cufflinks and a flashy watch. Of the two, he’s the more gregarious — quick with a smile and a one-liner. Case dresses down: dark slacks, a blue shirt, open collar, no tie.

Ask about the possibility of Yahoo merging with AOL and Case plays it straight. Noting his long absence from AOL, he says, “I don’t really have an informed opinion.” 

Leonsis, though, smiles slyly.  “I tried to buy Yahoo with Steve for two million dollars. That was our offer in probably 1995. Do you remember that meeting?”

“We should have upped it to $3 million,” says Case.

“No, $5 million,” shoots back Leonsis, who laughs out loud at how ludicrous it sounds today, since Yahoo is now one of the Internet’s “big
three” along with Microsoft and Google. Microsoft recently offered to buy Yahoo for $47.5 billion. The deal didn’t happen. But by late May, Microsoft was talking vaguely about another transaction with Yahoo that would not be a takeover.

Whatever happens with the big three, Case and Leonsis are out of the game. They’ve moved on: Case with a private investment company he founded in 2005 and Leonsis with major league sports teams, business investments and movie making. An avid sports fan, Leonsis is majority owner of the Washington Capitals hockey team and the Washington Mystics, a woman’s NBA team, and minority owner of WNBA Washington Wizards.

So far, he’s produced two films:  “Nanking,” a documentary about the 1937 Japanese invasion of Nanking, China, and “Kicking It,” a film due out this September which he says is about “homelessness and soccer and how a ball can change your life.”   

Case left AOL in 2003. That was two years after the Internet pioneer acquired media conglomerate Time Warner Inc. and he became chairman of the merged company. He resigned under pressure after the much ballyhooed deal between old and new media soured, causing billion-dollar losses in the value of the company’s stock. Throw in a long-running Securities and Exchange Commission accounting probe that resulted in a $510 million company settlement and lawsuits against eight former AOL executives, and it’s no wonder Case is happy to be on his own and back in building mode. 

Even with all the merger-related problems, he remains proud of AOL’s legacy. “We helped build one of the most successful companies in history … We created significant value, and for many Americans we were the first way to introduce them to the Internet. We’re proud of that.”

These days AOL is a shadow of its former self. As a subsidiary of Time Warner, it has morphed into a digital advertising sales firm. The company that put Northern Virginia on the map as a technology center is moving its corporate headquarters from Dulles to New York. Several thousand workers, however, are expected to remain at the Dulles campus. Leonsis says he hasn’t been to the Dulles office in six months and remains vice chairman emeritus in title only, “although I’m still getting paid.” 

Case’s game plan
Case lives in McLean with his wife and family and runs Revolution LLC, a private investment firm. With his new ventures, he’s sticking to what he knows best: empowering consumers via the Internet. And he has a game plan: Attack stodgy, oligopolistic industries in need of a good dose of innovation.

Take health care. When his older brother, Dan, died in 2002 from a brain tumor, Case and his family learned how inefficient and bureaucratic America’s health system could be. On his blog, Case writes that “Watching Dan struggle with the health-care system was maddening.”  Much of Dan’s energy, notes Case, was spent dealing with bureaucracies, forms, lines, medications and treatment options. 

In April 2007, Case launched, a Web site dedicated to providing consumers with the latest free health and medical information. As the flagship of Revolution Health, of which Case is
chairman and CEO, the Web portal offers interactive features, doctor ratings and a social community where people can talk to each other about things such as chronic conditions or losing weight. While the venture — based on an advertising-based business model — isn’t profitable yet, Case is pleased with its first-year performance.

In March, Revolution Health ranked as the Internet’s fourth most visited online health destination with 11.5 million monthly visitors. According to, a company that tracks Web traffic, it trails only WebMD Health (the industry leader), Everyday Health and AOL Body.  Case expects his site to generate more than 3 billion page views this year. “We’ve made a lot of progress. Now the focus is on how to monetize that,” he says. 

Revolution Health is exploring partnerships with hospitals and employers. It’s also an investor in RediClinic, and has an agreement with Wal-Mart to roll out about 200 of the retail clinics in its stores. RediClinics are staffed with clinicians who offer quick and affordable treatment of common illnesses such as a cold or sore throat.

“Health care is a two trillion dollar industry. It’s one-sixth of the economy,” Case says in his deep baritone.  As costs continue to soar, pressure is building to make the system more efficient. That point is not lost on this year’s presidential candidates who all propose changes in health care.  Case expects dramatic change during the next decade. “It’s going to get reorganized around the consumer … That’s a big opportunity.”

$500 million available for startups
Revolution LLC’s finances provide some of the rocket fuel for its startups. To found the company, Case sold $500 million of his Time Warner stock, and says he will spend all of it if necessary in his quest for the next big thing. So far, he has spent more than $100 million, and Case says most of that money has gone into health care.

Revolution LLC is a principal, controlling investor in companies from five sectors: health (Revolution Health); financial services (Revolution Money); real estate (Revolution Places, which includes a spa and
resorts); interactive businesses (Revolution Digital); and wellness lifestyle and sustainable/green ventures (Revolution Living). The portfolio companies employ about 2,000 people. 

Case spends most of his time on Revolution Health, located in Washington, just down the street from his headquarters. Serving as directors and investors in the company are several well-known business and government leaders, including former Fannie Mae chief Franklin Raines, former Hewlett-Packard CEO Carly Fiorina and former Secretary of State Colin Powell. 

Leonsis has invested in two ventures. One is Clearspring Technologies at Tyson’s Corner, a convenient location for Leonsis who lives in nearby McLean with his wife and family. Clearspring provides a platform for widgets — those hot, new mini-applications that personalize Web pages. The second company is Revolution Money, a St. Petersburg, Fla.-based company that provides an alternative to PayPal.  Leonsis serves as chairman of both companies.

He sees huge potential for Revolution Money. It combines a PIN-based credit card with a free online money transfer service.  According to Leonsis, merchants increasingly are concerned about their costs in accepting credit cards. They pay about $50 billion a year, he says, in interchange and other fees to major credit card issuers, costs that are passed on to consumers. “In a world where telecom network costs and software costs go down, why would interchange rates go up when the network is like a private Internet?” he asks.

There is no technical reason, concludes Leonsis. “The reason is they’re big, public companies. They don’t have a lot of competitors, and no one has tried to change it up.” That’s where Revolution Money comes in. Its credit card charges merchants a lower fee — 0.5 percent as opposed to the industry average of about 2 percent of the total sale. That’s because Revolution’s payment platform bypasses the traditional interchange network, using the Internet instead.

Seven months after its launch, Revolution Money has signed up 400,000 merchants out of 5 million in the U.S.  The goal is to have 1 million in 12 to 18 months. Backing the startup is $50 million in venture capital money led by Citigroup, Morgan Stanley, Deutsche Bank, Leonsis and the controlling investor, Revolution LLC.

It’s got a long way to go, though, to catch PayPal. A subsidiary of eBay, PayPal claims 60 million active accounts (including personal and merchant accounts). First-quarter revenue for 2008 hit $582 million, 32 percent higher than for the same time last year.  “We haven’t seen any impact on our business,” says Jamie Patricio, a spokesman with PayPal’s corporate office in San Jose, Calif.  “We always think competition is good for the industry,” she adds.

New environment for startups
Even with a slow economy, Case says entrepreneurial startups have a chance. “The better ideas will bubble to the surface and still have access to capital.” His advice? Adopt a “build-to-last” mentality rather than a “build-to-flip … One of the lessons learned for me with AOL is that big ideas take some time to catalyze.”

Case sees a dramatic difference in starting a company in Northern Virginia today compared to the region’s environment when AOL began in 1985. Back then, “it was more of a government town and government funds.” n fact, Case recalls that he had to go to California for venture capital and to Boston for legal expertise.

Now NOVA is one of the biggest technology centers in the country. A rash of first-generation startups in the 1980s that included AOL, Capital One, MCI and others helped the region put together the infrastructure — lawyers, investors, patent experts — to support startups.

Another source of help is the Northern Virginia Technology Council, one of the largest in the country with 1,200 members. It runs an entrepreneur center that mentors startups and connects owners to resources. Bobbie Kilberg, the council’s president and CEO, says the region produces entrepreneurs from many sub sectors within technology. “You have everything ranging from federal government IT contractors to software developers to Internet folks, telecoms, biotechnology and nanotechnology.”  She praises Case and Leonsis as “stalwarts” of the region.  “They continue to be the people that everyone looks to.”

At midlife, Case and Leonsis seem happy to take on the mantle of mentor.  Case says his company invested in Clearspring Technologies because of its Northern Virginia address. “We’re eager to help mentor some of these emerging, next-generation entrepreneurs and to try and take the D C. area to the next level over the next 25 years.” 

Always a savvy marketer, Leonsis is doing his part. He blogs regularly on a site called Ted’s Take, writing about the area’s business events and especially the ups and downs of the Capitals and the Wizards.  Case blogs, too, at the Revolution Health site.

Double bottom line
Besides getting their message out over the latest communication channels, there’s another difference this go-round for the business partners. “Double bottom line. Double bottom line,” Leonsis repeats for emphasis. “Do well and do good. You want to keep score by building a good business and letting it grow,” he says. “But you also want to do good and give back. When they’re coalescing together, then I think that’s when you get great companies.” 

Case says the goal of his new ventures is simply this: Give consumers more choice, convenience and control in important areas of their lives. If he can make money and people can access better health care or pay lower fees to use their money, that’s a double bottom line.

Another example: One of the projects supported by Case’s philanthropic foundation involves water pumps. On the business side, the pumps are manufactured. On the philanthropic side, the foundation raises money so that pumps can be installed African villages in need of clean water. “So part of it is for profit, and part of it is not for profit. I think that’s been a missing opportunity for the last century. They’ve been too separated. The real leverage comes when you integrate them,” says Case.

His constant challenging of the status quo comes as no surprise to Leonsis.  On the Myers-Briggs Personality Type Indicator, Leonsis says he and Case share similar results. He’s an ENTJ: extrovert, intuitive, thinking, judgmental. Steve is an INTP: introverted, intuitive, thinking perceiving.

“He’s more of a potentializer,” explains Leonsis.  “It’s what allows him to say … ‘I’ll fix the health system. I’ll fix the financial system’ …It makes for lots of big, big ideas.” 

But can the Internet wizard pull them off?  Will the double bottom line prevent another AOL/Time Warner?   

Only time will tell. For now, Leonsis volunteers this self-truth:  “I will never work for someone again. I will never work for a big, multi-dimensional public company …” “Not until Revolution Money goes public,” interjects Steve.

Sounds like the second act is just getting started.

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