The Third Wave: An Entrepreneur's Vision of the Future (5 page)

But the ride was just beginning. The IPO gave us not only capital to expand but also public visibility and a currency (stock value) that we could use for acquisitions. It also gave individual investors—ordinary citizens—the chance to be part of a fast-growing company, something that is all too rare today.

Our first post-IPO acquisition came to our attention through my brother. Ted Leonsis, the thirty-five-year-old
CEO of Redgate Communications, had hired Dan’s firm to represent him in a transaction. The two got to talking and Dan suggested he introduce us. “You guys should really meet,” Dan said, “because you’re talking about the exact same stuff.” When my brother called me to set up the meeting, I told him that I’d already heard of Ted.

Ted was at the forefront of a lot of early digital innovation. He had been as taken as I was by the possibilities that the Internet offered. Ted once told the
New York Times
that “in ’84 and ’85, no matter what meeting I was in, I felt something cataclysmic was happening.” I could relate.

At Redgate, Ted produced some of the first multimedia CD-ROMs, as well as a pioneering shopping service (we didn’t yet call it ecommerce) that used graphics stored on disks to create a compelling visual buying experience (keep in mind, at the time most online services were text-centric). He had written three books and started half a dozen magazines focused on technology. What had gotten my attention, in particular, was Ted’s seemingly innate ability to envision and evangelize a digital future, something I was very focused on doing with AOL. So before I even sat down for breakfast with Ted, I was eager to make a move.

We had a warm and engaging conversation that lasted about ninety minutes. He was very impressive. After the waitress dropped off our check, I decided it was time to make an offer.

“I want you on our team,” I told him. “We’d be great together.”

“We probably would,” he responded, “and I’m flattered. But I love what I’m
doing at Redgate and I couldn’t walk away from the company.”

“Ted, you misunderstand. I’m not here just to offer you a job. I want to buy your company.”

Ted has a great poker face, and he was careful to be noncommittal.

“Can we date first?” he asked.

But I knew I had him. Our visions were too similar for him to say no. I knew that what was coming out of his mouth belied what was going on behind those eyes. He was imagining what it would be like to use his skills on the biggest possible stage. It was only a matter of time.

Ted became one of AOL’s most influential executives. A few months after we closed on the acquisition of Florida-based Redgate, Ted agreed to move to the DC area to oversee the AOL service. Later, we put him in charge of our content efforts, where he acquired brands like Moviefone, created the Digital Cities local brand in partnership with newspapers, and launched one of the Internet’s first incubator and accelerator programs, called AOL Greenhouse. The strategy was to help develop new brands, then launch them with independent management teams and outside investors. The goal was to let them be nimble, while leveraging the AOL platform. Greenhouse helped launch dozens of brands, including The Motley Fool, a personal finance software, and PlanetOut, an LGBT-focused
digital media company founded by Megan Smith, who would later become an early Google executive and, later still, the White House’s chief technology officer.

Seven months after our IPO, Walt Mossberg, a highly influential and widely read technology columnist then writing for the
Wall Street Journal
, penned a glowing review of our service, comparing us favorably to our biggest competitor:

Prodigy is huge, claiming 1,750,000 subscribers, but it has been aimed mainly at computer novices. It is taking some welcome steps to become speedier and more sophisticated. But at present I regard Prodigy as seriously flawed. Its navigation system is unusual and confusing, its text is clunky and moves at a snail’s pace, its content promises more than it delivers. And the service splashes distracting paid advertisements across the bottom of many of the information screens (including pitches for this newspaper and even for America Online).

In contrast, I see America Online as the sophisticated wave of the future among such services. Though it has just 200,000 subscribers and still suffers from some shortcomings, America Online features the type of graphical user interface, popularized by the Apple Macintosh and Microsoft Windows on the PC, that is sweeping all of personal computing. It uses overlapping windows to hold and display text that can be freely manipulated, menus
of plain-English commands that can be selected with the mouse, and colorful icons you can click to quickly reach any of a wide variety of rich information databases.

That review was a tipping point in terms of how people viewed the online market. They took it—and us—a lot more seriously. We were still small; but now we were on the map. And our growth accelerated from there.

In the spring of 1993, Jim and I went to lunch a short drive from our headquarters. When the waiter came over, Jim ordered a bottle of champagne, the nicest on the menu.

“Are we celebrating something?” I asked.

“We sure are,” he said.

“Okay,” I said, with confusion in my voice. “What is it we’re celebrating?”

“You,” he said.

“Why me?”

“Because I’m stepping down and you’re stepping up.”

The waiter popped the cork and poured two glasses.

“You see,” Jim said, holding his up to toast. “I told you it would only be temporary.”

The board voted me back in as CEO. Over the next three years we grew to 4,000 employees and were creating 200 jobs each month. Within seven years, we had 25 million customers and were one of the most highly valued companies in the world.

For those of you who don’t remember or who weren’t old enough, it may be hard to appreciate how significant AOL’s
role was in ushering in the Internet age. But in the late 1990s, AOL was the way most people did everything there was to do online. If you were online then, the odds are high that the first time you connected to the Internet, the first time you sent an email, the first time you did a search, the first time you received electronic news, the first time you bought anything online, the first time you heard music or watched a video online, the first time you saw, sent, or stored photos online, the first time you connected with friends online, it happened on AOL. For most Americans, AOL was, for its time, Google, Facebook, Twitter, Amazon, Spotify, YouTube, and Instagram combined.

AOL wasn’t the first service to connect people to the Internet, but we were the first to turn the Internet into a way of life. We were the first to allow millions of people to instant message with friends. We were the first to offer a complete shopping mall, anchored by major retailers. We were the first to partner with dozens of magazines and newspapers, kick-starting the dramatic transformation of the way journalists create and people consume their news. We were proud of these innovations. But at the core, what we built, and cultivated, was the first widespread online community.

I saw my role at AOL, in addition to my being CEO, as that of mayor of the online community we built. I was trying to get people comfortable with this new digital medium, trying to put a friendly—and human—face on it. In some cases, that meant small things, like the monthly letters I wrote to members for
more than a decade, updating people on what we were doing, and highlighting new features. In others, it meant being the public face of a crisis while trying to solve it from behind the scenes.

I remember one early morning phone call particularly well.

“There’s a problem. We’re down,” Mike Connors, a buttoned-up IBM executive who had recently become the leader of AOL’s technology and operations team, said. “The whole site is down. Nobody can log in. Customer service is overloaded with calls from customers complaining. And it may take us a while to fix it.”

It was August 7, 1996, just a little more than four years after we’d gone public.
¹
AOL system administrators had just completed a code push, updating our software to cope with our growth. We had shifted from charging customers for the hours they spent on AOL to charging a flat rate fee for unlimited access. As a result, usage was soaring; we had added more than 1 million new users in the six months leading up to that morning.
²

For our customers, there was no way to figure out what was wrong by checking out Twitter. There was no Google yet. Newspapers were still printing the word “email” with a hyphen and quotes around it, followed by a description of what it was. The World Wide Web was still a new concept. For most people, AOL represented their entire experience with the Internet.

At the time, AOL was the dominant Internet provider, handling nearly half of all U.S. traffic. So whereas today, when a
service like Snapchat goes down, it creates a lot of annoyance, back in 1996, when AOL went down, it caused a national incident.

As the hours ticked on, the complaints flooded in. We got phone calls from consumers and companies that were paralyzed without access to email. A swarm of frantic engineers tried to isolate and fix the problem. But twelve hours in, the problem still wasn’t resolved. The story of AOL’s being down led the network TV news shows and was a front-page headline in almost every newspaper in the country. I did dozens of interviews, trying to explain how such a calamity could have happened—and when it might be resolved. In the end it took us twenty-three hours to get our systems back online.

It was a bizarre experience, and an incredible realization, all at the same time. After years of evangelizing the benefits of going online to an audience that rarely seemed convinced, watching the commotion was surreal. On the one hand, we had been under siege, trying to calm people down while we worked feverishly to get things back online. On the other, we felt this sense of excitement. What better proof that the Internet had entered the mainstream? Finally, after more than a decade of struggling, the Internet’s First Wave was gaining momentum.

I
T MIGHT
seem that the lessons from the First Wave of the Internet are ancient. Outdated. Of little use to the contemporary entrepreneur. But that misunderstands what is old about the story. It is true, of course, that technology has made tremendous strides since those early days, when we had to get online with rudimentary Apple II computers, via maddeningly slow 300-baud modems. And yet, even with the most modern technology, the entrepreneurs of the Third Wave will spend a great deal of time focused on things other than tech. They will need a strategy—just as we did—to build an Internet infrastructure in skeptical industries with powerful gatekeepers. Where we worked to make connections to the Internet itself, they will work on connecting the Internet to everything else. And in critical ways, their experience is going to be more analogous to the First Wave than to the second.

During the Second Wave, the surge in Internet usage, coupled with the rapid adoption of smartphones, led to an explosion in social media and the creation of a thriving app economy. Some of the most successful companies, such as Snapchat and Twitter, started with small engineering teams and became overnight sensations, requiring none of the partnerships and perseverance that had come to define the previous era.

But there are signs that this model is now peaking, that a new wave is about to break. And there is growing evidence that this new period will look quite different from the Second Wave—and quite similar to the First.

The Third Wave of the Internet will be defined not by the Internet of Things; it will be defined by the Internet of Everything. We are entering a new phase of technological evolution, a phase where the Internet will be fully integrated into every part of our lives—how we learn, how we heal, how we manage our finances, how we get around, how we work, even what we eat. As the Third Wave gains momentum, every industry leader in every economic sector is at risk of being disrupted. Think about what’s been happening in Silicon Valley over the past few decades and imagine what it will look like when we apply that same culture of innovation and scope of ambition to every part of our economy. That’s the Third Wave—and it’s not just coming; it’s here.

If you’re
a tech entrepreneur looking for an industry to disrupt, what better place to begin than the healthcare system? For starters, it’s massive—making up one-sixth of the U.S. economy. On top of that, healthcare industry incumbents have been disturbingly slow in the adoption of technology. As most can attest, going to a hospital often feels like you’re stepping back in time. Many hospitals still use paper medical records and fax machines. Most can’t even tell you what their services cost. And most research and development is focused on medical devices and pharmaceuticals, with very little focus on how to use connected technology to improve outcomes. The lack of coordination and actionable data makes for a tenuous healthcare system, riddled with error. As patients, we are expected to seek expensive second opinions, not because insurance companies want us to but because misdiagnosis is disconcertingly common. In September 2011, for example, MD Anderson researchers found that as much as 25 percent of the time, a second opinion results in a change of diagnosis.

And yet for decades, complacency has been held up like a value to behold. If you’ve ever wondered why the American healthcare system costs more than other advanced countries’ but doesn’t produce better results, this is why. Our hospitals are stuck in a pre-Internet world, and patients are suffering because of it.

Luckily, entrepreneurs see an opportunity. In 2014, digital health startups raised four times as much money as they had in
2010. What began with fitness trackers that measure steps and speed and heart rate will soon transform into hardware and software that will enable users to take the full range of vital signs on a serial basis, collecting and saving data and alerting patients and their doctors if something is wrong. It won’t be long before tracking your vitals on a daily basis will become routine, as simple and essential as brushing your teeth. It may sound basic, but it will have profound effects both on how patients are treated as individuals and on how the entire health system operates.