A Renegade Nudges AOL into Broadband

At the clubby Dulles (Va.) head quarters of America Online Inc, Lisa A. Hook
was an outsider. For one thing, she came from Time Warner Inc., which didn’t
win her lots of friends. And last April, when Hook took over the company’s
struggling broadband operation, her new job practically put her at war with the
heart and soul of AOL, the company’s dial-up subscriber business.
Traditionalists at Dulles worried that as AOL’s 26 million US dial-up
subscribers migrated to high-speed connections–mostly offered by cable or
phone companies–they would probably ditch AOL. Broadband was a threat, and the
45-year-old Hook personified it. "Lisa is like the spy who came in from the
cold," says AOL CEO Jonathan F Miller.

But she quickly pushed an urgent shift in AOL’s business. Her goal was to
nudge the company away from its roots in providing basic access to the Internet.
Instead, AOL would let the public buy broadband access elsewhere, then lure
customers to an additional AOL service packed with movie clips, music, and
games. But as she and her team raced to build these multimedia offerings, they
continued to butt heads with AOL’s traditionalists. It was bruising, but
necessary, because the future of AOL rested on its broadband success. Hook’s
work debuts on Mar. 31, when the embryonic AOL broadband service will be
launched with a splashy $35 million TV marketing campaign promoting the
"Worldwide Wow." Fortunately for AOL, key competitors also are groping
into the new medium.

The new broadband service starts out with the usual offerings: film, music,
sports, and news clips. AOL’s full broadband offering should start coming into
focus in the months ahead. By summer, AOL will roll out more broadband content,
including interactive games. And by yearend, the company will introduce
broadband services customized for demographic groups, such as teen girls and
boys. Competitors are following similar scripts.

But AOL’s broadband challenge is a delicate affair. As users make their way
from dial-up connections to broadband, AOL cannot afford to be left behind. At
the same time, a big rush from the dial-up business to broadband could dent AOL
earnings. Why? The company keeps the lion’s share of the $23.90 per month that
it charges its dial-up subscribers. Broadband margins could be lower, say
analysts – unless customers shell out extra for virus protection, music
downloads, and interactive video games. And it’ll be tough persuading
customers to cough up an extra $14.95 a month for AOL’s premium service–when
they’re already spending $40 per month on average for broadband access.

Microsoft’s financial edge doesn’t faze Hook, who prides herself on
resourcefulness. As an exchange student in high school, she stuck it out on a
farm in Finland with no central heat or running water. Growing up outside
Pittsburgh, she battled with five siblings. "You had to negotiate for
everything–food, clothing, shelter," quips sister Polly. Hook put herself
through college and law school working at McDonald’s Corp, a garment
warehouse, and a tractor factory. And she established herself in the media
business, from the legal department at Viacom Inc to the Federal Communications
Commission and Time Warner, by winning hard-fought battles without losing her
quick wit. She needed every ounce of it last April, when she took over AOL
Broadband. The threadbare unit had only eight employees and was buffeted daily
by conflicting orders from the top. Under attack from Wall Street, AOL was torn
between producing profits and investing in broadband market share.

Quietly, Hook charted a new strategy aimed at unmooring the AOL broadband
service from access. Instead of enlisting AOL’s existing programming,
technology, and marketing teams to help, she stole staff and budget from the AOL
Anywhere division, which she still headed, to build her own team of 80. They
invited top execs to visit their war room, an office showcasing radically
different broadband behavior from market research on 15 US tech-savvy
households, including diary entries about their daily high-speed usage.

By August, Hook’s team had produced a dazzling demo of an AOL broadband
service of the future, with cinematic, full-screen moving images and
surround-sound. When she showed it to small groups of top execs across the
company, it stirred up fears. AOL’s old guard insisted that the remake would
turn off mass-market members who valued a consistent experience. "When we
went for the ultimate scary thing–sound and motion on the Welcome Screen–it
was like the beginning days of movies," she said. "People were
scandalized–‘Oh my God, it’s alive’." Hook got a big boost from the
arrival in early August of new AOL CEO Miller, also an outsider, who championed
her approach. By December, the company endorsed her strategy. And in January,
Miller charged AOL’s massive programming, product development, and marketing
teams to work on broadband under Hook’s leadership. Now, Hook, who relished
her role as an insurgent, has to execute on the vision she sold to her company.
It’s simply a matter of selling it to everyone else.

By Catherine Yang in Dulles with Jay Greene in Seattle in BusinessWeek. Copyright 2003 by The McGraw-Hill Companies, Inc