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AOL cofounder Steve Case on why the Time Warner merger went wrong

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AOL cofounder and former chief executive Steve Case looked back on the unsuccessful AOL-Time Warner merger today at Business Insider’s Ignition conference — not just to relive old history, but also to find tips about why other mergers might go wrong in the future.

The company’s decline in value, which led AOL to leave Time Warner, was “disappointing and frustrating, no doubt about it,” Case said.

He described the deal as a “good idea poorly executed.” From AOL’s perspective, with the Internet landscape changing and a sense that the company would have difficulty sustaining its growth, it made sense to diversify its revenue. Plus, it was a good deal since AOL got 55 percent of the equity in the joint company while only bringing in 20 percent of earnings.

So what actually went wrong? Case said that in retrospect, one of the big problems was a mismatch in mentality.

“There are companies that are attackers and there are companies that are defenders,” he said. In 2000, at the time of the merger, AOL was an attacker that was trying to “disrupt and change the world,” while Time Warner was trying to defend business models that were decades old. “When AOL lost that attacker mentality, I think it’s kind of lost its way.”

Case also talked about the current tech landscape. He has invested in PostUp, the startup formerly known as TweetUp, which promises to highlight the “world’s best tweeters,” so he has been thinking about Twitter as a platform for developers. Case said that when Twitter launched, he didn’t see the potential, since it just offered AOL Instant Messenger’s status updates “with some persistency and an open API.” But users took over, and “the value now isn’t what you’re doing, it’s actually what you care about.”

And there’s an opportunity for PostUp “around essentially rolling up assets in the Twitter ecosystem,” he said. Still, Twitter faces challenges as it builds a platform. On the one hand, it needs to develop its own products, which might compete with third-party party apps, and being too open would make it hard to improve. On the other hand, Case said, if Twitter goes “too far towards doing their own thing and controlling their own ecosystem, it will wither” and developers will go elsewhere.

[photo by Owen Thomas]