Steve Case: AOL, AI & American Innovation

Steve was CEO of AOL during its meteoric rise from 1991 to 2003. He’s also the chairman and CEO of Revolution, which has invested over $1 billion in startups, and the author of several books, including Rise of the Rest and The Third Wave.

In this episode of World of DaaS, Auren and Steve discuss the early days of the internet and the challenges of getting people to embrace it. Steve highlights the importance of community in AOL's success and the launch of AOL Instant Messenger (AIM). Steve also shares his vision for the third wave of the internet, where the internet meets the real world and disrupts industries like healthcare. 

Auren and Steve also discuss Steve’s extensive investments with his firm Revolution and his Rise of the Rest Initiative, which seeks to bring venture funding and innovation to non-coastal cities. They close out the conversation with a discussion about the power of optimism in entrepreneurship and the importance of partnerships and policy in driving change. 

World of DaaS is brought to you by SafeGraph & Flex Capital. For more episodes, visit worldofdaas.buzzsprout.com, and follow us @WorldOfDaaS. 

You can find Auren Hoffman on X at @auren and Steve Case on X at @SteveCase. 

Follow World of DaaS @WorldOfDaaS 

Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)

Transcript

Auren Hoffman: 0:02

Welcome to the World of DaaS. A show for data enthusiasts. I'm your host, Auren Hoffman, ceo of SafeGraph and GPFlex Capital. For more conversations, videos and transcripts, visit safegraphcom slash podcast. Hello, fellow data nerds. My guest today is Steve Case. Steve was the CEO of AOL from 1991 to 2003. He's also the chairman and CEO of Revolution, which has invested over $1 million in startups, and is the author of several books, including Rise of the Rest and the Third Wave. Steve, welcome to World of DAS. Great to be with you, Auren. I'm really excited Now. You've been heavily involved with the internet really since before it was even a thing. It was back in the day. It was illegal for consumers to access the internet. When AOL was first formed In the early 90s, even only, I think, like 3% or so of the country was online. As someone who's thought deeply about this for over 40 years, what surprised you most about the evolution of the internet?

Steve Case: 0:57

When we got started in 1985, it was just 3% online. I think at the time those 3% were using on average one hour a week. It was pretty early days, not just in terms of people using it but the amount of time they used it. Some of it would be because a lot of the online services at the time CompuServe and some others often were $10 an hour. People were on as little as they could possibly be to get whatever they wanted done. At the time nobody knew about online services, the internet, nobody really cared about them. Most people when we were starting didn't think it was ever going to amount to much.

Steve Case: 1:29

It's been an interesting journey over the last four decades. One of the surprises is, frankly, it took so long for people to embrace it. It was really a decade from the time we got started from 1985 to 1995. It was a slog.

Steve Case: 1:41

We were really trying to fight to stay alive. Fight to get people to see the value of being connected. Fight to get PC manufacturers to build modems in, because at the time they thought it was not something most people would be interested in. So you have to buy a peripheral device, a modem, to get connected. Get the communications companies to build bigger networks at lower costs.

Steve Case: 2:00

There were a bunch of battles we had to fight in that first decade, but mostly it was because people didn't think that most people would ever see the value of being online. It seems crazy now in retrospect, but in the 80s and most of the 90s that was the case. So it took longer to get going, longer to get traction, longer to take off velocity than I would have expected. But what's obviously, what's happened since has been quite phenomenal, and particularly I hate to say it, but during the pandemic, it was interesting that after all these years trying to get people to take it seriously, suddenly the whole world was operating on the internet and wouldn't have been able to move forward without access to the internet and so forth. So it's been a great journey.

Auren Hoffman: 2:38

I remember in the early 90s, being in college and everyone used the internet, even back then, because it was free to access Maybe the main competitor to the college, and it was the American online. At the time, the American online, I think, still charged per hour, which for a college kid it would be extremely expensive. Especially for a lot of us who were spending somewhere between five and six hours a day on the internet, we wouldn't have been able to afford it. At some point we moved from a time-based thing to a monthly fee all you can eat. When did that start to shift for most consumers?

Steve Case: 3:11

There's two parts of that. As you said in the intro, when we got started, consumers and businesses were not able to access the internet. It was still only non-commercial use. So if you were on an educational campus or a government institution, agency or something, you had access to the internet, but if you're a consumer at home or a business, you didn't have access to the internet.

Steve Case: 3:29

So for the first few years we and others had to almost create our own parallel universe, which is why it was called online services back then and it was 89.90, I think, when Congress passed the legislation to commercialize the internet, and it was few more years before we were able to move from hourly pricing to essentially flat rate monthly pricing, because network architectures had shifted to allow that to be possible and people, including us, made very significant investments in expanding the infrastructure. And, not surprisingly, that also is when things started accelerating, with some combination of being able to get the services to be easier to use. It's more accessible, more useful in terms of what people could do, more fun, so there was more reason to do it, but also more affordable.

Auren Hoffman: 4:10

So moving away from the meter, ticking towards flat rate monthly pricing, In some ways, the key killer app was, and still really is, communication.

Steve Case: 4:19

For us, it was for two reasons. One is, we did believe, when we got started again 1985, that the killer app of the internet was going to be people connecting people in different ways. Both people you already knew ways to stay connected friends, family, et cetera as well as people you didn't know but maybe you would like to know because you had some shared interest in a particular topic. So we believe that content obviously is going to be important. Commerce obviously is going to be important. Community was going to be most important, and we placed a big bet on that, and the whole time I was involved with AOL, from the time we started until the time we merged with Time Warner, I stepped aside as CEO, which was 16, 17 years. The people related services, the communications, community related services, were always more than half of our usage. It became front and center, and so some of that was a belief that the community would be important. Obviously, what we're seeing now, with Facebook and Snapchat and X and other things, is different versions of ways to connect people, so that dynamic still is true today.

Steve Case: 5:17

The other reason we did it, though, is when we got started with AOL. It was really hard to raise venture capital. Back then there were only a few firms and most people didn't think are a little dinky firm outside of Washington DC and Tyson's Core in Virginia was ever going to amount to much. So we only raised a million dollars in our first round of financing to launch our first service and, by comparison, some big companies IBM and Sears for a little while. Cvs launched a venture that competed with us called Prodigy and they committed $1 billion to launch Prodigy. So $1 billion versus $1 billion we knew was not going to be a fair fight.

Steve Case: 5:48

We knew we didn't have the budget to go acquire rights to content or other things. So that was another reason to focus on community. It was essentially building the software to enable that connectivity. We didn't have to pay anything for content. That helped us get going. Then down the road we did end up partnering a lot of companies, a lot of media companies, a lot of communications companies, and partnerships became a key reason why we grew and were a success. But those early days, because we were scrappy and didn't have a lot of money, we had to focus on building an easier interface and figure out ways to drive down the pricing in terms of some of the negotiations with the communications company but also focus on the community features, because we believed that was, as I said, the killer output. We also knew that was the most efficient way to get into the market.

Auren Hoffman: 6:29

When did you go from this broader idea of community to the AOL instant messenger they aim? Because that seems to me like, when I think of AOL, at least in the 90s, the killer app was literally just being able to instant message people A couple of answers that the first service we launched in the fall of 1985 included instant messaging.

Steve Case: 6:48

That was one of the features that we launched back then. But our strategy back then again it goes back to not having much money. So we needed to figure out ways to be scrappy and enter the market. It was our strategy to partner with the PC manufacturers, particularly ones focused on the home computer, and work with them to launch service. Our first service was actually something in partnership with Commodore 64 computer called Qlink. Then we did something in partnership with Radio Shack the time Tandy parent company was a big, major supplier of computers. We created something with them for their computers called PCLink. And we created something with IBM called Promenade, and then we've created something with Apple called Apple Inc Personal Edition.

Steve Case: 7:25

So the first four or five years it was basically these private label services in partnership with each of those companies, because they would then market it. We didn't have to spend money on marketing, they'd take the lead on marketing. And so in about five years into it we decided to combine all those services into what then became America Online and while people started calling it AOL. So instead of having separate services, almost like white label services, we had one integrated service and, all the while, the community features, including instant messaging, and then, when we added buddy lists and things like that, they were front and center. And then a few years later I don't remember the year, but maybe mid 90s that's when we decided to unbundle the instant messaging service and launched AOL, and it's a messenger which was free to everybody, whether you're a subscriber of AOL or not.

Auren Hoffman: 8:09

And part of that unbundling was also just to increase the brand awareness as well.

Steve Case: 8:14

And distribution. We wanted to create a lot of reasons for people to subscribe to AOL. We positioned it then as go to the internet and a whole lot more. We had full access to the internet, pretty high speed, because some of the things we're doing with compression, as well as a whole suite of services, content, community, etc. That were exclusive and unique to AOL. We also realized, even though at the time about half of all internet users in America were AOL subscribers at our peak, there's another half that we're not, and we wanted to reach them as well, so we launched services like AIN to do that. We also acquired and managed a bunch of other brands MapQuest and others that provided more broadly on the internet. So it evolved from AOL itself to AOL, plus a couple dozen other brands Netscape, spinner, a bunch of other things that we ended up acquiring, as well as a number of things we incubated and launched.

Auren Hoffman: 8:57

Now, in 2016, you wrote a book called the Third Wave, which I think was influenced a lot by the Albert Toffler book of the same name, outlining your Vision for the Next Phase of the development of the internet. So have we in the last eight years. How has that played out based on that, and where do you think we're going from here?

Steve Case: 9:14

First of all, the Toffler book the Third Wave was really a big deal for me. When I was in college in the late 70s and 7980. I think it was I read his book the Third Wave, which I was really fascinated by. It basically was saying again, it's hard to believe because this is over four decades ago, but he was saying that we'd started with the agriculture revolution and then we saw the industrial revolution and then we're going to have this digital information revolution. This was obviously the internet and all the things we've seen since then. So that's what got me interested in being part of the internet, helping take that idea of the internet, make it real. So when I decided to write a book, I borrowed that title. It started the book with my story of reading his book and then getting to know him over the years and he passed away. But thankfully I was able to read my version of the Third Wave before he did pass away. So that was the backstory on the Third Wave and Alvin Toffler.

Steve Case: 10:01

My three ways were focused on the internet and really the first way I was saying was getting America online, getting the world online, going from that world where 3% of people are connected to getting everybody connected and all the things that had to happen in terms of building the on-ramps, the servers, the modems, all the things that get people connected. That was really the first wave and it was really more than 80s and 90s. I don't know what was part of that, but obviously dozens of other companies were part of that. That then set the table for the second wave, which, since all that infrastructure was now built and everybody was connected, you didn't have to worry about that. So essentially, as you well know, it was building apps and services on top of the internet and Google and Facebook all these things essentially were running that place.

Auren Hoffman: 10:42

In some ways we got lucky, because in maybe 99, late 90s we had a bit of a bubble, so we almost overbuilt, and so then we had a lot of opportunities to take advantage of it in the first decade of the 2000s.

Steve Case: 10:54

Yeah, first of all it went from nobody being connected to everybody being connected. One data point I remember it took us when we went public in 1992, we had it for seven years, first internet company to go public and we raised a whopping $10 million in our IPO and the value of the company that day was $70 million. The other number I remember is after seven years we had less than 200,000 customers and seven years later we had 25 million customers. So it was a slog in that first phase and then things started taking off. So the adoption of the internet obviously accelerated, as you said, the investment in infrastructure, broadband, other things accelerated. So once that first wave was complete, the second wave was launched. Obviously, a number of things happened there that were basically software apps writing on top of the internet, and the combination of that mobile and smartphones and app stores and so forth obviously has been critical.

Steve Case: 11:43

So now we're in the third wave we wrote about almost a decade ago and to me that's when the internet meets the real world and you start taking on big sectors of the economy, important aspects of our lives care, food, agriculture, education, financial services, transportation, you name it and I felt that was going to be a different dynamic and some of the lessons learned the first way where partnerships were critical engaging on policy was critical.

Steve Case: 12:06

Patience and perseverance was critical. I thought would be critical again in this third wave and we're seeing that most of the successful companies in this third wave and sectors like healthcare do need partnerships. You can't go it alone. They do need to engage in policy because most of these are regulated industries. And you do need to be patient, because I learned the hard way that revolution sometimes happen in evolutionary ways and these are not overnight successes. These often are tenure in the making, overnight successes, as we had with AOL and now with many companies in this third wave. So I started writing about that almost a decade ago. We're now in the middle of that and you're seeing the dynamics kick in where entrepreneurs, venture capitalists and so forth that often would avoid some of these industries because they were hard to break into complicated, regulated things like that. That's where a lot of the momentum and action is.

Auren Hoffman: 12:53

You talk a lot about how there's these incumbents and they partner with disruptors. What are some good examples of that over the last decade?

Steve Case: 13:02

Certainly, I think the second way you and your audience was a lot of companies that really were trying to be full stack providers, that were really disrupting everything soup to nuts and that's worked in a number of different sectors but in sectors like healthcare, that's not going to work. Nobody's going to create an end solution. You've got to figure out ways to connect what you're doing with other people. If you have an innovation and healthcare software, for example, good for you, but that's the table stakes to get in the game. You've got to get nurses and doctors to use it and hospitals to integrate it and health plans to pay for it and regulators to allow it. That's really where the big value is being created.

Steve Case: 13:35

One example of a company we backed probably seven or eight years ago in Chicago called Tempus. It's doing a lot of things. They were using AI around healthcare and this around oncology, but now it's shifted. They've established partnerships with most of the leading national cancer institute hospital. In about 70% of the data from all those hospitals adjusted by Tempus. They've established partnerships with some of the big pharma companies and so they built interesting technology, but it was the partnerships they formed that really were the way they were creating most of the value and navigating the policy world is where they also created a lot of value. But there are many other examples in other sectors as well where the incumbents need to partner with the disruptors because they don't have the agility, don't have some of the innovative ideas, but the disruptors also need to partner with the incumbents in a way that we didn't see really in the second wave.

Auren Hoffman: 14:22

Is that because a lot of these incumbents are in an area of the economy where there may have been a bit more regulatory capture and it'd be very hard to get rid of those incumbents?

Steve Case: 14:31

or there's some of that, for sure, but also depends on the sector. But just continue with healthcare as an analogy, not going to start a company that provides every facet of healthcare. It's a very complicated industry. It's one sixth of our economy and there's multiple facets to it. Some people are trying to do certain aspects, certain slices of that, but I think some of the big winners, like a Tempus, are going to figure out ways to co-opt some of the incumbents and figure out ways to work together, part of the reason I'm passionate about this.

Steve Case: 14:58

I know some people don't believe in that. Some people just think disruptors should disrupt and ignore the incumbents and eventually try to unseat the incumbents. I know for a fact that we never would have survived at AOL if we didn't have a strategy of partnerships. We had a partner partnerships at our peak. We look for ways to work with other companies, look for ways to make it in their interest, to make us successful, to help them be more successful. I bring to this that bias as well as an understanding, partly because I've now lived in Washington DC for four decades.

Steve Case: 15:26

Policy is important. A lot of entrepreneurs don't want to hear that. I get that. They do worry about regulatory capture. They do worry that regulations slow innovation down. Obviously there is that aspect to it, because regulations usually are in place because some problem happened before and people said we don't want that problem to happen again. That sometimes does lead to things that are out of date and need to be changed. I think the big innovation in the next 10 or 20 years will have more of a mindset around partnership and more of a mindset around engaging on policy. The big winners will understand that, rather than run from that, run to it and embrace it.

Auren Hoffman: 15:58

There's been this debate amongst a lot of folks where some people say, okay, there's been a ton of innovation over the last 40 years. Some people say, yeah, but that innovation really is just in bits and we haven't really seen that anywhere else outside of the bits, because of a whole bunch of different factors. Where do you fall down on that debate?

Steve Case: 16:15

Well, both are true. We have seen a lot of innovation, for sure, but it goes back to the way I think about the third way. When the internet meets the real world, the big industry's important aspects are alive and they take time to really reimagine and make the plays. A lot of them require systems integration, like healthcare, to really get traction. It's amazing to me, having been doing this for now for decades and starting at that early stage that we talked about, when the internet really was more of an idea than a reality. It's amazing to see all the progress we made, but I really do believe in the next 10, 20, 30 years we're going to continue to be surprised by the level of innovation. But it does require a different mindset in terms of dealing with real world industries, and having to embrace policy and partnerships is part of that.

Auren Hoffman: 16:57

We have the big internet wave, let's say in the 90s. Then we had the next version of that, which say the cloud wave in the early 2000s. Then we had, let's say, the mobile wave, with the next version of that, let's say 10 years later, and of course during that time we also had a lot of hype cycles that didn't pan out. Where do you think AI fits on these cycles?

Steve Case: 17:19

On bullish on AI. Interesting because AI and the internet started about the same time. They're both 50, 60 years old. They're not particularly new ideas, but some of these things just take a while to really get traction and, as your listeners know, we've been using AI on many of our apps for many years, even if nobody said that's what was part of Netflix or Spotify or part of many other apps. So it's really when chat GPT had this overnight success 100 million users in a month or so that suddenly people woke up to what was happening with these new AI platforms and that's created a lot of excitement and created a lot of investment.

Steve Case: 17:54

I think some of it is these broad platforms which are getting a lot of attention and obviously huge levels of investment. But I think it's going to tie in this next phase with AI and specific industries, where again the partnership aspect is going to be important. So I think it is a big deal. I think whether it's comparable to the internet, time will tell. Maybe the internet was a little bigger than AI. I know a lot of people think AI will be bigger than the internet, but it's in that realm or in the realm of mobile or some of the other things you mentioned, so I think it's a big deal. There were some things that we all tend to get into a little bit of papers, as you mentioned, and jargonous sometimes around web three or metaverse or other kinds of things and I think AI is much more important than those are more akin to what the internet has been.

Auren Hoffman: 18:35

Where do you think we'll see the biggest disruption in the fastest?

Steve Case: 18:39

I don't think some of the biggest disruption will happen the fastest. It goes back to my theory of thinking a while and mentioned it before. But I think the industry that most is in need of reimagination and disruption, for a whole host of reasons, is healthcare. The way we deliver healthcare is just not great. The cost is high, the convenience is low, the outcomes aren't necessarily great and we as a nation don't really stack up all that well. The outcomes are better, but the other aspects in terms of cost, convenience, things like that others are doing better. So that's an area of massive innovation. It's not any one technology, it's a convergence, obviously, of many technologies. But that's one where I think you'll see just dramatic change in the next 10 or 20 years, but I don't think you'll see dramatic change in the next year or two. These are not things where you suddenly somebody steps up and launches something and, ta-da, suddenly it's a whole new world.

Auren Hoffman: 19:25

It's hard to predict, though I remember even more than 10 years ago a lot of radiologists were very worried that their job was going to be put out. All those people are still employed today. None of them have had to get completely retrained to do something very different. Maybe they have a little bit less monotony in their job or something like that, but they still do what they're doing. So the disruption comes out of sometimes a slower pace than we think it will.

Steve Case: 19:51

Yes, and some of this autonomous vehicles are a good example. 10 years ago, the conventional wisdom is it's going to happen overnight and both new companies would emerge. Big car companies would do it, uber and others would do it. That's happening, but it's happening relatively slowly, in part because the technology took longer to develop than people thought. In part because regulations in that case were city by city regulations and some were more eager and others were more concerned. They need to see. Even consumer confidence and trust still needs some work.

Steve Case: 20:17

I think that's going to be more common in some of these new areas. It's going to require, I think, more I know people want to hear this but more patience and perseverance than maybe we've gotten used to. In the last Internet second wave, when you did have a Mark Zuckerberg launch something in his dorm and a year or two later it was a global phenomenon. There will occasionally be situations because we're now shifting from launching apps to launching broader based disruption, innovation and really large industries that require partnerships and system level integration. I think in most cases it's going to take longer and be harder A little bit more, like my experience in those early days of the Internet where I was frustrated that people didn't see the value of being connected.

Steve Case: 20:55

But now, in retrospect, I realize we didn't do a good job of telling the story. It was too hard to use, it wasn't useful enough, it wasn't funny enough, it was way too expensive. It just took us a decade to really break through, and if the point where every PC had a built-in modem, where the flat rate pricing was possible, where every content provider had a website, thousands of new companies launched in the process and suddenly it went from something nobody cared about to something people couldn't live without.

Auren Hoffman: 21:22

When I think of Steve Case in the last 10 years or so, I think of the rise of the rest, I think of this year focus on really everywhere in the country except for New York and California, let's say. And still today most of the venture capital goes to New York, california, If we can include Seattle, most of the Internet activity that happens, and maybe if you include Boston for biotech as well, happens in a very small amount of concentrated things. Do you see that changing marketably over the next 10 years?

Steve Case: 21:50

Yes, I hope so, and we've worked for over a decade on this. I first got into this 13, 14 years ago when I was asked to coach the National Advisory Council on Innovation and Entrepreneurship here in Washington. That led to launching an initiative at the White House with President Obama called Startup America, got me traveling around the country and then worked on Jobs Council, helped pass legislation called the Jobs Act 10, 11 years ago, and then we launched Rise the Rest bus tours about 10 years ago, then launched a venture fund, maybe six years ago. We now made over 200 investments, 100 different cities with the idea that there are great entrepreneurs everywhere that do need capital, do need to be connected to other people in terms of networks, do need stronger or supportive startup communities, and we have seen progress.

Steve Case: 22:31

When we started on this effort, people thought it was a little bit crazy. Like the early days of the Internet, people thought it was a little bit crazy. Now people are more open to the idea that pandemics certainly accelerated the dispersion of talent, some dispersion of capital. You're starting to see more companies breakout companies in different cities that become tentpole companies that then spin off other positive things over time, and even from a policy standpoint, there's now a real focus on this with the chips and Science Act. That's funding tech hubs. That will be helpful as well, and I think it's important as an investor to see this as an opportunity not just do what everybody else is doing, but doing something a little bit different. It's a little harder to identify these promising companies in these Rise the Rest cities, but if you do, the valuation tend to be a little bit lower, and so there's an opportunity for great returns. But there's another part that drives me to do this, which is most of the new jobs come from new companies, and if those new companies are only in a few places, guess what and they're disrupting jobs in other places, what's going to happen is that people in a few places like Silicon Valley are going to do really well, and a lot of people in a lot of other places including the middle of the country, ohio and Pennsylvania, wisconsin, michigan, places like that are going to feel left out and left behind, and that's started playing out in our politics. Some of what's happening in our politics now is exactly this divide over opportunity, where a lot of people feel left out of the innovation economy, disrespected, and so changing that dynamic and creating more jobs and retraining people for those jobs and more parts of the country is both an investment strategy, I think, an innovation strategy for America to have a more dispersed innovation economy, but also a way to, at least in part, try to bridge a very divided country. So it's important for lots of reasons. We have made progress, but there's still obviously a lot of work to do.

Steve Case: 24:09

It's helpful that people like you decide to leave California, come to the Washington DC area, and others like you did decide to do that at an accelerating pace over the last decade, particularly over the last few years, and some of the people that decided to move someplace temporarily during their pandemic decided to stay there. Many continue to work remotely for the companies that they were working for, but many, once they're in those cities, see opportunities in those cities either existing companies that are growing or new companies that are forming and decide to stay in the city but switch to another company. That talent dispersion is ultimately the most important. I think capital follows the talent.

Steve Case: 24:45

And the other last point I'll make is, over the last several decades, some of the best universities in our country are in the middle of country, like Michigan and Ann Arbor, turning, mellon, pittsburgh, ohio State, columbus. You can name many others, but overwhelmingly the graduates then left where they were to go the coast because that was the land of opportunity. There wasn't a lot of things happening in their own backyard. Slowing the brain drain of people leaving and creating a boomerang of people returning will really drive the rise to rest and we've been encouraged by some of the early evidence of that.

Auren Hoffman: 25:14

One of the things that these cities and government were trying to encourage new jobs in the past. They would maybe give tax breaks, something, or they would try to throw some money at it or change the regulation a bit to get businesses to move there and stuff. But it seems like during the pandemic people didn't move places because of those reasons. Maybe sometimes just income tax that might have been a reason. But they moved because they wanted to be either closer to family or there was better schools for their kids or a better way of life or they liked the restaurants. There could be gazillion reasons. You can imagine other ways that Columbus Ohio could be trying to attract talented people rather than just trying to get businesses to start there, or you think the businesses is the key.

Steve Case: 26:00

The interesting dynamic is when we started talking about this 10 years ago, I spent a lot of time with mayors, a lot of time with governors, spoke at a lot of the conferences and at the time, exactly what you said was the case Overwhelmingly, the economic development focus was getting a big company to move either move headquarters or open a factory or customer service center or data center or something like that.

Steve Case: 26:21

It was about getting big companies to do something, and what started happening about five years ago, and then accelerated during the pandemic, is mayors and governors were onto the fact that it was better to focus their time and attention and getting new companies to start, some of which would fail, but some of which could be the big companies of tomorrow.

Steve Case: 26:38

And this really became a topic, I guess now, four years ago, when Amazon had this national search for the second headquarters and 230 cities applied to be the second headquarters, and it forced those cities to figure out what they're good at, what also some of their weaknesses were.

Steve Case: 26:53

Eventually, they decided to do it in Northern Virginia, not far from where we started AOL, which is remarkable because when we started AOL, there was no startups at all around here and no AOL around here, so it just shows you the progress the DC region broadly has made. But interestingly, a lot of those quote unquote losers said let's keep fighting and let's use what we did to put together our Amazon bid and try to focus more on the next generation of companies, try to launch something that maybe could be the next Amazon, and so that focus has really gotten a lot more momentum in recent years and that's one of the reasons I'm optimistic about what's going to happen in the next 10, 15, 20 years around Rise of the Rust, even if they do become big and most of these companies don't employ that many people at headquarters.

Auren Hoffman: 27:36

Most of Amazon employees are in various warehouses. They're already all across the US, but the number of people in Seattle is relatively small. We're not about creating millions of jobs necessarily, or is it like a trickle down? Do you think that really helps these local economies?

Steve Case: 27:53

I first met Jeff Bezos and he was just starting Amazon and pitching to be on AOL as a book service. Five or 10 employees and if they're successful, maybe they'll end up with 100, 200 or something. It turned out a little bit bigger than that and so you never know with these things. An example I mentioned that company, tempest in Chicago. They now have over 1000 employees in Chicago. Stockx, we backed in Detroit, they have over 1000 employees in Detroit. So there are jobs created by these companies in these different cities. But you're right, as a company really scale, they start distributing their workforce and that's going to accelerate in these next few years and we saw a lot of it during the pandemic.

Steve Case: 28:27

But launching new companies that have the potential to grow. Even AOL, we started in Piscis Corner, virginia. We started with about 30 employees are peak. When we merged with Time Warner, we had 10,000 employees and the majority of them were in Northern Virginia and some of those people then went on to start other companies or start other venture funds and you get that flywheel going. Great example is Indianapolis. This company, exact Target, that started by Stath Doracy and they eventually sold the sales force. At the time they had 1000 employees and sales port doubled it. The sales force now 2000 employees in Indianapolis their second largest office outside of San Francisco and Scott and a lot of the early Exact Target people have gone on to start several dozen other companies focused on enterprise software in Indianapolis and 10 years ago you visit Indianapolis, most people would say nothing's happening. Turns out a lot of things happening, and that's true with dozens of other cities. We've traveled around the country and made these investments.

Auren Hoffman: 29:16

In a world where remote work is increasing and more people can work from home, potentially multiple time zones away from the headquarters and just work from home in general, how do you think that changes how these cities should be looking to attract people? Should they be looking more for something that's more family oriented mentioned before better restaurants.

Steve Case: 29:38

For the whole lot of these cities different to Nashville, denver you can name dozens of them are great cities with great lifestyle benefits and great entertainment benefits, great restaurant benefits, great places to raise families, lower cost of living than New York, san Francisco, boston and other things. So they've always had that. They just didn't have this innovation engine, job engines, which is why people weren't there and then people didn't have the ability, exactly to your point, of being a remote worker for some other place. So it's a game changer in terms of how this plays out, and some of that is also true.

Steve Case: 30:06

One of the problems we have with these rise of rest cities is companies would get to a certain point and then sell out, often too early.

Steve Case: 30:13

Exact target, for example, almost sold to sales for several years earlier at less than one tenth the price. They didn't end up happening and they ended up going public and then sales force bought them and so selling too early is an issue and part of the reason they sell too early. They don't have access to capital for that growth capital. That's starting to change. The other reason they sell early they don't have access to the talent to grow it from 200 people to 2,000 people to 20,000 people. Now, some of that executive talent that has experience with hyper growth can be accessed remotely and maybe come to the headquarters once a month or every once in a while, so you're able to, no matter where you decide to start your company, aggregate more people who want to be in that city including getting some people to boomerang back to that city and also able to tap into talent wherever it might be for specialized skills that historically weren't able to access, which then did lead to some premature exits.

Auren Hoffman: 31:03

Now speaking of a non-California New York area. You and I both live in the DC area. You've been here a long time. You're like the grandfather of tech in the DC area. What's so special about it? Why do you like it so much?

Steve Case: 31:17

I came here by accident. I no plan to be in DC. I ended up moving to the area in Northern Virginia in 1983 to join a startup but a few months after I arrived failed. So that was a whoops and a welcome to the NFL and a welcome to the world of startup. Some things worked, but a lot of things don't work. But thankfully, two of the people I met at that company, jim Kimsey and Mark Serif, and I decided to then start America Online a couple of years later, in 1985. So the reason we started here is because we happen to be living here, because we happen to be working for something that just failed. Okay, what do we do now? And it was hard to get going there, which is partly why I have this empathy for entrepreneurs and these fries of the rest of the city. It was hard to raise the venture capital None of it came from the Washington DC or it was hard to hire people because nobody from these big, established companies wanted to take the risk of joining our little scrappy company. It was hard to get people to pay attention.

Steve Case: 32:06

What's changed in the last four decades and Amazon's decision to do their second headquarters here, I think, is representative it has developed Still work to do but as a much stronger innovation corridor, a much stronger around startups, much stronger around certain sectors, around cyber defense, tech, other kinds of things. As we move further into this era we talked about earlier, with the third wave, where policy and partnerships matter more. A lot of those policies not all, but a lot of those policies are going to be determined in Washington DC, and being close to that can give you a competitive advantage. I saw that in the early days of AOL when we were trying to commercialize the internet and do a bunch of other things to open access of the internet. Having more of a voice because you have a home court advantage is helpful. So a lot of different industries happening here, including in sectors like hospitality. The biggest hotel company other than Airbnb in the world, helton and Marriott, are both located here. Some of the largest defense companies are located here. One of the most active venture capital investors in the country, maybe the number one investor in the country, incutel, which spun out of a government focusing on seeding companies that had technology that could be useful to government, is headquartered here. A lot of things the other thing I'd say beyond the technology world or even the business world.

Steve Case: 33:12

What I do think is interesting about the DC area and I'm sure you've seen this it's an interesting mix of people. It has a global attraction. It's a magnet for young talent that wants to change the world, whether it be in politics or nonprofits or business. It has things like the Smithsonian Institution, which I was involved in, including chairing for several years. Culturally, it's got some great advantage. It's not so much a one-trick pony. It's not going to value. A little too much about technology, maybe a little bit too much about entertainment, maybe New York a little too much about finance. While there is a political aspect to Washington, it's much more dispersed in terms of the community, the culture, the opportunity. I think that's appealing to people as well.

Auren Hoffman: 33:50

One of the I would say both advantage and disadvantage of the culture in DC is it seems to be good at working on hard problems that take a lot of time and good at applauding, and it doesn't seem like as good as getting places in a hurry. I don't know if you would agree with me or not.

Steve Case: 34:10

That's fair, I'm going to say the startup sector is in a hurry, but sometimes the startups in this region are tackling some of those challenges that do require partnerships or changes to policy things like that. It does require more of the patient, but it gets a fair observation that things move a little more slowly here than we would like, but ultimately, when the change happens, it can be pretty transformative. Also, I think it's important to note when we talk about policy regulation, people generally are focused on the negative aspects of it in terms of slowing down innovation, regulatory capture, things like that you talked about, which, for sure, are there. The other aspect is a change in regulation. A change in policy can open up opportunity.

Steve Case: 34:47

When Congress passed legislation to commercialize the internet, that created the internet. When one of the companies we backed, draftkings. When the Supreme Court made a ruling that allowed states to allow gaming, that opened up a big opportunity to create a much larger company, a much more valuable company. It's not just dealing with the existing policies, existing regulations. It's seeing what changes might happen in the future that unlock opportunities. I think you'll see a lot more entrepreneurial focus, a lot more investor focus on those new opportunities, including the last couple of years. I mentioned Chips and Science Act. The bipartisan infrastructure bill, inflation Reduction Act, focused on climate tech, has suddenly fueled much more significant focus on those areas and investment in those areas because of a change in policy.

Auren Hoffman: 35:27

You are, I would say, an extremely optimistic person. Is that ingrained at birth? Because I do think that Ben Diagram of being an optimistic person and a smart person is a rare overlap. Usually smart people are a little bit more pessimistic and that where overlap usually means a great founder. How did that happen with you?

Steve Case: 35:48

I don't know. Some of it just lived experience, believing in the idea. When I read that Alvin Topford book my college dorm in 1979, saying somehow that's going to happen, and took me five years from that date to actually co-found America online and took another 10 years from that before the internet really took off, they all really took off. I always believed it. There's times, to be honest, where I went through a trail or survive. We had some tough times. We had to go through layoffs. A couple of times I was worried about our own survival, but I never really doubted that the internet would end up being a phenomenon because of this new medium, new industry change the world. So I think I've always had that optimistic view.

Steve Case: 36:23

When I launched Rise of the Rest 10 years ago, I actually thought it was a little bit like the early days of the internet. When we were talking about the internet, people were skeptical. When I started talking about Rise of the Rest, people were skeptical. Eventually the internet became mainstream and people embraced it. Now people are starting to see what's happening in different cities and embracing it.

Steve Case: 36:40

But I do think to have this impact, to have any significant change, you've got to be optimistic.

Steve Case: 36:45

You've got to focus on what's possible. You've got to figure out ways to build alliances and partnerships to get people on board with their companies that might partner with you, or working on legislation like the Jobs Act. Require working with Republicans and Democrats in the House and Senate and getting them focused on the issue of why it was important to provide better ways for first, access to capital, allow things like crowdfunding, create an easier on-ramp for young companies to go public things like that. It was more about selling the idea of America leading the charge in this next wave and maintaining its lead as the most innovative entrepreneur nation in the world, creating jobs, which is where most of the jobs do come from new companies under five years. They're selling them on that vision, which then got them to be supportive of those ideas. I just found that optimism is the better way to go if you're trying to usher in a better reality and you need to do that and partnership with lots of other folks.

Auren Hoffman: 37:32

One way where and I'd love to get your thoughts that I see you as maybe different than some of the other super well-known technology entrepreneurs is a lot of them are swashbuckling outsiders. Break the glass folks. You seem to operate extremely well just as well on the inside as well, working within the system. You mentioned multiple times building partnerships, doing BD deals, etc. It just shows how there are many different ways to be successful. Would you agree with that assessment from me or would you disagree?

Steve Case: 38:06

I probably some of that. I do think several times that partnerships are important. Engaging in policy is important, taking a long term view and perseverance is important. Again, it goes back to my experience. If we'd tried to do AOL on our own a full stack solution with our $1 million venture capital we would have gone out of business in a minute and a half. It's survival, let alone success, required partnerships and taking a long term view, recognizing that it's going to require some work and so forth. I think that mentality is important.

Steve Case: 38:32

I'm sure some of this is just age. It turned 65. When I started AOL it was more like 25, 26. I probably was a little bit more swashbuckling. I think everything. I'm smart and think everything's going to happen overnight. Some of it is just lessons learned over the years. Hopefully it's a little bit of wisdom. At the same time, I'd great respect for any entrepreneur who's trying to do anything. People are able to launch things that are overnight successes. Obviously, as an investor, love that. I just recognize that's going to be more the exception than the rule. And taking a longer view establishing the partnerships, working sometimes with those partnerships within the system, sometimes trying to influence policy regulations to make sure that the disruptors are in vantage, not the incumbents. That's one of the bowels I've been fighting recently.

Steve Case: 39:14

I testified at the Senate at the second AI forum that Senator Schumer hosted. My message was we need to make sure, as AI takes hold, it doesn't just lead to big tech getting bigger. We need to make sure we're opening this opportunity up to everybody and maybe acquire, making sure the large platforms are open and also making sure open source is a real, viable alternative, even though there are risks associated with it. To me, it's all about trying to play a role in America's innovation economy. Do what I can make sure America does continue to lead.

Steve Case: 39:43

I mentioned I got started with Rise of Rest when I was asked to co-chair the National Advisory Council Innovation Entrepreneurship 14, 15 years ago. I was asked to restart it and co-chair it by Secretary Romondo, who runs the Commerce Department, and done that. Just last week, we actually issued a report from the National Advisory Council at NACI. It's called Around how Does America Continue to Lead the Way? What steps do we need to take in terms of more investment, r&d, smarter tech transfer, changes in immigration policy, incentives around capital, many other things to make sure America continues to lead the way?

Auren Hoffman: 40:14

We're definitely the most famous graduate of your high school in Hawaii. Then, a few weeks after that, you were clipped by Barack Obama.

Steve Case: 40:21

No, I'm beyond the clips, that's good. The time when he moved to Washington he became a senator and we were at an event together and I say hi, I'm Michelle, it's good to meet you. You're the most famous guy ever graduate from Puno School. I told him then and this is before I announced for president that I have a sense that that's going to change. And sure, about a year later he was in the White House. Amazing to watch his trajectory.

Auren Hoffman: 40:41

Before we did the interview, I checked your guys' ages. He's three years younger than yours. Did you overlap with him in high school?

Steve Case: 40:46

I was a senior when he was a freshman, so I don't remember having classes with him. I did remember playing basketball with him. I remember he was a better basketball player than I, was three years younger, but I didn't really know. I was at school at about 3000, as large as the iPad School west of Mississippi, 3,000 people in the school, 400 in each of the class in high school, so a 1,600 in high school. I was aware of them but didn't really get to know them until he moved to Washington as a center.

Auren Hoffman: 41:11

All right. Last question we ask all of our guests what conventional wisdom or advice you think is generally bad advice.

Steve Case: 41:17

I'd say, if we think about entrepreneurship, the advice often is a great entrepreneur who has conviction about their ideas can make things happen. And at one level, of course, that's the case, but I think it way too celebrates the entrepreneur and way under celebrates the teams that really are, as you all know, required to take any idea and make it scale. So it's more focused on the entrepreneurship as a team. Sport, I think, is important. And the other goes back to something we talked about is this notion of disruption full stack. Ignore the incumbents, just crash to the market and try to get the whole shebang. That happens in some instances, but in far more instances I think there'll be more in the future. It's figuring out some way to knit together a tapestry of alliances. Together, do things that you can't really do on your own.

Auren Hoffman: 42:04

I want to ask you a couple of questions on the first one. So on the first one, you're basically saying the founders less important than we describe.

Steve Case: 42:11

To them, I wouldn't say less important because obviously they're important, the leader, they drive it forward and they're critically important. I just think sometimes it ends up being Steve K Siddist or Mark Zuckerberg good dad, or Bill Gates the dad, or Elon Musk the dad, or what have you. And the reality is certainly my experiences, I think, and all their experiences it was partly that person, it was partly that idea, it was partly that time, partly competitive, dynamic, make a little bit of luck, but mostly the team. And so assembling the right team with the right mix of skills and perspectives is to me as important as the idea or the founder, and so it's really to take the idea and execute against that idea, and there are many facets to that, but the team is sometimes under celebrated.

Auren Hoffman: 42:51

In history. There's this idea of the great man theory. Some people in entrepreneurship call the great founder theory or something, and of course there's a lot of people on both sides of the debate. Do you think a lot of these innovations would have happened anyway if those people just weren't alive, or do you think actually these people are actually the one shaping the innovations?

Steve Case: 43:10

I think most of the things that eventually happen would eventually happen, but they might have taken a lot longer and they wouldn't have been developed in as a compelling way. Steve Jobs, for example, obviously is celebrated for his work with Apple, both the early days and creating one of the first computers, and, of course, later on with all the other things he did with the iPad, iphone, things like that, those ideas that a computer, a person computer, was going to happen, I'd say without. Eventually, smart phones with apps were going to happen. So I think most of these things the internet in my case was going to happen, with or without me, with or without AOL. But entrepreneurs can certainly drive in a certain direction, seize a particular opportunity, bring a certain mindset to it, assemble a certain team that can tackle it. I think the role they play is critical. I don't want to diminish that. I just think sometimes the team aspect needs more attention and sometimes the context, including the timing, needs more attention 24 years ago.

Auren Hoffman: 44:02

There's this famous car ride with Elon Musk and Peter Thiel and Elon's driving his McLaren and he flips the McLaren and, lucky for them, they both come out pretty much unscared maybe not emotionally, but unscared but you could see a deal easily going the other way, where it could have both been killed like that To me. I do think the world would be very different today if that car crash turned out a different way. Or you think, okay, broadly obviously it'd be a tragedy, but broadly we would have had similar innovations.

Steve Case: 44:29

I think both could be true. Of course, elon, or others, played a central role in innovations across a number of different technologies and industries and don't want to diminish that in any respect. At the same time and he did it should get credit for the current EV revolution, which was started 40, 50 years ago, including by GM, and then, for a whole host of reasons, was stopped. We started and got that whole thing going At the same time. If Elon hadn't existed, obviously Tesla wouldn't exist and we wouldn't have the momentum now with many other companies. Really, you know they're doing interesting things in that space right now, but do I think that eventually, somebody somehow would have taken a stab at EVs? Yeah, I think it would. It's a combination of the right person with the right team, with the right idea at the right timing. That really what can be so magical?

Auren Hoffman: 45:15

All right, this has been awesome. Thank you, steve Case, for joining us at World of DAS. I follow you at Steve Case on Twitter. I definitely encourage our listeners to engage with you there. This has been a ton of fun and I'm a huge fan, so I'm really happy that you're on World of DAS All right.

Steve Case: 45:29

I enjoyed the conversation. It's great to have you on the DC area.

Auren Hoffman: 45:33

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