100 Objects #22: AOL Disc

The episode opens by contrasting AOL’s 1998 CD production with the music industry’s boom year. Titanic’s soundtrack sold 9 million copies in 1998, but America Online was pressing even more compact discs than any record label. Its discs contained software rather than music: inserting one into a computer connected the user to AOL, often their first practical encounter with the Internet. Jan Brandt, AOL’s marketing executive, recalls distributing discs in increasingly improbable places, including cereal boxes, magazines, bookstores, Starbucks, Super Bowl seats, and Omaha Steaks mailings. For the frozen-meat promotion, the company even flash-froze a disc to make sure it still worked. The campaign became so ubiquitous that, according to Brandt, AOL at one point produced half of all CDs made on Earth. The discs were initially a gateway to AOL’s curated, community-oriented version of the Internet, and for a while “the Internet was AOL.” Existing users found them irritating, while new users saw them as invitations to try a technology they could not yet imagine needing. In 2002, two Californians created nomorealcds.com with the goal of collecting one million discs and mailing them back to AOL, illustrating how the campaign’s success had also made it a cultural nuisance.

When Brandt joined AOL in 1993, she had only limited experience with the Internet: she had once used it at MIT, where a boyfriend showed her people communicating around the world and an early video game. Alex Goldman describes the contemporary alternative as intimidating and cumbersome: connections ran through phone lines, text appeared as green characters on a black screen, there were only a few phone lines, and a phone call could disconnect the user. AOL’s competitors included business-focused CompuServe and safety-conscious Prodigy, which prohibited swearing and initially avoided chat. Prodigy had ten times AOL’s users in 1993, so AOL needed a distinct appeal. Brandt says AOL offered “community, a gathering place,” letting people connect with friends, relatives, and strangers at a time before FaceTime, streaming, or video communication. Internally, AOL described its vision through the “three C’s”: communications, community, and clarity. Its interface presented colorful, clickable categories such as news and personal finance; users could read AOL-curated wire-service digests, enter chat rooms, join hobby forums, play games, and send email. The service was a walled garden designed to feel like somewhere to spend time rather than merely a technical connection. Even its login experience was made friendly through recorded phrases such as “Welcome” and “Goodbye,” spoken by an AOL employee’s husband for $200.

Brandt’s five-person marketing department faced two related problems: AOL cost $9.95 for only five hours, then $3.50 for every additional hour, and prospective customers could not understand why they needed the Internet. People compared online conversation with simply using the telephone, and information access with the encyclopedias already in their homes. Some even assumed Brandt worked for American Airlines. She concluded that explaining AOL was less effective than letting people try it, which led to the free AOL disc campaign. Brandt asked CEO Steve Case for $250,000 to conduct a large mailing test for a company worth $38 million. Case approved it skeptically, telling her to proceed because he did not think it would work. She first targeted computer users through PC World, Macworld, Scientific American, Popular Science, and Car and Driver, sending three-and-a-half-inch floppy discs in cardboard sleeves labeled “It’s easy, it’s fun, it’s free.” Every source was coded and tracked. Whereas direct marketing commonly produced a 1–2% response, one list produced an astonishing 18%, and the overall test produced 12% of recipients signing up and entering credit-card information. Brandt says recipients were five times more likely to become paying AOL customers when they received a disc than through ordinary direct mail.

Brandt argued that AOL should be judged by return rather than by the cost of its discs. Case later said acquiring a customer through an AOL CD cost about $35, but that customer would generate roughly ten times as much in monthly fees. Brandt therefore broadened the campaign in concentric circles: first people who would have invented the Internet themselves, then the curious, then increasingly mainstream audiences, including people who might not yet own a computer. She found distribution opportunities by watching where people gathered. At Blockbuster, she noticed families taking free gift boxes containing popcorn and other items after renting four movies; because she had rented eight, she took two boxes home and instructed her staff to get AOL discs into them. On business flights, she saw passengers receiving coffee, cookies, and other amenities, then asked for discs to be included there too. She hired someone specifically to find unusual placements and said she could not find a location where the discs failed to work. AOL grew from 200,000 members when Brandt joined in 1993 to one million by the following summer. The company built machinery to insert discs into mailers and began attaching them to magazines like samples. By 2000, AOL claimed 25 million subscribers—roughly half of Internet users, according to its CEO.

The disc strategy became so effective that AOL sometimes had to stop it. Large waves of new customers tried to dial in simultaneously and encountered busy signals for hours, prompting critics to nickname the service “America on hold.” Brandt says management asked her to reduce distribution, and she eventually halted almost all marketing temporarily because AOL had overloaded its system. She resisted permanent cutbacks, however, arguing that reducing discs would necessarily reduce subscriber growth. Her campaign helped make AOL the place people turned to for shared experiences: after Princess Diana died, users gathered on AOL message boards to grieve, exchange memories, and talk with strangers about the event. By 2000, AOL’s dominance was reflected in popular culture: the company had bought Time Warner, and the phrase “You’ve got mail” had become the title of a 1998 film. But the same walled-garden model that made AOL accessible was becoming a liability. Broadband began allowing people to maintain always-on, much faster connections through cable, removing the need to dial into AOL. Cable companies were reluctant to help AOL become a broadband provider after years of seeing it operate around them. At the same time, free services let users create their own websites, including pages with blinking text, guest books, and material about dogs, bands, and television shows. Users no longer needed AOL to reach the Internet or wanted to remain inside its curated boundaries.

AOL’s problems deepened when the dot-com bubble burst. Advertising was a major revenue source, and many AOL advertisers were companies whose high valuations depended on the bubble. AOL’s stock collapsed, damaging employees because even assistants and janitorial staff held stock options. Brandt says people watched their retirement savings and futures disappear, further worsening relations with Time Warner. AOL and Time Warner had imagined a perfect union: Time Warner could supply premium content from HBO, CNN, DC Comics, and other properties, while AOL would deliver audiences and sign-ups. In practice, neither side had a workable integration plan. Brandt describes the relationship as “death by 10 cuts,” marked by hostility and cultural differences between Time Warner’s New York executives and AOL employees in “jeans and sneakers.” The 2000 merger was initially valued at $350 billion and called the largest corporate takeover in American business history, but Time Warner later sold AOL at a 98% discount. AOL also faced accusations that it had inflated advertising figures; eight executives paid millions in SEC fines. In 2003, AOL posted a nearly $99 billion loss, then the largest corporate loss ever, and Steve Case resigned. Brandt left in 2005, and the discount disc program ended the next year. AOL separated from Time Warner in 2009, tried to become a media company by buying the Huffington Post and TechCrunch, was acquired by Verizon, combined with Yahoo, sold to private equity, and eventually sold to an Italian technology conglomerate for $1.5 billion. Goldman’s conclusion is that AOL understood one half of the Internet correctly: it was fundamentally social. The disc was a physical invitation into a place where people emailed relatives, chatted with strangers, and posted messages meant for particular people. Modern forums and private chat services still reflect that insight. AOL misunderstood the other half by assuming users wanted professionally curated content inside a controlled garden. The Internet became more compelling when it was open, chaotic, and user-built; the companies that prevailed generally supplied infrastructure and let users fill the stages. The episode closes by applying that lesson to a new Warner Bros.–Paramount Skydance merger, saying that deal size and ownership figures do not demonstrate that a merger has a coherent purpose or benefits anyone.