AOL Time Warner wasn’t destined to be one of the worst business disasters ever, Facebook may have had things much tougher, and we all could have long forgotten about Netflix and Apple. These outcomes and more (see part 1 of this series) could very easily have happened, if only a few things had been slightly different.
Which obviously raises the question that alongside all the big trends and deals we pay attention to, what are the seemingly innocuous things happening right now that may have as big as or even a greater impact on our future than the current headline grabbers? After all, as these alternative futures show, it doesn’t take much for events to play out very very differently.
So, let’s imagine some very different outcomes in the creation of some of our tech giants:
MySpace is a true startup and really takes on Facebook
The rise and fall of MySpace is a well known cautionary tale. The runaway leader in an exiting new field, social networks, experiences explosive growth and is bought by an establishment company, News Corp, for a lot of money but they don’t understand the business.
News Corp push MySpace to monetise and increase revenue too soon and it suffocates within this bigger corporate entity, helplessly watching as its erstwhile lesser rival, Facebook, catches up and leaves it for dust, scaling previously unimaginable heights. MySpace is sold on multiple times and becomes so irrelevant that when all the music previously hosted on it is deleted, nobody even notices for a year.
But the truth is that MySpace was handicapped long before its acquisition by News Corp, right from its very beginnings in fact. Even if every decision and strategic move had been pitch perfect and Facebook had been a far less effective operator, the odds of MySpace not losing out to Facebook as it did were basically zero.
Why? Because right from the start, in 2003, MySpace was a division of a larger entity. At its launch it was part of online entertainment retailer eUniverse. Several eUniverse employees had the idea and got it off the ground at eUniverse who easily and speedily provided expertise, resources, servers, bandwidth and users to get things up and running quickly.
This eUniverse infrastructure helped MySpace build a commanding lead ahead of all other social networks at the time, either existing or soon come (Facebook would launch a year later), but for all the short term benefits this structure gave MySpace it bequeathed serious long term problems that it was never able to escape.
Almost every successful startup in a burgeoning new area began life outside of any other corporate entity. It’s the classic innovator’s dilemma: existing businesses have their own priorities, strategies, resources and so forth. Trying to include and fully embrace something entirely new in that mix is basically impossible to get right.
To succeed the startup and its team have to be all-in on finding their way. Even then most won’t make it, but if you have to fight for resources and attention as part of a bigger entity then the odds are lengthened so much as to basically become impossible.
MySpace’s status as a unit of eUniverse from day one hobbled it irrevocably. Social networking was so new that nobody had any idea how it would develop and how big and lucrative it could become. The leaders of MySpace were eUniverse employees, not founders with the authority and ownership that that status brings and consequently had much less influence on big decisions such as resourcing, investment or a sale.
None of this is to criticise eUniverse (re-named Intermix Media by the time it was purchased by News Corp) and the decisions they made. They built something that was beloved by millions and some MySpace execs were shareholders at the time of the acquisition at which point MySpace was the overwhelmingly dominant part of Intermix. However by existing under the umbrella of something else, Intermix, the people who had built and run MySpace never had the power and control that Mark Zuckerberg had and still has at Facebook.
So imagine for moment that they did, that the founders of MySpace didn’t launch it where they worked, but went off and set up a new company with new funding. The product was clearly good in the early days, it wouldn’t have been such a runaway success otherwise, and there was no shortage of venture capital funding for these exciting new social networks. They could have put all their focus and effort into building and growing MySpace, amassing a huge network of users, and figuring out the long term revenue and profit stuff down the line. In other words, exactly as Facebook did.
Facebook would still have been exactly the same Facebook, and this startup MySpace may also have fizzled and died. But it might not. It may have given Facebook a much stronger run for its money, indeed it may still have been doing so now. Maybe it might even have been MySpace that triumphed over Facebook and rather than tell each other the cautionary tale of MySpace, we’d all marvel at the promise but ultimate failure of Thefacebook.
Alternative history verdict: Serious potential for a very different world. Facebook could still have become the social networking leader by a mile just as it did. But it also maybe not because very likely Facebook would have had a much stronger competitor fighting it every step of the way.
Netflix is swallowed by Blockbuster
Even at its height, the continued existence of the VHS and DVD rental business was something of a mystery given how fantastically inefficient as a market it was. Think about it, you decide you wanted to watch a film at home one evening, so you have to get yourself physically to the store, probably on the same day you wanted to watch the film, and hope that they have something you want in stock.
There’s a very good chance they won’t, especially for a new release blockbuster, in which case you either pick up something else you may or may not know anything about or leave empty-handed. And then when you’re done, you have to go BACK to the store to finish the transaction. Two visits for a single purchase without any way of knowing if you’ll even get what you want. How did it become so big?
But it did, and the biggest beast of course was Blockbuster, which sold out to Viacom for a hefty $8.4 billion back in 1994. Such an inefficient market was always ripe for disruption and of course it was Netflix who finally did with their DVD by post model which launched in 1997.
Netflix didn’t become a giant overnight, and the era of Netflix being a streaming and production powerhouse was way way into the future. So far in fact that not even Netflix were imagining it when in 2000 company head Reed Hastings and his CFO Barry McCarthy flew down to Blockbuster HQ in Dallas to propose a combination of the two companies. Blockbuster would continue to own the high street business, Netflix would run the online shop front. Having been bought by Blockbuster for the now very less than blockbusting price of $50 million.
Yes Netflix were quite keen to join with, indeed sell out to, the Blockbuster machine, but Blockbuster were uninterested. Whoops. In fact they had a far more exciting partnership they were working on. In 2000 Blockbuster signed a 20-year exclusive video-on-demand agreement - ie the very business that Netflix has come to define and lead.
The lucky partner in this very very long term deal? It certainly wasn’t Neflix. No it was Enron Broadband Services. Yes the telecoms arm of Enron, the company that had operated through fraud and deception for years which finally brought it down later that year before it completely collapsed into the then largest ever bankruptcy in 2001. That Enron.
Blockbuster took a little longer to follow into bankruptcy - and of course nothing dodgy there, just the weight of a highly inefficient business model finally crushing it. The end for Blockbuster came in 2010 after a loss of $1.1 billion. By then the company’s assets were valued at little over $20 million. The value of Netflix around the same time? About $13 billion.
Alternative history verdict: Major game changer - for Netflix rather than the rest of us. Video on demand was a business waiting to go prime time as soon as the technology made it possible. As it was it was Netflix who first made it work at major scale. If Netflix became part of Blockbuster, maybe they would still have led the business, but huge incumbents struggle to create and lead such fundamental shifts so it would quite likely have been someone else entirely and Netflix? We barely knew ya…
AOL doesn’t buy any media company
It’s a poster child for ill-fated corporate mergers that should never have happened - AOL Time Warner. At a point in time that now signifies the high water mark of the irrational exuberance of the 1990s' dot com boom. So what if it had never happened?
It very nearly didn’t. In the 90s few flew as high as AOL (America Online). For millions of Americans, AOL was the internet, their ISP, email, and entry into all things online. As valuations for digital companies reached and then passed the stratosphere AOL was in the vanguard. Along the way it bought out major competitors such as Compuserve, took over the ground-breaking internet browser Netscape, and generally occupied many of the commanding heights of the new digital economy.
By 1999 AOL’s value was passing $150 billion. Its boss Steve Case was looking for his company and shareholders to benefit from this very valuable equity by locking in a mega deal while his share price was so strong to secure AOL’s future (no fool Mr Case). Over the course of 1999 he looked at Disney, eBay, banking giant Citigroup, AT&T and telecom highflier WorldCom who actually went bankrupt on a grand scale in 2002. That deal would would have created a whole different narrative for AOL now, probably far worse than the one we know and love about AOL today if you can imagine such a thing.
In the end of course it was Time Warner who was the lucky bride, and the whole deal was negotiated in two weeks. Yes two weeks. To continue the marital analogy, the phrase ‘marry in haste, repent at leisure’ definitely applied here.
That deal was signed only months before the dot com crash, so while the whole thing may have dragged down Time Warner for years, for AOL it was a life saver. While their peers saw their share prices tumble and their revenues under unprecedented pressure, AOL had the safety blanket of the steady Time Warner and its $14bn of revenues (AOL revenues - $4.8bn).
However if any of the other deals Case explored had come off, he never would have got to Time Warner. Or if his pursuit of a partner had taken a little longer, AOL would have been hit by the bursting of the dot com bubble and AOL wouldn’t have been able to pursue a mega-merger with anyone.
And don’t forget AOL’s core business at this time was still dial-up internet access. Broadband was still for institutions and college students in their dorm rooms happily destroying the business model of the major record labels through Napster. If AOL had been unable to jump into its Time Warner lifeboat, if it was lucky it might have ended up as a Yahoo peer.
Or nothing at all. Far from its status as a forever cautionary tale about terrible mergers, AOL would just be a footnote in the early days of the internet, completely forgotten along with the other former long gone titans such as Compuserve, Excite@Home and Lycos.
At least all the advisors on the AOL and Time Warner merger made their bonuses that year.
Alternative history verdict: Mid-level game changer. The tale of AOL Time Warner wouldn’t be, but ever since the internet revolution of the 1990s the question of how best to bringing together content and distribution in a digital environment has been constantly playing out and evolving and carries on this very day.
Microsoft lets Apple die
Everyone loves the story of Apple. It’s the closest thing we have to a business fairytale, a secular parable.
It’s the tale we all love of a pioneering upstart with founders barely out of school who lead a tech revolution. Even better, they always do everything with style and panache. They’re overtaken by the other side, Microsoft/DOS/Windows, who may be commercially victorious but they never even come close to Apple’s flair.
Then comes the darkness, the forcible exit of its co-founder Steve Jobs, betrayed by the man he brought in. But the usurper can never truly replace the departed visionary and Apple only falls further and further behind its arch-nemisis, Microsoft, until redemption! Jobs returns in triumph and heroically leads Apple into its destiny as the greatest innovator of our age with iMacs, iPods, iPhones and iPads. As always with Jobs, executed throughout with incredible style. What a tale!
We all love a great comeback and redemption story and that of Apple and Steve Jobs delivers and then some, not least as it’s true (well, more or less). But there’s one critical part of Apple’s history that never gets a mention in this happy tale any more as it fits rather awkwardly with the clear narrative of rejection and then redemption.
Yet without it there would never have been an Act Two for Apple and Jobs, no triumphal comeback. And that moment is when Microsoft, yes Microsoft, came to Apple’s rescue and saved it from bankruptcy. You see the Seattle Goliath, the company that beat out Apple in the PC wars without ever having even a fraction of the flair or cool, was Apple’s unlikely saviour. Without Microsoft, Apple today would be, well just gone.
Jobs returned to Apple in July 1997. The company he was returning to 12 years after he left was not in good shape. In fact it was nearly bankrupt. Also as it happened it had an ongoing lawsuit against Microsoft, the great enemy, where Apple was accusing Microsoft of plagiarising its graphical interface for Windows. Whatever the virtues of the case, Apple had existential issues to deal with. A month after he had returned to Apple, at the 1997 Macworld Expo in Boston, Jobs had some big news to announce. And it wasn’t the iMac.
Rather, much to everyone’s surprise, Apple and Microsoft were settling their lawsuit and as part of the new relationship Microsoft was agreeing to make Office available on the Mac for 5 years, while in return Apple would make Microsoft’s Internet Explorer web browser the default option on Macs. Oh and Microsoft would also invest $150 million in Apple in return for shares with no voting rights at all.
That $150 million very likely saved Apple. The iMac, the first new product under the returned Jobs and re-born Apple wouldn’t ship until the following year. Microsoft’s $150 million was a critical lifeline to struggling Apple.
Speaking at the Macworld Expo (underneath a giant TV screen showing a live feed of Bill Gates, literally looking down on the computing minnow he had just saved), Jobs said:
“If we want to move forward and see Apple healthy and prospering again, we have to let go of a few things here. We have to let go of this notion that for Apple to win, Microsoft has to lose. We have to embrace a notion that for Apple to win, Apple has to do a really good job. And if others are going to help us that's great, because we need all the help we can get, and if we screw up and we don't do a good job, it's not somebody else's fault, it's our fault.”
The $150 million was a matter of survival for Apple, but why did Microsoft, Apple’s nemesis and never known for shirking (or losing) a competitive fight, do it? Quite simply because Microsoft was becoming embroiled in its own anti-trust nightmare at this time with the US Department of Justice. The DOJ would file its suit the following year, demanding nothing less than the break-up of Microsoft.
Another word for anti-trust is anti-monopoly, and by 1997 Microsoft’s share of the PC software market with its trusty Windows package was around 90%. Of the remaining 10% about half was taken by the strictly for experts Linux, with the remaining 5% by Apple. But Apple’s share was in freefall with some analysts predicting they would be at less than 2% by the decade’s end.
While Microsoft had quite happily competed fiercely against Apple during the 80s and 90s, by now, with the elimination of Apple in their sights, the removal of this last remaining competitor in the consumer market most definitely did not serve Microsoft’s interests. There comes a point where market share gains no longer help and for Microsoft this was that point.
So they came to the rescue of their erstwhile foe. Yes it was in their naked self interest, but so was Apple’s decision to take the cash. $150 million was nothing for Microsoft then but was critical for Apple. It wasn’t without controversy - while making the announcement Jobs was greeted by some cheers, but also by lots of jeers. However he knew that Microsoft’s money would keep them alive while they were at their lowest ebb.
Today trying to imagine our world without Apple and the devices, software and app ecosystem it has brought us is basically impossible, that’s how pervasive they are. But it very nearly wasn’t like that. To paraphrase the Duke of Wellington after beating Napoleon at Waterloo, it was a damn close-run thing.
If Microsoft hadn’t helped keep Apple alive in its darkest days, it would have been great news for Nokia, Blackberry and indeed Microsoft’s Zune. But the rest of us would never have known iPods, iPhones or iPads. In fact in the multiverse that we live in there are alternate versions of yourself right now that live in that world. A world where Apple and Jobs never had their second act, are now long forgotten and there have never been any iPods, iPhones or iPads.
Makes you think that for all the craziness going on in our world politically, at least we don’t have it the worst.
Alternative history verdict: Not just a game changer, but literally a universe changer.