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AOL founder Steve Case: “It’s disappointing and frustrating” to look back

By Julianne Pepitone, staff reporterDecember 3, 2010: 10:59 AM ET

NEW YORK (CNNMoney.com — AOL co-founder Steve Case — a serial tech entrepreneur who is still actively launching new ventures — took the stage at Business Insider’s Ignition conference Friday to discuss Web upstarts and reflect on his own battered legacy.

Business Insider editor-in-chief Henry Blodget, who moderated the discussion with Case, asked him what it feels like to look back at AOL now “given that your market cap is something like 1% of what it was when you took over Time Warner.”

“Well, we don’t need to get too specific there,” Case joked, but he quickly turned serious. “I first started thinking about this company 30 years ago, so obviously it’s a mixed bag. In some things, it’s disappointing and frustrating to look back.”

Founded in the mid-1980s, AOL had grown into an Internet powerhouse when it took over Time Warner in 2001 for $111 billion. But in late 2009, Time Warner (TWX, Fortune 500) (the parent company of CNNMoney.com) spun off AOL and unwound what’s now considered one of the worst mergers in history. Now under the leadership of Tim Armstrong, AOL (AOL) is working to reinvent itself as a content network.

“Was the problem theory or execution?” Blodget asked Case. The deal came at a precarious time for AOL, as it began navigating the tough transition from dial-up Internet access to broadband connections.

“It was a good idea poorly executed,” Case said. “I blame myself and my team for that. We thought broadband and digital music would be a big deal, and we needed to diversify.”

Case said pairing with Time Warner Cable, in particular, “made business sense for AOL’s path to broadband” — and he agreed to step down as CEO in order to make the deal happen. But the act of becoming a huge media conglomerate broke AOL’s spirit, Case said.

“Being disruptive, changing the industry, is about risk-taking. But then you become a Fortune 500 company, which is about risk mitigation” Case said. “AOL is an attacker and Time Warner was a defender. When AOL lost that attacker [spirit], it lost its way.”

How Facebook, Twitter and Google can avoid AOL’s mistakes: Case had mixed views on the new — and new-ish — Web companies trying to scale up. He thinks Twitter can succeed where his former company’s own AOL Instant Messenger system has receded.

“People are skeptical about overnight successes, but I think Twitter can build a business,” Case said. “It’s not surprising to me that they’re struggling with figuring out ads, APIs, do they want to be a walled garden. They’re not easy choices.”

But Twitter needs to make moves while it’s hot, Case warned. He said AOL Instant Messenger could have been “more of a communication tool,” but it missed opportunities like pairing with Skype for video chatting. He wishes the Instant Messenger team had created “a suite of products with something better than slapping banner ads on it. I think smart people will figure it out.”

Facebook has “done really well executing” even as it grows gigantic, Case said.

But the company he thinks has hit a tipping point is Google (GOOG, Fortune 500).

“Google is at a stage where, well, AOL got there as well,” Case said. “When you get to a certain scale, you start attracting government queries and lawsuits. You can’t be tone-deaf to this. And I think they’re aware of that — but on the other hand, you can’t be so worried that you get wrapped up in all that and let other companies pass you.”

Case is still active in the tech industry as the leader of Revolution LLC, which operates several Web-focused startups and has an investment portfolio that includes ZipCar and LivingSocial (which landed a $175 million investment from Amazon.com this week). He’s been in the field for a quarter century, and Blodget asked him to draw on that experience to look ahead at the next 25 years of the Internet business.

“The challenge, and opportunity, in the next 25 years isn’t about changing the Internet,” Case said. “it’s about changing every part of life because of the Internet.”