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AOL's Rough Riders - America Online - Company Business and Marketing Gary Rivlin Led by "Cowboy" David Colburn, the company's combative and manipulative dealmaking apparatus has generated billions of dollars for the online giant. But what do its partners get, other than a few brusies? There are many ways to approach a potential partner in the new economy, but few quite so memorable as the opening gambit favored by America Online. Inside AOL, some have dubbed it the "urgency close' a two-step maneuver that begins with flattery and praise. "In the beginning, you're like, 'Hey, we've looked into this space and you're the best. If you hook up with us, you can really kick ass,"' says ex-AOL dealmaker Philip Zakas, who delivered the pitch many times. "I could be saying that to three different companies at once, but it would always work." The next step is the actual close, a harshly delivered demand for swift action once the deal terms are placed on the table. Typically, would-be partners are given to the end of the day to say yes -- or risk AOL doing a deal with another competitor. "What makes it so potent a weapon is the element of surprise," explains a second former AOLer who requested anonymity. The "urgency close" is an element in many AOL portal deals, in which companies pay millions for a prime spot on the AOL screen. AOL officially denies it employs anything that even remotely resembles the urgency close. "It is absolutely, positively not the way we do business," says Myer Berlow, the company's president of interactive marketing. Yet one Silicon Valley lawyer figures that of the 20 or so companies he's helped to negotiate with AOL, roughly 3 in 4 have been hit with the urgency close. Says an executive with a young company that eventually inked a multiyear, multimillion-dollar portal deal with AOL: "For weeks it was, 'You're great, you're great, you're great and then one day [we had to] give them every last dollar we had in the bank and 20 percent of our company - or they [threatened to] go to our competitor." An executive at another company told a similar story, except, she says, AOL demanded a 30 percent stake in her company, "and then for good measure they tell us, 'These are our terms. You hav e 24 hours to respond, and if you don't, screw you, we'll go to your competitor."' Aggressive come-ons are only the beginning of the strange ritual that is negotiating a multimillion-dollar portal deal with AOL, the Internet's most powerful player and arguably also one of its roughest. Larger companies like Citibank or Volvo are treated royally when hammering out a portal deal because they possess something AOL wants: a brand that lends credibility to its service. But younger, less-established companies that say no to the urgency close must endure what one Silicon Valley lawyer likens to "trench warfare," where you advance inch by inch, foot by foot." To wear companies down, says another former AOL executive, the portal might force them to meet with "60 people ... from really, really sharp people who know what they're talking about to the 26-year-old who knows nothing about your company or the deal but starts asking you all these ignorant questions, fighting over stuff it makes no sense to fight over and making threats when he doesn't have any real power." Says the CEO of a modestly size Internet startup: "Dealing with AOL was the single most grueling experience in two years of running this company." Another executive compared her many months negotiating with AOL to "wrestling with a bear. A very large and very ornery bear." BY ALL RIGHTS, THE AOL dealmaking machine should be acting more like a pussycat than a bear these days. Where a year ago a big-dollar portal deal with either AOL or Yahoo was considered the ticket a dot-coin needed punched before going public, now that same megadeal is widely perceived as an albatross around a young company's neck. The clear consensus among analysts, media buyers and top-dollar consultants such as Patricia Seybold is that a portal deal with AOL is a huge risk and, for all but the most well-endowed companies, probably a mistake. They point to companies that paid a king's ransom for access to AOL's visitors, only to discover the deal brought them far fewer customers than they had figured on. Only a partial list of companies staring into the abyss - in no small part because they paid so much for an AOL portal deal - would include Drkoop.com, PlanetRx, Beyond.com, Talk.com (a second-tier

long-distance player) and Jfax.com, recently renamed J2 Global Communications. AOL blames these and other high-profile belly flops on partners who didn't execute. Former AOL senior executive Charlie Fink likens them to "a guy who paid $20 million for a date with Miss America but then doesn't know what to do with her." These flops, fairly or unfairly, have had an enormous impact on the perceived effectiveness of high-priced portal deals. Yet they've had far less impact on AOL than they have with also-rans such as Lycos, Excite@Home and the Go Network. In recent months, companies seeking deals with these portals have been able to secure terms in which payments are based in large part, if not exclusively, on the number of paying customers a deal secures rather than the number of impressions delivered. Not so with AOL and Yahoo. Despite the taint that portal deals now possess, companies still clamor to do business with AOL, and it's no wonder. Twenty-four million people in the United States use AOL or CompuServe, which AOL bought in 1998, as their port of entry to the online world a 45 percent share of all households using a dialup connection. Each month another 35 million non-AOL users visit at least one of its many Internet properties, including Netscape, MapQuest, Moviefone and Digital Cities. AOL consistently tops Media Metrix's monthly ratings, welcoming roughly 10 million more unique U.S. visitors each month across the network than either Yahoo or Microsoft, but that hardly conveys the awesome reach of AOL. Add together the total number of individuals who logged on to Amazon.com, eBay, iVillage, Napster, Priceline and Travelocity in August -- and it still doesn't equal the number of people visiting AOL's proprietary service and its Web properties. Of the 80 million or so Americans on the Web in August, 63 million -- four in every five -- somehow touched America Online. All those eyeballs make it hard to resist the urge to consider a deal with AOL. One CEO, whose offer from AOL included a demand for 40 percent of his company, summed up the dilemma every company faces: "Maybe the insane part is that I wondered if I should take the deal." Signing a portal deal with AOL or Yahoo, which has a wider world reach than AOL, is akin to a fledgling dot-com buying advertising time on the Super Bowl: a high-risk roll of the dice with a huge pile of chips on the line. Such is the state of the Internet Economy, young and not yet fully formed, that the magic elixir that could help a company soar might also be the poison that kills it. "It's hard for me to imagine any company in this industry behaving any differently than AOL if they had the same clout as AOL does," says IDC analyst Barry Parr. Yet Yahoo offers an interesting comparison. Some say that Yahoo charges slightly more for a comparable portal deal than AOL. Others make precisely the opposite claim. Yet you get no argument when asking which is the more difficult to deal with. "Negotiating with Yahoo is tough," says the Silicon Valley lawyer. "But as a general matter, Yahoo doesn't play the games that AOL does, like hiding the ball or trying to sneak into the end zone when no one is looking." Not surprisingly, people in Silicon Valley are inclined to apply the same derogatory nicknames to AOL as in the past they applied Microsoft: The Borg, The Evil Empire. "We're no Microsoft," AOL's Berlow says, but even a former colleague sees similarities. "I worked at Microsoft and I can tell you, AOL has very much that same cutthroat, take-no-prisoners, screw-them attitude." Even if AOL is a bully, what difference does it make? After all, AOL is a business, not a social service organization. The company's portal revenues account for more than 20 percent of AOL's overall revenues, a fact that goes a long way in explaining how AOL was able to swallow whole old-world colossus Time Warner. The machine also has left a mark -- some might say a scar -- on the Internet Economy. No doubt AOL is providing the life-blood in potential customers to many of the 2,000 companies it counts as its partners. But other partners have closed their doors or suffer from stocks languishing in the $1 range, and while businesses fail for many reasons, the deal terms exacted by AOL -- the terms that AOL continues to exact -- is in part to blame. If nothing else, the fate of these companies raises a critical question: Is the Web's mightiest online player bad for the Internet Economy's health? ANY DISSECTION OF THE AOL dealmaking style starts with David Colburn, officially the company's president of business affairs but less formally the chief architect of its portal strategy. "Colburn is the driver when it comes to deals at AOL," Fink says. "He oversees all of the dealmaking the company does." The thing people mention first when talking about Colburn is his voice. He hails from a suburb of Milwaukee but talks with a honk

that suggests a marriage of the Midwest and the Bronx. Fink, a friend, describes it as "this funny accent David exaggerates for effect." Even Colburn makes fun of his voice. "I'll call directory assistance and they'll ask me, 'Are you drunk, sir?"' Acerbic and pushy, with short-cropped hair and a tungsten toughness, his sartorial style runs toward jeans, Hawaiian shirts and cowboy boots, and he favors the grizzled, haven't-shaven-in-days look. His abrasiveness seems his charm. With a hearty laugh, one former AOLer swears he witnessed Colburn put his wife on speakerphone while he was meeting with a group that included several people from outside AOL. "His wife says, 'Honey, we're having chicken, and he's like, 'Chicken? Fuck chicken, I want some goddamned steak,' and he hangs up the phone. Hangs it up without another word." Colburn denies the story: "If I would've said it, my wife would've been very upset with me." "David has a personal style that I can imagine being alarming to people," says AmericanGreetings.com CEO Josef Mandelbaum, who went head-to-head with Colburn when negotiating his company's $100 million deal with AOL. "He comes across as short and biting in ways that can intimidate people." "I try to have some fun," Colburn says. "I try not to take this too seriously." Colburn had been at AOL less than a year in 1996 when he stared down Bill Gates and his minions in the deal that resulted in AOL adopting Internet Explorer as its default browser and paying nothing for an AOL icon on the Windows start page, which is just about the most priceless piece of real estate in the computer world. As those inside AOL tell it, that went a long way in firming up Colburn's reputation as the company's top dealmaker. "Basically, after that David was a god on AOL's campus' says one longtime AOLer who left the company last year. AOL's swagger is largely Colburn's swagger, the company's in-your-face dealmaking style is his. Rarely is an executive's style so thoroughly mirrored in the style of those working for him. Colburn's signal trait, by all accounts, is his relentlessness. And that's the signal trait of the 115 people he has working for him. Myer Berlow oversees the 125 or so salespeople whose job it is to woo partners to the negotiating table, but it's Colburn and his staff who hammer out the deals. Perhaps the division of labor between the two teams is best captured by a joke that one former AOL employee claims is popular among the company's dealmakers: "The salesperson's job is to strap someone down to a chair, while someone in business affairs [Colburn's group] beats the hell out of them." Colburn denies there is any such line. "If I heard someone say that, I would let them go," he says. "If someone would say that, I would say it's evidence of arrogance run wild. It doesn't make sense to do business that way." Still, there seems to be a lot of arrogance on Colburn's team. He has a posse of imitators at AOL who show up at work dressed in Hawaiian shirts and needing a shave. They'll plunk a pair of cowboy boots up on the table during a meeting no matter who's present because that's something Colburn would do. Some even borrow his strange accent. "Every guy working on deals inside AOL wants to be just like Colburn," Zakas says. "So you'd have these people walking around trying to sound like Colburn: 'If you don't sign this deal, you're fucking crazy; this is a great deal.' That kind of stuff happened all the time even though it was frowned upon -- unless of course it was Colburn or a vice president, because they had the charisma to get away with it." Maybe it was that charisma that convinced the pop boy band 'N Sync to play a 40-minute set at the bat mitzvah for Colburn's daughter, or maybe it was a net worth estimated to be $250 million. A friend once declared Colburn a frustrated standup comic, and as with many comics, he's an acquired taste. "He's not what anyone would call a relationship builder," concedes a former Colburn lieutenant who requested anonymity. "But people put up with him because he is brilliant and he gets shit done. He's got this amazing memory that lets him recall the minutiae of a thousand different deals, and he's a total hard-ass. He can be in a meeting and make someone cry. He's made me cry, and I'm a guy who doesn't really cry." NEVER WAS COLBURN MORE valuable to AOL than when the portal deal was born, the offspring of necessity and opportunity. In December 1996, AOL, following the lead of its competitors, dropped its pay-by-the-hour method of charging customers in favor of a flat monthly fee, precipitating one of the many crises that AOL has faced in its relatively short life as a publicly traded company. The price change may have been great news for the company's millions of subscribers, but it meant a huge hit for AOL's bottom line

and also its stock price. Deals with the company's many content providers, which had been based on AOL's per-hour fees, needed to be renegotiated, and alternative revenues had to be found. Back then there was plenty of talk about a wondrous new business model dubbed the "portal," but how a company might cash in on all those eyeballs they had attracted remained to be seen. "That's what David was responsible for doing," says a former Colburn lieutenant. "It largely fell on him to restructure all the existing deals and figure out, more importantly, how the company could make money as a portal." The plan for dealing with content providers was a radical departure from the old model; most would now have to pay for the privilege of providing news and information to AOL users. "It's not like an edict was handed down one Thursday and that was that," says David Ellington, CEO of NetNoir, an AOL stalwart since 1995. "But on the other hand, it's not like they left us much room to negotiate." Yet finessing relations with a few pissed-off content providers was hardly AOL's main concern. Terms such as "anchor tenancy" had to be invented, or reinvented for the Web, and a new paradigm adopted: AOL was no longer a diverse community of users but an enormous online shopping mall visited by tens of millions of consumers. AOL's big break came when the CEO of Tele-Save Holdings (now Talk.com) showed up claiming he had a $50 million check in his pocket and a plan to market his long-distance service online. As Colburn tells it, "Tele-Save really identified the path [we needed to follow. The portal deal] was really their brainchild." Yet it was Colburn and his flock who convinced Tele-Save to pay $100 million plus a cut of revenues for the right to plaster its pitch throughout AOL's properties for a three-year period. AOL also secured the right to buy up to 15 percent of the publicly traded company at an attractive price, assuming certain performance goals were met. Tele-Save's stock jumped 56 percent on the day the company's AOL deal was announced, a transformative moment inside AOL. "Tele-Save is the deal that got everyone [inside AOL] believing that there was serious money to be made from these things," says the Colburn lieutenant. "When Tele-Save's stock went crazy, AOL folks, not being stupid, realized that if we don't demand an equity stake when a distribution deal with AOL can potentially double the value of a partners' business, we're just basically leaving dollars on the table. Quite frankly, that was inspiring to a lot of people." More oversize, eye-popping deals followed. CUC International, an online discount shopping service, signed a three-year agreement that had them paying AOL $50 million and a share of any revenues realized from the deal. Preview Travel agreed to a $34 million deal, and 1-800-Flowers guaranteed AOL $25 million and a share of the $200 million in sales the company figured to log over the four-year life of the agreement. Amazon.com paid $19 million to serve as the preferred bookseller on AOL.com, and Barnes & Noble agreed to pay $40 million to become the "exclusive" bookseller within AOL's proprietary network. The music retailer N2K, which later merged with CDnow, signed a three-year, $18 million deal that included an upfront payment of $12 million, though N2K had generated only $11 million in revenues the previous year. Intuit signed a $30 million deal, and so eager were online brokerages such as E-Trade and DLJdirect to reach AOL's relatively affluent customer base that they agreed to share their commissions from every trade initiated by an AOL-secured customer. The frenzied dealmaking created a constant tension inside AOL between, on the one hand, deals offering the biggest payoff and, on the other, the user experience. Fink seems to cut close to the truth when he says, "AOL made unsavory deals with fly-by-night companies that were purely financial, but, in many cases, AOL took less money to work with more established brands." Berlow, however, emphatically denies that AOL at times went with the highest bidder. He cites the example of a "very large packaged-goods manufacturer" who a few years back offered AOL $5 million if they could occupy three-quarters of a screen on AOL's Women's Channel with a dancing banner ad, only to learn the answer was no. Berlow says people such as Fink and Zakas were too low on the totem pole to know the truth. If many agreements seemed lopsided in AOL's favor, that sometimes had little to do with the aggressive dealmaking machine. "At times we'd say to ourselves, 'They're willing to pay that for this!?'" Fink recalls. "We'd ask that of somebody in sales or business affairs [Colburn's group], and they'd look us dead in the eye and say, 'They're begging us to do this deal.'" Companies hungry to do deals were often showing up uninvited, like an energy outfit that arrived arrived on AOL's campus and launched a logo-plastered hot-air balloon -- not a good idea given AOL's proximity to Dulles International Airport. One company's execs, Zakas says, took him and a colleague out to lunch to say they'd pay $1 million if AOL would simply agree not to do a deal in their sector for six months. "That's really easy money. But your sense of ethics comes in and you decide you really shouldn't accept

money to do something that you wouldn't do anyway," he adds. Dave Sickert, who ran the AOL Shopping Channel in 1998, says, "The word on the street was that the VCs were telling [startups] they had to do a deal. They made no effort to hide the fact that they believed their company's life depended on a deal with AOL.... They were like kids in the candy store." Prospective partners showed up seeking to buy a spot on the Shopping Channel but walked away having bought placements throughout the AOL network. "What you had was a lot of novice businesses that were trying to go public looking for the magic bullet that would send their stock price rising, and for a lot of companies AOL represented that magic bullet," says Jupiter's Claudine Singer. "With deals that worked out badly it wasn't simply because AOL was just overaggressive," Zakas says. "You have to blame the companies for signing these one-sided deals -- and the VC firms, which are partly to blame, too." In 1998, AOL secured more than 50 portal deals worth at least $1 million each, and 1999 proved to be an even more lucrative year. Kodak signed a four-year, $40 million deal, eBay signed a $41 million deal, and Drkoop.com famously committed itself to an $88.5 million agreement shortly after raising $89 million in its public offering that June. Yet these huge deals were dwarfed by two others crafted that year: the $200 million that German-based publishing giant Bertelsmann paid for its four-year AOL deal, and the $500 million that credit card company First USA coughed up for its five-year pact. No matter how vigorous the deal flow, it's never enough. "Working there you were under pressure all of the time to make your quota, especially at the end of the quarter," says one ex-AOL dealmaker. "Colburn would be screaming at people, 'Why the fuck aren't we hitting our numbers?'" It hasn't helped the plight of those still reporting to Colburn that Net firms being pushed to reach profitability have grown wary of an AOL deal. "It wasn't that long ago that investors liked to see that you had a deal with AOL," says Gay.com President Mark Elderkin, who earlier this year rejected a portal deal AOL had proposed. "Now investors like to see that you don't have a deal with AOL." Thus the AOL dealmaking machine, finely tuned after three years of remarkable success, must run that much harder. IF THE URGENCY CLOSE IS the early phase of making a deal with AOL, then the next step might be described as the "waiting game." The prospective partner that stands firm in the face of the urgency close and enters phase three must be, above all else, patient. The typical agreement takes from two to six months to consummate if not longer. "You'd think it'd be on the customer's time line, but when you deal with AOL, you're on their calendar, not your own," says J2's Tim Johnson, who, with his company's original contract with AOL about to expire, is now talking with AOL about a new, presumably more cost-effective deal. One CEO, who spent the better part of a year negotiating with AOL, figures that a half-dozen negotiating sessions lasted at least 15 hours each, and one went long enough to require four meals, including a post-midnight second dinner. The Silicon Valley lawyer mentioned earlier recommended to clients that they storm out of at least a few sessions in a huff to counter the many times AOL was likely to do the same. "Only then will they cede you a few inches," he says. Yet the waiting period between staged exits can be excruciating. One executive tells of weeks that passed without anyone returning her phone messages; one day the deal she feared dead was suddenly on someone's fast track. "Once that happens," she says, "the deal kicks up a whole notch, and you can expect two or three conference calls a day, in-person marathon sessions where you go all day and all night." But then you might have to wait again. "There were a couple of days when we flew out to Dulles and ended up sitting in a conference room for almost the whole day waiting for someone to talk to us," notes the woman executive. "A lawyer would run in, explain they were busy doing other deals, and then run out. We were like, 'Hold on a second. We flew all the way out here to see you guys and you've arranged five other conferences with five other companies?'" This executive doesn't doubt her party was left to cool its heels in part to send a message. "That was something we'd do all the time," confirms one former AOLer. "You know, 'Oh, you're here?' Like you were this tiny, insignificant company." AOL enjoys no scenario so much as one in which more than one company is vying for the same piece of online real estate. Yet what

seems to distinguish AOL from other companies, according to those on either side of the exchange, are the lengths the company goes to foster a bidding war. "Say you were having a meeting with PlanetRx," says a former AOL executive on the content side of the company. "As soon as the meeting was over, the next thing you'd do is call up Drugstore.com and say, 'Hey, we'd love to do business with you, but PlanetRx is after us to do a deal with them. We prefer you guys, so we're just calling as a courtesy to let you know what's going on.'" Says Zakas: "You could be guaranteed that we were talking to two or three companies in the exact same space at the same time. You would never do a deal without talking to anyone else. Never." "To me, it felt like we were living through an episode of NYPD Blue where the cops are shuttling between rooms, and the first guy to rat out the others gets the best deal," says a CEO who recently inked a deal with AOL. He recalls one interminable night sitting in a conference room in Dulles. He began to suspect that his competitors were sitting in nearby conference rooms, bidding up the deal terms. By that point, he had spoken with roughly 10 counterparts who had negotiated with AOL. Of the five that ended up doing deals, "two were fairly open about how they pretty much gave away the store." He couldn't comprehend a colleague knowingly signing a bum deal -- until he found himself strapped to that same chair in Dulles. "It's amazing what you're willing to give in on when your mentality is, 'Holy shit, if my biggest competitor gets this deal then I'm screwed,'" he says. The key to surviving this phase, says an executive who did business with AOL, is to find "this fine balance between taking the abuse and pushing back." Zakas offers similar advice. Since leaving AOL, he has advised several Washington-based companies negotiating with AOL. "Choose the points you do battle on very carefully because every time someone gives in on a point, no matter how small, people could get really pissed off," he counsels his clients. Agreeing to a set of deal terms isn't the end of anything, but rather the start of the grueling final phase: the negotiations over the actual contract, a document so thick it rivals agreements inked to consummate billion-dollar mergers. AOL contends the contracts need to be long so that everything, from placement of promotions to AOL's obligations to its partners, are clearly spelled out. "If we don't define some copromotion to the nth degree, there will be arguments later," Berlow says. Yet the result is a document so impenetrable that when earlier this year Jupiter Communications' Michele Slack started asking people about their AOL portal deals, she discovered that a sizable number of those she spoke with confessed they didn't quite understand the knotty details of the agreement they had signed. (Slack is quick to point out she heard the same from people who inked deals with Yahoo and MSN.) Like earlier stages, the contract phase can be in turns exhausting and exasperating. The lawyer who advises his clients to storm out tells of a protracted fight he had over a poison pill AOL tried inserting in a contract to prevent a company from being bought by any rival portal. "You'll argue the point off and on for two weeks, and finally they'll give in, they'll say, 'OK, we'll delete it The problem is, they've put the same provision in the contract five different times. So you'll fight the same fight when you get to the second mention, the third, the fourth." And the fifth and final mention? "That's when the fighting really starts," he says. IN AUGUST, MYER BERLOW was in Manhattan to speak at an industry conference on online advertising. He stepped onto the stage unshaven and dressed in a suit sans tie. His hair slicked back and his shirt unbuttoned to mid-chest, he opened by cracking that this was supposed to be a panel discussion, "but nobody would sit up here" with him except a moderator. The moderator began by asking Berlow about AOL's reputation as a bully. "My colleague," the moderator said, "this morning referred to you as an 800-pound gorilla." Berlow responded, "I've lost a lot of weight." Twice more the moderator pushed the point, twice more Berlow responded with the same weight-loss crack. And so it went for 45 minutes. Even questions he answered left a lot to be desired. Consider Berlow's response to the issue currently burning inside the portal world: performance-based contracts on which payments are based on actual customers secured rather than simply impressions. Berlow dismissed the idea as a "desperate model" and then asked, "I wonder whether NBC would like that as a model?" perhaps forgetting for the moment that NBC, unlike AOL, doesn't typically demand a cut of a company's revenues or a piece of equity when inking an advertising deal. "Believe me, we've heard this crap for four years," he told the crowd. Over the phone several weeks later, Berlow was more diplomatic, casting AOL as a kind and gentle company that places the highest premium on forging lasting partnerships. "It's never been about dealmaking with us," he says softly, "it's always been about

partnerships?' He takes offense at the notion that negotiating with AOL can be a brutal experience. "My goal is somebody who makes the partnership nice." Any ex-AOLer offering a contrarian view to his own is a "disgruntled employee" or someone "obviously low down in the organization" and therefore uninformed. "You need to remember that there are two sides to every story. And who is telling the story is critically important." Tales of AOL playing rough are "pure myth" and comparisons to Microsoft so out of line with the company Berlow knows and loves that the mere mention of the Redmond, Wash., software giant renders him temporarily speechless. "That really hurts to hear you say THAT," he finally says. "We're never as good as people say we are, and we re never as bad as people say." Colburn also stresses the importance of being a good partner. "We really go through great pains so that a partner feels good about the process;" he says. "At the end of the day - and Microsoft has clearly learned this - if the people on the other side do not feel like partners, it's going to impact your ability to do business going forward. There's no mileage in creating some kind of hard-ass reputation. To the extent people feel I've been that in the past, then those are circumstances that need to be rectified." And what about the complaints about his team's treatment of less-established companies? "Across 2,000 transactions a year," he says, "you're going to have a variety of views about the process. Berlow acknowledges that abuses have occurred, but he stresses they're the rare exceptions to the rule and something be and Colburn crack down on immediately. By way of example he mentions the many times a company arrived in Dulles believing they were about to ink a deal, only to learn of new provisions that had never been broached despite months of negotiations. "That would be a misstep by my people;" Berlow says. "A salesperson would forget - and I'm using the word 'forget' in quotes - they would forget to say to a partner, 'Now, you understand you can't put an ad for a competitor right on the first page people see.' But I want to stress this wasn't a widespread problem?' Likewise, Berlow downplays the frequency of AOL staffers taking stock from portal partners that had gone public. That, says Berlow, is something on which AOL put the kibosh "as soon as it became obvious it was a problem?' THE DEALMAKING MACHINE has clearly worked for AOL, which in three years has gone from paying partners for content to collecting more than $1 billion in annual revenue from a wide range of content and e-commerce companies. It's also worked for a long list of dotcoms; executives at RedEnvelope and AmericanGreetings.com are among those reporting positive results from their portal deals. However, it hasn't worked so well for many AOL partners that have paid big premiums for disappointing returns, a point that Berlow half-heartedly acknowledges. When presented with a list of a half-dozen deals ex-AOLers consider high-priced busts, he defends only one deal: the $50 million that Unilever paid to promote its wide range of consumer products. "That's truly moronic for someone to say that [the Unilever deal was unsuccessful]," Berlow says, but then confirms the deal has been a problematic one. "They've made real substantial progress along the path of interactive marketing.... We've worked our asses off, as they have, to develop this business." Ultimately, AOL's deal machine wants success to be its best defense. Deals are still being struck with the dot-coms that three years ago were alone in buying AOL's portal pitch. But the new company mantra is that AOL is a major-league player deserving to be associated with the world's biggest brands, on par with a TV network. The new AOL partners are big names like Citibank and Target, brands that may lack Internet cachet but enjoy plenty of national reach. In the AOL way of thinking, this is a good measure of success, but it's not the only one that would satisfy David Colburn. "We know we're successful if you're not writing articles about us," Colburn says. "So obviously, the fact that you are means we have work to do to change the view out there." COPYRIGHT 2000 Standard Media International COPYRIGHT 2000 Gale Group

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