The Renegade Nudging AOL into Broadband

Lisa Hook's unit will take the company down uncharted paths

At the clubby Dulles (Va.) headquarters of America Online Inc. (AOL ), Lisa A. Hook was an outsider. For one thing, she came from Time Warner Inc., which didn't win her lots of friends. And last April, when Hook took over the company's struggling broadband operation, her new job practically put her at war with the heart and soul of AOL, the company's dial-up subscriber business. Traditionalists at Dulles worried that as AOL's 26 million U.S. dial-up subscribers migrated to high-speed connections -- mostly offered by cable or phone companies -- they would probably ditch AOL. Broadband was a threat, and the 45-year-old Hook personified it. "Lisa is like the spy who came in from the cold," says AOL CEO Jonathan F. Miller.

But she quickly pushed an urgent shift in AOL's business. Her goal was to nudge the company away from its roots in providing basic access to the Internet. Instead, AOL would let the public buy broadband access elsewhere, then lure customers to an additional AOL service packed with movie clips, music, and games. But as she and her team raced to build these multimedia offerings, they continued to butt heads with AOL's traditionalists. It was bruising, but necessary, because the future of AOL rested on its broadband success. "She's on the front line," says AOL Time Warner CEO Richard Parsons.

Hook's work debuts on Mar. 31, when the embryonic AOL broadband service will be launched with a splashy $35 million TV marketing campaign promoting the "Worldwide Wow." At $14.95 a month -- and a limited-time promotional $9.95 a month for members -- AOL for Broadband is still very much a work in progress. Fortunately for AOL, key competitors also are groping into the new medium. "Neither AOL nor MSN nor Yahoo has blown anyone away," says analyst David Card at Jupiter Research.

The new broadband service starts out with the usual offerings: film, music, sports, and news clips. AOL's full broadband offering -- and its chances for success -- should start coming into focus in the months ahead. By summer, AOL will roll out more broadband content, including interactive games. And by yearend, the company will introduce broadband services customized for demographic groups, such as teen girls and boys. Competitors are following similar scripts. The winner, say analysts, will be a rich service that's easy to use. That was AOL's winning formula in the '90s.

But AOL's broadband challenge is a delicate affair. As users make their way from dial-up connections to broadband, AOL cannot afford to be left behind. At the same time, a big rush from the dial-up business to broadband could dent AOL earnings. Why? The company keeps the lion's share of the $23.90 per month that it charges its dial-up subscribers. Broadband margins could be lower, say analysts -- unless customers shell out extra for virus protection, music downloads, and interactive video games. And it'll be tough persuading customers to cough up an extra $14.95 a month for AOL's premium service -- when they're already spending $40 per month on average for broadband access. "It's going to be really hard for them to move those customers to a broadband world where they make the same kind of money," says Bob Visse, marketing director at Microsoft Corp.'s MSN, which faces a similar squeeze but can afford it.

Microsoft's (MSFT ) financial edge doesn't faze Hook, who prides herself on resourcefulness. As an exchange student in high school, she stuck it out on a farm in Finland with no central heat or running water. Growing up outside Pittsburgh, she battled with five siblings. "You had to negotiate for everything -- food, clothing, shelter," quips sister Polly. Hook put herself through college and law school working at McDonald's Corp. (MCD ), a garment warehouse, and a tractor factory. And she established herself in the media business, from the legal department at Viacom Inc. (VIA ) to the Federal Communications Commission and Time Warner, by winning hard-fought battles without losing her quick wit. "Lisa has a charming wiliness," says Dennis Patrick, her boss at the FCC and, later, AOL.

She needed every ounce of it last April, when she took over AOL Broadband. The threadbare unit had only eight employees and was buffeted daily by conflicting orders from the top. Under attack from Wall Street, AOL was torn between producing profits and investing in broadband market share.

Quietly, Hook charted a new strategy aimed at unmooring the AOL broadband service from access -- a radical notion to AOL traditionalists. Instead of enlisting AOL's existing programming, technology, and marketing teams to help, she stole staff and budget from the AOL Anywhere division, which she still headed, to build her own team of 80. They invited top execs to visit their war room, an office showcasing radically different broadband behavior from market research on 15 U.S. tech-savvy households, including diary entries about their daily high-speed usage.

By August, Hook's team had produced a dazzling demo of an AOL broadband service of the future, with cinematic, full-screen moving images and surround-sound. When she showed it to small groups of top execs across the company, it stirred up fears. AOL's old guard insisted that the remake would turn off mass-market members who valued a consistent experience. "When we went for the ultimate scary thing -- sound and motion on the Welcome Screen -- it was like the beginning days of movies," she said. "People were scandalized -- 'Oh my God, it's alive."'

Hook got a big boost from the arrival in early August of new AOL CEO Miller, also an outsider, who championed her approach. By December, the company endorsed her strategy. And in January, Miller charged AOL's massive programming, product development, and marketing teams to work on broadband under Hook's leadership.

Now, Hook, who relished her role as an insurgent, has to execute on the vision she sold to her company. It's simply a matter of selling it to everyone else.

By Catherine Yang in Dulles, Va., with Jay Greene in Seattle

    Before it's here, it's on the Bloomberg Terminal.