The Fevered Rise of America Online

Jeff Goodell. Rolling Stone. Issue 744,  October 1996.

August 7 was not a good day for Steve Case, the smooth-talking, teddy-bear chairman and CEO of America Online. He tried to log on at 7 am. from his house in McLean, Va, as he does every day, to check his email. Just as it had for tens of thousands of others who were trying to do the same thing, a message popped up on Cases computer screen: Goodbye from America Online The system is temporarily unavailable. Please try again in 45 minutes AOL is down for maintenance in the few hours once every week or two, but this was different—and worrisome. Case made some calls and discovered that AOL’s crisis team was already in full swing—it hoped to have the network up and running in a few hours.

Case jumped into his 5-year-old Infiniti J30 and sped to AOL’s technical center, in nearby Reston, Va., where, coincidentally, he had a technology-and-operations review scheduled. He met briefly with Mike Connors, AOL’s technical chief, the system had been taken down for routine maintenance, Connors told him, but when the engineers tried to bring it back up, something had gone awry in the software that routes the thousands of calls in and out of AOL’s central computers. It was not going to be a quick fix After watching the geeks sweat for an hour or so—”It was like a scene out of the control room in the movie Apollo B,” Case says—he returned to his office and took calls from Wall Street analysts and the press. Case watched the hours tick by. The system didn’t come up until 10:45 p.m. by that time he was back home in McLean. All in all, nearly 19 hours of downtime, by far the worst system failure in AOL’s history.

The next day, AOL’s collapse was covered in the New York Times, on the network news and CNN, and by CNBC and MSNBC—everyone was talking about it. AOL Services Co. president Ted Leonsis happened to be on vacation in Positano, Italy, gloriously beyond the reach of phones and e-mail. He got the news when he glanced over at a newspaper someone was reading in a cafe—there it was! Amazing. Two years ago, most people had never heard of AOL. Now a glitch in the system is world news.

Even before the crash, it had been an up-and-down year for Case’s fast-growing company. Last January, he brought in Bill Razzouk, a well-regarded executive from Federal Express, as the company’s first chief operating officer. Less than six months later, Razzouk was gone, offering the not-too-credible excuse that his family didn’t want to move to Northern Virginia. Then there were the class action suits charging that AOL overbilled its customers—the suits were settled out of court, but they made the company look like it had been working a hustle The media started to pile on, once again raising the age-old question of whether a proprietary service like AOL can survive in a world liberated by the open standards of the World Wide Web. During June and July, as Wall Streets lust for technology companies cooled down, AOL’s stock fell from its $71-per-share high in early May to a low of $24.50 in late-July. “Shareholders were practically storming the gates,” one Wall Street analyst says, only half-joking Still, it could have been worse. At least AOL wasn’t singled out as a threat to the moral fabric of America, a haven for perverts of every stripe.

Down in AOL’s corporate headquarters, in Vienna, Va., people walk around like they’re holding their breath As the online company moves more and more into the public eye, another in a long line of media-hungry, family values, flag-waving, William-Bennett wanna-be’s is going to sign on and start exploring And he’s going to see all the happy faces on the People Connection button, the gateway to AOL’s chat rooms, and he’s going to click it. He’s going to end up in a room like the one called Female Will Do Anything. And this is what he’s going to find.

USER ONE: Hmm, make me nasty.

USER Two: Spreading your legs that are hanging over the table.

USER ONE: Opening up wider.

USER Two: And running my hands up and down the insides of your thighs.

USER ONE: Oh, I like that.

USER ONE: YOU make me wet.

USER TWO: Lightly blowing on your spread legs.

USER ONE: My nipples are getting hard.

USER ONE: They love to be pinched.

USER TWO: Reaching up to give those nipples a tweaks And then he’s going to blink, maybe not believe what he’s reading, maybe think, “These two people are talking in public, right out here in front of everyone, where even a child could read it, in a chat room on America Online.” Just to be sure, he’ll read a little more.

USER ONE: Turning over, scampering to my knees.

USER ONE: Wiggling my ass.

USER Two: Running my hands over your fine ass.

USER ONE: Tits swinging back and forth and then … well, you know what’s gonna happen. The crusades will begin.

Officially, AOL is an online service for the entire family. Some 6.2 million subscribers around the world sample an astonishing variety of material at the click of a mouse, from the New York Times to interactive comics like Zombie Detective, from sites like Christianity Online to the Saturday Night Live humor of the Hub and, soon, Rolling Stone. AOL wants to be the Disney of interactive media, a haven from the noise and danger of the Internet, the place where even those Americans who can’t program their VCRs can get online every day to check their e-mail or stock quotes, where they can access a Web page without having to have a degree from MIT.

For the moment, it seems to be working AOL’s revenues topped $1 billion for fiscal 1996. This summer and fall, the company will spend $240 million to $300 million on advertising (about twice as much as Clinton and Dole will spend during the presidential campaign) that will try to establish AOL as the brand name of cyberspace. By the end of next year, AOL hopes to have 10 million subscribers.

Unofficially, however, AOL has a tiger by the tail Beneath the happy faces, the easy-to-use interface and the dramatic Wall Street roller-coaster ride, there’s quite a cocktail party going on. The AOL chat rooms—“The mother ship of our revenues,” according to David Gang, vice president of product marketing—are delivering, among other things, a smorgasbord of sensual delights to middle-class America There are rooms for bondage, men for men, women for women, submissive men, lonely wives, married and cheating, hot and lonely … and on and on.

This is not what is generally described as cyberporn. And despite the stereotypes we’ve been fed by the pornography-phobic mainstream media, these chat rooms are not populated by sticky-fingered sociopaths or 14-year-old buttheads looking to get their rocks off (although there’s never any lack of rampaging buttheads on AOL), but with a broad cross section of regular folk—students, mothers, doctors, investment bankers, social workers, you name it. Under cover of anonymity, and in the comfort of their homes, they’re exploring things they would never discuss in “real life”: A man with a long-buried desire to wear women’s underwear confesses to like-minded men; a lonely divorcee in Ohio flirts for the first time with another woman; high-school kids struggle with how to tell their parents they are gay.

It’s not just happening on AOL, of course—it’s happening all over the Net. And it’s nothing new—people have been talking openly about sex in cyberspace since modems began to fornicate in the 1970s. The medium is evolving, on its way to a mainstream status like telephone communication. Much to AOL’s public chagrin, but to its private delight, it is hosting the swinger’s lounge of Middle America, the place where Nike-wearing, Chevy-driving, Pepsi-guzzling adventurers are redefining their sexual selves in open revolt against the repressive climate of our times. It’s America flipping a digital finger at the politically correct blowhards who have tried to bowdlerize expression of the most basic of human impulses. It’s America, online.

It’s a little spooky at the top of AOL. Steve Case’s new office is on the fifth floor of a glassy new building on 113 acres of Virginia farmland just outside of Washington, D.C. The building is still under construction, so the CEO and a small staff are about the only people who have moved into this huge, echoing empty space. Case’s windows look out over miles of undulating pine-covered hills and open fields that were once soaked with Civil War blood His office has the quiet hush of corporate power—unnameable but appropriately modern art on the wall above the couch, the phone softly beeping, a desk free of clutter, his assistant moving stealthily in the background. On his desk are two computers, a Mac and a PC. “I’m cross-platform,” he quips.

Last year, Case caused a minor stir in cyberculture when he was photographed in his khakis by Richard Avedon for a Gap ad. Nothing has changed. This afternoon, Case looks like he just walked out of a window display at the mall: khakis, red-blue plaid short-sleeved shirt, tan Rockports, a modest, just-above-the-ears haircut that wouldn’t challenge Supercuts He has a cool, unflappable manner that reminds me, for some reason, of an airline pilot: This is a guy who wants to get from point A to point B as quickly and as smoothly as possible. And he will do whatever it takes to keep the plane in the air.

“Our mission in life is to build an interactive medium that can touch the lives of tens of millions of people,” Case says unequivocally, moving over to a glossy wooden conference table. ‘I think we have a pretty good track record. In the last two years, we’ve gone from 1 million to 6 million customers—that’s 5 million people in 24 months. We’ve added more customers in the last two years than the top newspapers—the Wall Street Journal, USA Today, the New York Times, in aggregate—have added over the last 100 years.” Then he stretches his arms comfortably behind his head, too modest to swagger. “So there is something interesting going on here,” he says.

The dangerous illusion here, however, is that up in the cockpit, Case has command over what goes on back in coach. He doesn’t. Case understands better than anyone that he’s in the business of providing tools that allow people to come together over time and space, and exchange ideas—”Empowering them to be information providers,” as he puts it. And when you strip away all the packaging, that’s exactly the core of AOL’s business: two people—or 20—in an electronic space together, saying interesting things to each other, each paying AOL by the hour for the privilege. In this sense, the business hasn’t changed much in the 20 or so years that online services have been around. Unlike the Internet, which was inspired by the Defense Department’s need to communicate in the event of a j nuclear war, online services are a grass-roots phenomenon, a direct outgrowth of the PC revolution of the late 1970s Thousands of bulletin-board systems sprang up in living rooms and garages around the country. It was a dark, faceless, unpoliced new medium, conducive to all manner of illicit communication.

The Source was the first online service to capitalize on this development Launched (coincidentally enough) in suburban Virginia in 1979, one of its most popular features was a primitive form of chat known as Para. Here the art of hot chat was really born—and its business potential revealed. “All media, if they are to get a jump-start in the market and become successful, must address themselves to ! mass drives—those things we hold in common as basic human needs,” wrote a veteran of the Source, Gerard van der Leun, in the premiere issue of Wired ‘But of all these, food, shelter, sex and money, sex is the one drive that can elicit immediate consumer response.”

This lesson was not lost on Steve Case, who, in his mid-20s, was a regular in the Source chat rooms and on the message boards. During the early 1980s, Case was about as far away from the center of the action as you could get: He was the manager of new pizza development for Pizza Hut. He spent months traveling around the country, eating slice after slice of pizza in search of new toppings. It was a step up from his earlier job at Procter & Gamble, where he developed marketing strategies for, among other things, a hair-conditioning towelette called Abound (the slogan: “Towelette? You bet!”).

Case, however, was miserable. “Managing a mature business is not my thing” he has said. He grew up in a solidly middle class family in Hawaii—Dad is a corporate lawyer; Steve’s elder brother is now an investment banker, his elder sister is a teacher like her mom; his younger brother is an insurance executive. In family photos, Case wears a cheerful, well-adjusted, happy family look with just enough of a bad-boy edge to hint at his rebellious streak He wrote rock-album reviews for his high-school newspaper, played basketball and bodysurfed on the big island. He went off to college at Williams in the cold.

Northeast, where he majored in political science and sang in two longforgotten local garage bands, the Vans, a knockoff of the Cars, and a group that was a knockoff of the Knack.

While he was on the road for Pizza Hut, Case bought himself a Kaypro computer, which he would sometimes lug around with him from hotel room to hotel room. Late at night, he’d log onto the Source and chat with people around the country. “It was very hard to use, and it was kind of boring and not very useful, and not very fun, but nevertheless there was something magical about the fact that I was sitting at my desk and could access information and talk to people all over the world,” he says. “It struck me that if you could make it more useful more fun and more affordable, it could be a mainstream phenomenon.”

The experience changed his life. In 1983, Case quit Pizza Hut and took a job as a marketing assistant at a small company called Control Video, which was developing a service that would allow Atari computer users to play games with each other via modems. Almost immediately, the company disintegrated. It was reborn in 1985 as Quantum Computer Services Inc, a crude but ambitious online service for owners of Commodore computers, and Case quickly became the understudy to Jim Kimsey, Quantum’s CEO. The initial press release promised that Q-Link, as the service was called, would be “useful, affordable, easy to access and entertaining.”

In retrospect, it seems obvious that computers are communication tools as much as processing engines. At the time, it was far from clear. Case’s essential insight—that this was a new and powerful medium, uncontrollable and uncensorable, anonymous and intimate, and that someday millions of people would be connecting to one another this way, sharing stories of their weekends at their mothers-in-laws’, trading stock tips, cruising for dates, spilling out their deepest fantasies—required a leap of imagination that’s hard to grasp today.

But Case was not the only one dreaming of an online empire.

Initially, a company called Prodigy seemed to have it in the bag. A joint venture of Sears, the largest retailer in America; IBM, the largest computer manufacturer in the world and CBS. the to-rated US. network, Prodigy was the new-media dream team. Within a month after Prodigy’s nationwide launch in September 1990 (the service had been available in some areas since 1988), it had grabbed 500,000 new accounts, nearly as many as the nerd-heavy CompuServe, then the world’s largest online service. CompuServe had started in 1969 as a time-sharing service for mainframe computer users and still appealed mainly to wireheads (CompuServe had acquired the Source in 1989, after it had dwindled down to only 53,000 subscribers).

But Prodigy’s button-down, no-ranting, no-fun, family values corporate management turned out to be a disaster in the free-flowing, libertarian world of cyberspace. Prodigy was interested in force-feeding data, not letting people roam. In December 1989, Prodigy closed down the Health Spa area after it became a battleground for gay-rights activists and Christian fundamentalists. Less than two years later, the company sparked a minor rebellion after it started charging subscribers when they sent more than 30 e-mails a month.

In contrast, Quantum understood what interactivity was all about Engineers built simple, easy-to-clone public chat rooms, then added private rooms and weren’t prudish about what went on in them. They encouraged users to e-mail one another. The company also had a kind of brashness that suited the go-go culture of Silicon Valley in the late ‘80s. In an effort to get Apple Computer to partner in an online service targeted at Mac users, Case virtually camped at Apple’s offices for months until he secured a deal “I wore them down,” he has said.

In 1991, as Quantum continued to push for the mainstream, Case and others decided the company needed to change its name to something less forbidding and technical. After much debate, they settled on America Online, which is wonderful in its symbolism: broad, bland, meaningless yet descriptive. “It’s a name that both Abbie Hoffman and Jerry Falwell could feel good about,” says Kathy Ryan, one of the earliest employees at AOL and now head of its production studio. AOL went public at $11.50 a share in 1992, raising $66 million in its initial offering, one year later, Case became CEO.

AOL was a tough sell on Wall Street. “I tried to explain what they were doing,” says Mark Stahlman, a financial analyst who helped to take AOL public and who is now the president of New Media Associates. “No one on Wall Street could comprehend it.”

By the end of 1992, Prodigy had signed up 12 million users, more than five times the number at AOL. But things started to look up for the underdog when Microsoft co-founder and free-floating billionaire Paul Allen took an interest in the company. In 1993, he increased his stake in AOL from 13.5 percent to 24.9 percent, and later tried to buy it outright. AOL resisted, adopting a poisonpill defense to keep Allen away and denying him a seat on the board. Allen’s maneuverings, however, generated heat around AOL, and investors began to take notice. The stock price began to soar.

In January 1993, AOL introduced a friendly, simple-to-use Windows version of its software, just months after Microsoft rolled out a new, improved version of its hugely popular operating system. AOL caught the Microsoft express, and within the next 12 months, the online company added 330,000 subscribers—more than in the previous eight years combined. At the same time, Prodigy, caught flat-footed with clunky, old software, lost more than 100,000 users.

In 1994, the rush continued. AOL added 1 million more new members. So many, in fact, that the network couldn’t handle them all. The system caused endless crashes and traffic jams, which led to many pissed-off users. The days of camping out in the lobby of Apple were over. The company now threatened to sink under the weight of its own success.

In early 1995, at about the time AOL was getting its overload problems sorted out, a friend suggested to Denise (not her real name), a fifth- and sixth-grade teacher in Southern California, that she join AOL “You ought to try it,” her friend said in an of handed way. “You wouldn’t believe all the wild stuff that’s going on there.

Sure, Denise thought She’d been on Prodigy before and had found it boring She’s 36, with clear blue eyes and dimples in her cheeks when she smiles and a soft purr in her voice She lives in a dean, fly place where you can just glimpse the ocean from her windows The public school where she teaches is in a rough pocket in a city known for its prosperity Many of her students are from poor families with drug and alcohol problems. By all accounts, Denise is an extraordinarily devoted teacher—she often takes her students to the beach, to baseball games, to the ballet. It’s hard work, the pay sucks, but she finds other rewards. “I feel like rm making a difference,” she says. Denise decided to take her friend’s advice and try AOL. As soon as she slipped the disk into her tired old Macintosh LC, she realized AOL was different. It was easier to use, more alive, more human. She found her way into chat rooms and discovered that a lot of people were talking about sex. In fact, they seemed to be having sex right there on the computer screen. They were telling each other stories, playing out fantasies—”I take your balls into my mouth and suck …”

Denise was stunned. “I was the kind of person who couldn’t even walk into a video store and rent an X-rated movie without feeling like a pervert,” she says. Twelve years in Catholic schools had left her with tangled and complex feelings about her sexuality. As a kid, she was such a good girl that she had to invent sins when she went to the confessional, lest the priest think she was keeping something from him. She had been a virgin until she was 21. For the last six years, she had been so busy with her work that she hardly had time to think about sex, much less do it.

And now … her friend was right—it was wild! She was captivated Maybe it was because she was in her mid-30s and feeling a little squeezed in the narrow confines of her life Or maybe it was because, in this faceless, anonymous environment, she didn’t have to be self-conscious about her looks or her hair or what she was wearing or how long she could hold a guy’s eye. What mattered was what was inside: imagination, wit, creativity. And typing speed.

AOL became an illicit pleasure for her. She began signing on under the screen name PromisQss and prompting men to tell her about their sex lives. She noticed that the men whom she met online were more articulate; they were used to verbalizing their thoughts. She experimented with cybersex—talking with a stranger in real time, one on one, in a private room, stoking each other to orgasm One night she met a couple online who were looking for a woman to form an online threesome.

… Well, why not?

“I felt a reawakening of my sexual being,” she says quietly but confidently. “I began to explore fantasies I didn’t even know existed.” In private chat rooms, she discovered she was intrigued by bondage something she’d never tried but had always been fascinated with.

Before long, she did something that a few months earlier would have been unimaginable—she agreed to meet a man she had talked with on AOL. It turned out to be more like an interview than a date. They sat in a restaurant and talked openly for several hours about what kind of sex they liked and what kind they didn’t. She then made a date with him. A few days later, they ended up at his house, where he tied her to the bed and spanked her.

“And that,” she says in her teacher’s voice, “was the beginning of my new life.” “AOL is a big, big place,” says Ted Leonsis, AOL’s programming guru, a big, happy, roly-poly guy with paleblue devil’s eyes that give him the look of a man who could charm a snake out of a tree. “My job is to make sure there’s something out there for everyone.” Leonsis is still marooned back in the charmless old AOL offices in Vienna, his tinted windows overlooking AOL’s parking lot, his walls covered with Elvis kitsch like a dancing-pelvis dock—gifts from colleagues who assume he has a fond feeling for the King (he doesn’t) just because of a shared birthday.

Leonsis is the symbol of the new age at AOL. In a little more than two years, he has pushed the company to think of itself less as a publisher of static data—like online newspapers and magazines—and more as a programmer of live entertainment. He reshaped the chaotic mess of information on AOL into “channels,” just like on TV. He talks about stars and shows and ratings. He’s determined to yank AOL out of the technological ghetto and lead the invasion of the couch potatoes. “AOL’s real competition now is Seinfeld, not the Web,” says Leonsis, repeating what has become almost a mantra at AOL these days.

Leonsis grew up in Lowell, Mass, in a working-class family. His father, born in Greece, worked most of his life in a restaurant After high school, Leonsis went off to Georgetown—the first in his family to go to college—where he majored in American studies During his senior year, he stumbled into computers and soon found himself putting off the idea of law school and instead started a software buyers’ guide called List, which he later sold for a nice profit He then co-founded Redgate Communications, an early and much-respected multimedia company, one of the first to explore CD-ROMs as a medium for things like interactive shopping.

In 1994, Case called up Leonsis and suggested that they have breakfast together. Case knew AOL needed to grow beyond chat rooms and e-mail, that to really go after the mainstream, AOL needed sophisticated programming. “The meeting was classic Steve Case,” Leonsis recalls. “We sat down for breakfast, and before I even finished my first cup of coffee, Steve just announces, ‘We should merge our companies.’ I was kinda startled and said ‘Well, shouldn’t we kiss first?’“

Leonsis arrived at AOL at a critical time. By late 1994, the company counted well over 1 million members and was sneaking up on its early competitors, Prodigy and CompuServe. But now a far more menacing threat loomed on the horizon: Bill Gates Microsoft. The software colossus was ramping up the Microsoft Network, striking terror in the hearts of many at AOL. Then Leonsis came along and breathed fire into the cowering crew. At a companywide meeting in a nearby hotel, Leonsis used a remark published in Wired, which suggested that AOL was a dinosaur from another era, as a rallying point for the company. He had had an 8-foot-high wooden Tyrannosaurus rex built, and at the meeting, he insisted that everyone autograph it. It became a symbol of the company’s vow to prove Wired wrong and to fight to the bloody end against Microsoft.

One of Leonsis’ first moves was to start a group within the company called the AOL Greenhouse. It was a simple but brilliant innovation: start an inhouse venture-capital firm, giving advice and money to outsiders who want to create original programming on AOL. It was inspired by the success of the Motley Fool, which began when a couple of scruffy kids named David and Tom Gardner pitched Leonsis their idea of developing a site on AOL targeted at small investors The Fool would be witty, highly opinionated and informed by the basic assumption that most of the traditional financial advisers are either corrupt or unwise. Leonsis gave the pair the go-ahead, and before long, the Fool was one of the most popular sites on AOL, and the Gardners were on their way to becoming the bad boys of the investment community.

For AOL, the lesson was obvious: Distinctive, original, offbeat programming sells tickets.

Just as AOL’s holy war against Microsoft started to take off, a funny thing happened: The World Wide Web exploded in the public consciousness. The Web became the place to be, the platform of the future, the hip lens on the millennium. Tremors were felt throughout the computer industry. No one wanted to be left behind. Microsoft, after a year or so of uncharacteristic paralysis, shifted its strategy and (literally) set its sites on the Web.

For AOL, the Web has been a blessing and a damnation. On the one hand, it has pushed many people to finally get online and see what all the fuss is about It has also made for some strange corporate bedfellows. Last winter, in a stunning deal that had tongues in cyberspace wagging, AOL announced an agreement with Netscape to make Netscape’s Navigator AOL’s browser of choice—only to turn around the next day and announce that, no, Microsoft’s Internet Explorer would be the browser bundled in AOL’s latest software (Netscape is available as an option). In return, Microsoft agreed to bundle AOL software with the Windows 95 operating system—giving AOL access to millions of potential users.

But at the same time, the Web undermines AOL’s business model in a profound way. Everyone from local Internet providers to MCI and AT&T is now offering unlimited access for a flat rate of $19.95 a month, deeply undercutting AOL’s per-hour pricing structure. Medium-duty users who pay $50, $60, $70, $100 a month or more for AOL (it doesn’t take much to run up the bill that high) are going to be mighty tempted to switch. For AOL, it’s a race against the dock. The Web is not ready for prime time—it’s too hard to connect with, too slow even on a 28.8Kbps modem, too much of a time waster. For the moment, AOL has the consumer market more or less to itself and the company knows it “We’re in land-grab mode,” Leonsis says.

In fact, the Web has forced AOL to completely recast itself. In 1995, it bought Global Network Navigator, a consumer-oriented Internet provider, as well as WebCrawler, an Internet search engine. Like any publisher, AOL needs to grow as big as it can as fast as it can to gain critical mass, which will then allow it to reap more revenues from advertising and transaction fees. That, in turn, will make the company less dependent on subscriber revenues, which are expected to plummet once the Web gets rolling.

In this new battle, AOL’s greatest strength—as well as, some would argue, its greatest flaw—is its lack of ideology Leonsis, a devout populist, insists AOL will mutate into whatever its customers want. “We have no underlying beliefs here,” he announces in a declaration that would be anathema to much of the fiercely idealistic West Coast digerati “We go to where our customers are best served.”

But shifting into land-grab mode is not without risks. One of the most dangerous is member turnover—or “churn,” as the online industry calls it. One of AOL’s biggest problems is that many people sign onto the service for a month or two, poke around a little, find nothing compelling or become confused by the windows that keep popping up, or get pissed off because they can’t sign on on Saturday night because the AOL network is overloaded. So they cancel their memberships. Instead of having a steady base of subscribers, AOL is forced to constantly spam the world with introductory software, looking for new eyeballs to replace the old ones. It’s expensive, time-consuming and gives America Online a base that critics say resembles quicksand.

Which brings us back to sex, the killer app for every new form of communication since our Paleolithic ancestors scrawled a penis and a set of breasts on the wall of a cave. AOL has exploited sex better than most digital enterprises, but now, as the company strides toward its place in Middle America, you’ll find sex is not even a subject for polite inquiry. “It’s inappropriate to suggest that sexual discussion represents our mainstream audience,” Case says. “The majority of our users don’t use AOL for that purpose.”

But to say that sex is just an incidental part of AOL’s business—the equivalent of a juke joint on the wrong side of a town’s railroad tracks—is not accurate, either. More accurately, sex is the bedrock, the foundation of the city and the profit center that has allowed AOL to finance other programming. AOL’s usage records demonstrate this During May 1996, there were a total of 26,377,881 hours of connect time. Of that, 26 percent of the total—6,950,171 hours came from chat. To put that in context, the entire personal-finance area, one of AOL’s most popular, stuffed with everything from mutual-fund sites to stock reviews to the Motley Fool, is credited with only 1,321,056 hours. Sports counted for 453,039 hours. Health amassed 119,977 hours. And during the previous month (the most recent one that figures were available for at press time), AOL’s flagship newspaper site, @times, which is the New York Times’ home on AOL and which gets heavily promoted on the opening screen, drew only 72,642 hours. That same month, MTV Online, the most popular site on the entertainment channel, logged a total of 110,945 hours.

Clearly, chat is huge. Of those 7 million hours, how much was devoted to sex—however it’s defined—is impossible to estimate. “It’s probably less than half,” Case says. Based on my three years on AOL, as well as several months of intensive chat-room hopping for this article, I’d estimate it’s closer to 80 percent. Just scroll down the chat-room list on a Saturday night: M4mSubMJcok4OlderM, SheMales4Males, Submissive Female, BuxomBiF4BuxomBiF, Beginners Dungeon, Str8guysforgays. And the list goes on and on. On a busy night, there are sometimes 8,000 public and private chat rooms humming at the same time.

Now, just for fun, let’s do some math. AOL has a double rate-billing structure: Infrequent users pay $9.95 for five hours of usage a month, with each hour after that billed at $2.95. Heavier users pay $19.95 for 20 hours, with extra hours at $2.95. Using Case’s conservative estimate that about 50 percent of the total chat hours have to do with sex, and using a billing average of $2 an hour … that’s a monthly intake of roughly $7 million from hot chat alone. To put that in perspective, consider this: AOL’s advertising revenue for the entire 1996 fiscal year was just under $5 million. Hot chat indeed.

So why is AOL so darn shy about promoting its most valuable asset?

In part because of its corporate culture—”We’re in Virginia, after all,” sniffs one newly arrived AOL executive. This is where the Bible Belt meets the Beltway, the land of the Christian Coalition, the CIA and Oliver North, a starched-collar, cover-your-navel crowd that’s very different from the unself-conscious weirdness of Silicon Valley.

“This is a company that has made more than 250 millionaires,” Leonsis boasts. You’d never know it by looking at the parking lot. Except for Leonsis, who drives a Jaguar, the lot is stocked with Hondas, Neons and Jeep Cherokees. But it’s more than just Virginia modesty that keeps AOL in check It’s also business reality. The biggest danger to AOL’s survival is not a price war with the phone companies or the all-devouring appetite of Bill Gates, but the very real risk of being stigmatized as a purveyor of porn and moral decline. Or, at the other extreme, making the mistake that the mortally wounded Prodigy made, which was to turn schoolmarmish and send customers fleeing for wilder worlds (of which there are plenty on the Net). It’s a tricky balance, one that leaves AOL on a thin wire above legal and cultural tar pits. “Most of America’s anxiety about sexuality and pornography is really about power,” says Walter Kendrick, a professor at Fordham University and the author of The Secret Museum: Pornography in Modern Culture. “It is ultimately political, in the broadest sense. There’s a certain sector of America—mostly adult men—who are terrified by the unbridled expression of sexual energy. They believe that if this energy gets loose, the whole civilized world will come tumbling down.”

As Kendrick points out, the same ideas that are associated with pornography broken boundaries, chaos, confusion of roles—also surround the Net. Mainstream media, the religious right and antiporn feminists have done their best to ignore the scientific beginnings of the Net and the millions of people who use it to trade everything from gossip to financial data, and instead have stigmatized it as a haven for pornographers who are a danger to children.

The most transparent—and the most threatening—effort to close down new media was the Communications Decency Act, which was signed into law earlier this year and which attempted to ban “indecency” on the Net “The supporters of this kind of censorship say that what they’re doing is just to protect kids,” says Daniel Weitzner, deputy director of the Center for Democracy and Technology. “But, in fact, they’re trying to eliminate sex from our culture altogether.” With the help of a coalition of organizations, from the Electronic Frontier Foundation to the ACLU to AOL, the CDA was overturned in two recent court decisions (it will come up before the Supreme Court early next year).

AOL dodged a bullet. The CDA could have left the company open to lawsuits as a result of among other things, every sexually explicit picture that is e-mailed on its system. “They would have had to assemble an entirely new business model,” says Mike Godwin, a legal counsel for the Electronic Frontier Foundation. “[The CDA] would have stopped them in their tracks.”

In this moral hall of mirrors, it’s no wonder that new-media companies like AOL try to cast themselves as wholesome family entertainment. Without really asking for it, they’ve found themselves smack in the middle of the culture wars. And that’s not a comfortable place to be. “Americans are nowhere near ready to ask the tough questions about [these issues],” media critic Jon Katz writes in I his forthcoming book, Virtuous Reality. “Why are we willing to tolerate so much violence in our culture but unwilling to put up with any sexuality? How can we move past this fruitless and bitter struggle to drive sexuality away from public consciousness even as our collective appetites for it seems to do nothing but grow?”

AOL’s uneasy Relationship with sexuality can produce amusing moments, as best-selling author Clive Barker is about to find out. He drops by AOL’s headquarters one night to push his new novel, Sacrament, online and seems amazed at all the gizmos and technology in the hallways. “I hope I get out of here alive,” he quips as he enters the production room for AOL Live!, where he will participate in a real-time chat with several hundred AOL members around the country. Although Barker has never been online before, he is under the impression that this is an anything-goes kinda place—he’s pumped up, sipping on a Samuel Adams, ready to chatter.

One of the things Barker doesn’t understand is that, unlike television, which is a strictly top-down medium, the Net and AOL are inherently uncensorable. You can block certain things, you can try your best, but the walls are porous there is no “center,” no control room. But that doesn’t mean this is a wideopen range. Like most fairly civilized outposts in cyberspace, AOL does its best to keep out the riffraff, to wash the Nazi graffiti off the walls and lock the child molesters out of teen chat. It divides chat rooms into three segments: public rooms, open to all; member rooms, which are created by members themselves and where much of the fun stuff goes on; and private rooms, which can only be found if you know the room name and where things really get down and dirty (try Cum or Gangbang).

In theory, all members must abide by AOL’s terms-of-service agreement, which is the online penal code, laying down the law on subjects from swearing to trading nasty pictures to hacking. “Guides,” users contracted by AOL to help maintain civility, randomly cruise public chat rooms. The company has also installed a variety of parental controls, which allow parents to block kids from entire regions of the service. “It’s the V-chip on steroids,” Case says. “We believe that instead of trying to censor the medium ourselves, we’ll give the users the power to make those decisions for themselves.”

Sometimes the lines get a little blurred, however. Barker takes a seat next to a computer and, after a brief intro, begins answering the first question that pops up on the screen. He isn’t two sentences into it when the word bullshit pops out of his mouth.

“You can’t say that!” says the alarmed AOL producer who is typing Barker’s answers in for him.

Barker looks confused, “Can’t say what?” he asks.

“You can’t say bullshit.”

“You’re kidding.” Barker looks incredulous. “Will Bob Dole come and get us?”

“We have to have some ground rules about this,” Beth Gonzales, an executive producer, says with authority. “We’re a family service.”

Barker chuckles, swigs his Sam Adams. The look on his face says, “Holy fuck, who are these people?”

The questions continue. Barker is asked how he came up with the idea for the movie Candyman, which was based on one of his best-known and most-disturbing tales. He talks about how his grandmother told him stories when he was a kid: “One of them concerned a supernatural figure who would sneak into public toilets and cut the dick.”

Barker stops. “Can you say dick?” he asks. “No.”

Barker smiles, shakes his head. His look says, “This so ridiculous, it’s amusing.” “How about penis?” “No.”

Barker looks around the room People are giggling now—the absurdity of the whole enterprise is beginning to dawn on all of them.

“How about wee willy?” asks Barker. “Can I say wee willy?”

The typist looks at Gonzales, who nods. She types it in.

Barker laughs. “I love this!”

There are other tales of censorship woe on AOL. Last year, in a much-publicized screw-up, an AOL censor deleted one woman’s member profile because it contained the word breast. It didn’t matter that the word appeared in a phrase identifying her as a member of a breastcancer-survivors group. The decision was quickly reversed, but it became a PR nightmare for AOL. In another case, the owner of a gay video store signed a oneyear deal to run his video catalog on Downtown AOL, an AOL area for vendors to display their wares AOL rejected close to 3,000 titles that one of its censors said “didn’t reflect the image we would like to project” Among them: A Brothers Desire, Advanced Disrobics, All the Right Stuff The Big Nasty. Among the titles AOL allowed: The Big Drill, Bung Hole Buddies, A Family Affair.

The point here is not that AOL should give up trying to run a civilized service. The problem is that by aggressively selling itself as a family service, it sets up expectations that are virtually impossible to maintain in the taboo-breaking culture of cyberspace. When things go wrong, AOL ends up looking like a hypocritical prude.

Having come so far so quickly—a billion dollar company, more than 6 million users worldwide, shooting for 10 million by next year—AOL has arrived at its Frankenstein moment. It has built a network of machinery that has given millions of people access to new and unfettered forms of expression, allowing them to step through the portal of cyberspace and escape the repressive mores of church and state. Much of this online exploration, for better or worse, concerns sexuality. Even if AOL wanted to, there’s no going back now (“The Net interprets censorship as damage,” John Gilmore, privacy advocate, has said, “and routes around it”). If AOL cracks down, there are plenty of other places in this vast electronic world that people can migrate to.

Case says AOL will not bow to public pressure to sweep the streets clean. “We’re not going to censor this medium down to the lowest common denominator,” he says without missing a beat. “We now have software that lets parents and students block access with a degree of granularity. We can let people choose what they want to see and what they don’t want to see. It’s a balancing act for us. We want tens of millions of users, and we think empowering the individual user is the best solution to all this. There’s no reason that our members should be restricted by Steve Case’s—or anyone else’s—ideas of what is appropriate for them and what is not.”

So AOL finds itself caught in a dilemma unique in the annals of corporate America Can it move on to the bright, happy, Disney-like future it imagines for itself without alienating the swingers? Can sex and civility, those troubled bed mates in the real world, coexist in cyberspace? How AOL handles this issue will not only play a large part in determining whether the company grows into the interactive media powerhouse that Case and Leonsis dream about, but it will also say much about the character of the digital world, about just how deeply its leaders are committed to the ideals of free speech and personal privacy that have always been the granite pillars of this new age. “Sexuality is a part of our lives,” says AOL’s David Gang “A frank discussion of it is a good, healthy thing the public has to understand that. And we have to understand that as a company.”

And when the crusaders rant about how the world is going to hell in a handbasket because of AOL, the best reply may be to point to Denise, who is still teaching fifth and sixth grade. One of the benefits of her time exploring on AOL, besides discovering the pleasures of leather wrist restraints, is that she has become a better teacher—in some subjects, anyway. “Teaching sex ed now is a breeze,” Denise says. “My students always try to embarrass me by asking the crudest questions they can come up with, like, ‘How long is a vagina?’ ‘How big is a dick?’ And I always tell them, ‘You’re not going to embarrass me. It’s just not going to happen.’”