America Online president quits founder steps back in

Move comes as firm begins changes

June 26, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF Bloomberg Business News contributed to this article.

The president of America Online Inc. has quit after only four-plus months on the job and the founder of the Virginia-based online information provider has stepped back in to manage the fast-growing, oft-teetering company through critical pricing and software changes.

William Razzouk had joined America Online from Federal Express Corp. in late January. He and chief executive Steve Case agreed to part ways just days before Razzouk's family was to move to the Washington area from Tennessee, said Gary Arlen, a Bethesda telecommunications consultant who talked to Case yesterday.

"There was a cultural thing going on; AOL is a very strange and young culture," said Arlen. "Dockers and denim shirt is the AOL uniform. Razzouk was a little like Bob Dole -- give me a shirt and tie, and I'll be comfortable."

America Online said there were no major differences of business philosophy between Razzouk and his boss.

"We are gearing up for a series of major changes," Case told Bloomberg Business News. "It seemed better that I get involved."

Among the changes is the July 1 introduction of flatter-rate pricing -- a plan America Online has turned to in the face of stiff competition from direct Internet access providers, who offer direct connections to the World Wide Web without the proprietary content that distinguishes AOL.

America Online plans to change its basic subscription plan to a $19.95 a month service that pays for up to 20 hours of use per month, compared to $54.20 for 20 hours a month under the current base plan. The basic rate now is $9.95 a month, plus

$2.95 per hour after the first five hours.

The new plan highlights the dispute about America Online that has been raging on Wall Street for months, taking the company's stock from $20 last June to $71 in May and back down to $40 this week.

Critics have insisted that America Online can't maintain its growth rate; the company now has 6 million subscribers. And they have criticized America Online's accounting, claiming that the company inflates current profits by counting advertising and promotion costs as capital investments.

"Those, to me, are more important issues than this one fellow leaving," said Kevin Baker, manager of the John Hancock Special Opportunities Fund, a mutual fund controlled by Boston-based John Hancock Funds, which owned 1.6 million America Online shares as of March 31.

America Online "always had a very lofty [stock price] there, no doubt about that," said Baker, whose fund has been selling America Online shares. "When things are clicking along, people will overlook that. With Netscape breathing down your neck, everything has to be dead on for the stock price to go up."

But one measure of the intensity of the debate over America Online is that, while Baker is selling America Online shares, another Hancock fund is sticking with its position.

"I'm pretty comfortable with the stock down here," Hancock Internet analyst Rob Hallisey said. "Management has purposely taken its foot off the accelerator" so it can manage the change in pricing and a coming upgrade in AOL's access software, he said. The company also said it is exploring ways to get revenue from advertising on AOL, to compensate for an expected slowdown in the growth of new subscriptions.

Pub Date: 6/26/96

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