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New Software (and Bosses) at AOL

By SAUL HANSELL

DULLES, Va., Aug. 1 — At the blue glass headquarters of America Online here, there is a feeling that a four-year-old coup has finally been overturned.

Management turmoil, government investigations and a plunge in the stock price of AOL Time Warner have caused more than a little confusion and consternation. But there is a flurry of activity as designers and programmers ready the annual release of new America Online software in October, one its designers say represents a very important step backward.

In recent years, each annual update of the America Online service offered more space devoted to advertisers, more promotions for high-tech gadgets, and more links to other divisions of AOL Time Warner in hopes of impressing Wall Street with the potential for synergy.

Last spring, a new group of executives took over running the America Online service. The head, James de Castro, a former radio executive, is new to the company and was named by AOL Time Warner's recently departed chief operating officer, Robert W. Pittman. But many of the rest are America Online veterans, itching to return the service to its old glory, one they saw as focused on the user. And so the center of the new release, called version 8.0, will have a renewed focus on chat rooms and the other forms of interaction and self-expression that AOL calls its community.

"If you are in this for the stock price, you are probably out of this by now," said James P. Bankoff, an executive vice president in charge of programming on the AOL service. "The people who are here now are passionate about what they do, and 8.0 has been a great goal to focus on amid everything."

A simmering wave of dissatisfaction among AOL employees began to boil last year.

"There was a movement in the halls that we had to take our company back," said Ted Leonsis, who was president of AOL in the mid-1990's and is now its vice chairman. "The senior people were spending too much time in New York talking about cross-promotion to Wall Street. We knew that members don't pay for synergy. They want to get online and find a community."

The worst fears of Mr. Leonsis and his colleagues became evident late last year as AOL's monthly surveys found member satisfaction starting to dip. Mr. Leonsis formed a task force to look at why members were canceling their service. It zeroed in on pop-up advertisements, a longtime feature and to many a longtime annoyance. As revenue began to fall last year, AOL had increased the frequency of pop-ups, and members began to complain louder than usual.

A study showed that when the number of pop-up ads was cut in half for a group of members, their satisfaction improved notably. That led not only to a cutback in the number of pop-ups across the service, but was, according to Mr. Leonsis, the catalyst for a revolution within AOL.

"It became a flashing beacon for employees," he recalled. "If someone said, `I don't care about members, I care about the numbers,' we could show them the numbers."

By April, Barry Schuler, who had run America Online since its merger with Time Warner, was out, and Mr. Pittman, who had earlier been president of America Online, was sent back to try to fix the online unit. He in turn hired Mr. de Castro.

Things are likely to change again. Mr. Pittman resigned under pressure last month in a management shake-up at AOL Time Warner. Don Logan, formerly the head of Time Inc., now supervises America Online, and a new chief executive for the unit will be chosen as soon as this week.

Mr. Logan, in a meeting last week with 275 top employees, was reassuring, telling them he understood that America Online was not simply another magazine to sell. With former Time Warner employees now ascendant, former AOL executives now fear that "there will be a lot of payback" for their high-handed attitude after the merger, as a person who had left AOL put it.

"The Time Warner people took a lot of heat from the AOL people," he said. "There was a lot of chest-pounding about how `we'll show you how to run a real company.' "

Indeed, there is debate among people at America Online about how well Mr. Pittman knew how to run a company. To many, he was the one who created profitable order from the exuberant chaos that characterized America Online under Mr. Leonsis and its founder, Stephen M. Case. But to some, he was also the one who put so much emphasis on meeting quarterly profit goals and impressing investors that there was a lag in developing new features for the users of the online service.

There is more criticism of the reign of Mr. Schuler, who ran the America Online division after Mr. Pittman moved to New York to become co-chief operating officer of the merged AOL Time Warner. Mr. Schuler, a graphic designer and gadget enthusiast, pushed to develop AOL services for interactive television, text pagers and other devices that for the most part had not caught on widely.

Mr. Schuler was also seen as aloof, critical of employees and unwilling or unable to check the tendency of America Online's advertising department to sell off nearly every corner of every screen.

Mr. Schuler did not respond to calls and e-mail messages seeking comment.

And the ostentatiousness that characterized many of the top executives was demoralizing for others, according to several current and former employees. "You would sit in a meeting," a former AOL executive said, "and the top guys would make plans to take their jets and rendezvous in Turks and Caicos in front of a bunch of other people who had all their options underwater."

Mr. de Castro, well off by any standard after a stint as chief executive of the AMFM radio chain, has been much more upbeat and focused on building the enthusiasm of AOL employees. He leads an early morning class in spinning, a form of pedaling aerobics on a fleet of stationary bicycles he had installed at the foot of a stairwell near his office.

He restored rock music to the halls and elevators, a longtime feature of AOL's offices that was stopped after the Time Warner merger.

And he tends to reply to long e-mail messages from his employees with one-word responses like "Awesome!" — not a frequent feature of Mr. Pittman's vocabulary.

Mr. de Castro honed some of his skills during the peak years of radio deregulation, when stations that were bitter rivals for decades suddenly came under common ownership.

"He works hard at remembering you," said Michael Sherrod, vice president for community. "He made people here feel like we can do things that are fresh and innovative."

Though cheerful, Mr. de Castro can also be tough. He replaced eight of the nine people who reported to him, mostly with other AOL employees.

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Carol T. Powers for The New York Times
James Bankoff, an America Online executive vice president, discussing the 8.0 software. Bottom, an electronic sign counts down to the release date.

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Carol T. Powers for The New York Times
David Gang, an AOL vice president overseeing 8.0 software development, extols the central place of chat rooms and a sense of community.






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