The AOL List: Fraud

David Cassel (
Fri, 3 Oct 1997 19:29:42 -0700 (PDT)

			      F  r  a  u  d


"AOL... has targeted my business and my industry for extinction.''

One of AOL's major games suppliers filed a lawsuit Monday -- and the rift
could be significant.  Kesmai's suit says their area generated almost 2%
of AOL's total usage, with users spending 1.6 million hours in Kesmai
areas just in May -- 25% of the total time spent in AOL's Games channel. 
( ) 

Dissatisfaction began in January -- as subscribers coped with busy signals
from AOL's move to flat-rate pricing.  The disgruntled partner spills the
beans.  "One immediate effect of these problems was the defection of
approximately 200,000 AOL subscribers during the first six weeks after the
institution of flat rates."  That's more than 2.5% of AOL's subscriber
base -- one out of every 39 subscribers.  (Even more surprising is the
suit's next revelation:  more than half of them were talked into
re-joining AOL!)  The backlash isn't over.  Users signing on Wednesday
were informed that the deadline to apply for refunds for bad service
between December and March of 1996 has been extended -- to December 1,
1997.  ( ) 

After AOL's move to flat-rate pricing, many content providers simply left
AOL -- while others remained to cope with uncertain revenues.  They
weren't always satisfied with the outcome.  "Under the guise of financial
distress, AOL set out to renegotiate its information provider agreements,"
Kesmai's lawsuit alleges, "in a way that would shield the gain in
per-subscriber revenues from royalty payments." 

Unfortunately for AOL, they'd signed a three-year agreement with Kesmai
near the beginning of 1996.  Ironically, in March of that year, Ted
Leonsis stated that "We're very pleased to partner with Kesmai because of
the quality of their games and their formidable multiplayer experience." 
( aol://4344:226.kesmai.2754782.510696655 )  Yet according to the lawsuit,
to re-negotiate their contract, AOL brought strong-arming to the table. 
"First, AOL simply stopped making the royalty payments it owed to Kesmai
under the original information provider agreement and threatened to
continue to withhold payment unless Kesmai agreed to restructure the
financial terms of the deal."  In addition, a March press release had
announced that nine new games were to be added before the end of the year
-- but "AOL refused to launch any new Kesmai games -- in violation of its
contractual obligations -- until Kesmai agreed to the restructured deal." 
The lawsuit says this maneuver -- along with a decrease in promotions --
had an impact.  "Between December 1996 and June 1997, Kesmai lost
approximately $2.1 million in revenue due to AOL's refusal to launch new

The final knife came later.  "Kesmai entered into the new and financially
less advantageous agreement in reliance on the repeated representations by
AOL's chief negotiator, David Colburn, that Kesmai would receive parity
with the Imagination Network."  But when the ink was dry, things seem to
have worked out differently. "AOL's grant to WorldPlay of exclusive
control over the AOL Games Channel immediately after the new agreement was
signed revealed that Colburn's assurances to Kesmai were false at the time
they were made and were designed to induce Kesmai to enter into the new
agreement."  Kesmai's lawyers now characterize AOL's statements as
"fraud".  "At the time that AOL and Colburn made these representations
they had no intention of adhering to those representations and they knew
that those representations were false." 

The nightmare unfolded.  Though Kesmai objected -- and despite "promises
by AOL to the contrary" -- AOL gave WorldPlay control of most access to
Kesmai's games, the suit complains, creating "the false impression that
WorldPlay, not Kesmai, aggregates the games on the Kesmai platform."  The
move breached a carefully-negotiated agreement which they say specified
"that the content and services provided by Kesmai would be managed by
Kesmai alone, and certainly not WorldPlay, Kesmai's primary competitor." 
The suit alleges that due to mis-representations, "Kesmai has sustained or
will sustain damages in an amount to be determined more precisely at
trial, but believed to be several hundred million dollars" -- and after
it's determined in court, they ask for the amount "to be trebled according
to the law."  They're citing figures showing tremendous damage. "Since AOL
implemented its plan, Kesmai has become virtually invisible...  Usage of
Kesmai's premium games has dropped by 92% since WorldPlay's launch."  The
complaint is accompanied by a startling graph showing areas receiving
40,000 hours of usage on July 13 were receiving 4,000 hours a day two
weeks later.  ( ) 
But cut-throat moves are a survival skill.  AOL hasn't posted a profit
since they switched to flat-rate pricing.  The editorial director of
Ziff-Davis TV observes skeptically that "without profit, you do not have a
viable, ongoing concern. You just have a Ponzi scheme." 
( )  AOL's staked
their future on pay-to-play games and ads throughout the service--and
they're under the gun.  "Online services are under an enormous amount of
pressure for additional revenue," an IDC senior analyst told C|Net.  But
the frantic moves may not work.  "As an analyst who wants to keep up to
speed, I log onto AOL and find myself inundated with promotions, and I
have to think that over time it will alienate customers." 
(,4,14530,00.html )  Customers can visit
keyword "Marketing Preferences" to eliminate the pop-up ads -- but to
eliminate the ads from mailboxes and chat rooms, their only alternative is
to switch to an ad-free ISP. 

AOL's even begun exploiting their own system problems.  Performance bugs
last weekend resulted in many requests to AOL "timing out."  Users signing
on Wednesday were asked "Does your computer seem a little...SLOW lately?"
-- then offered a $30 book titled "Upgrade and Repair Your PC on a
shoestring."  Is it a coincidence?  Press coverage of AOL's problems with
"Trojan Horse" password-stealing programs were followed by ads for an
anti-virus software.  In fact, a kind of desperation haunts AOL's ad
placement.  Users visiting AOL's "Online Paper Mail and Fax Service" find
an announcement that AOL has discontinued the service -- and then a pitch. 
"Have you considered sending a FAX from your home?  Affordable modems
offering fax capabilities, voice mail and speaker-phone capability are
available on AOL at Keyword:  MODEM SHOP." 

But users have found that shopping on AOL can be a big mistake. 
Andre'-Tascha Ham- Lamme', a St. Paul, Minnesota computer consultant,
ordered a $500 FAX machine from AOL's OfficeMax area last year, requesting
next-day air shipment.  He recounted his experience for the AOL List. 

  * The FAX machine didn't arrive until two weeks later.

  * His Visa Card was charged three times -- bumping him over his credit
    limit by $200.

  * Regular monthly charges to his Visa Card were refused, which resulted
    in some being turned over to a collections departments.

   * The $1000 overcharge wasn't refunded until two months later.

When the FAX was finally delivered, it came from the local OfficeMax 
-- just three miles from his home.  (In compensation, OfficeMax gave him a
$25 gift certificate.) 

And that wasn't his only bad experience.  He tried again -- ordering a
lap-top computer from AOL's Keyword Auction.  "When it arrived (almost 20
days after deducted from my Visa), it was almost completely inoperable." 
There was no phone number for complaints, "so I spent 1.5 hours attempting
to work my way through the corporate office of AOL -- to get nothing but a
phone number."  The results were disturbing.  "I was put off for some time
with comments that 'we don't have phone numbers or addresses for all our
online service providers'."  He received no responses on e-mail to the
vendor for several days, and the phone number he finally did receive was
for Compaq computers -- which didn't help his lap-top, because "it was a
refurbished Texas Instruments.  Nothing to do with Compaq..." 

His says his experience taught him a lesson.  "I EMPHATICALLY suggest that
no AOL member purchases anything from Marketplace," he told the AOL List. 
"If you have a problem with the vendor, you are effectively on your own!" 
( ) 

Others agree.  "The one and only time I actually bought some of that
software that AOL throws in your face every time you sign on was a
special price for 'AOL members only'. Come to find out later that I could
purchase the same software at any of the chain computer stores for 10 to
15% less." 

The price was special -- it was higher.  "I really felt special." 

One frequent pop-up ad offers "AOL for Dummies."  But the book lost some
credibility when its author answered questions from an on-line audience on
AOL after the book's 1995 edition was released. 

Question:  "Why should I use AOL instead of going to the INTERNET

  Answer:  "If you can't get your AOL software working, you have a
	    toll-free tech support number. Most Internet Service Providers
	    don't have any support staff..."

"Please think before you respond to questions like that," one angry Usenet
post retorted.  ( )  "It is all well
and good to have an 800 number for technical support, but what if no one
answers?"  The poster wasn't hypothetical.  "I have spent up to an hour
and a half on hold for an AOL tech-support person to answer my
question -- or to cancel my membership." 

Another complained that with AOL, "you get a canned auto-responder if
anything. Personal responses take weeks and pledges to hand your first
born over to Steve Case.  Even TechLive (aka 'TechLies') are terminally
clueless about the activity on the service, blaming all connection errors
on the other host and making lame excuses for all of America Online's

Laughably, the second reason the book's author gave was "speed".  But his
third reason was the most telling of all.  "Because I don't have an
Internet book out yet." 

Most users would find AOL's level of service unacceptable.  The Vice
President of Technology for Ziff-Davis Inc. recently wrote that AOL's
ranks "are heavily skewed toward beginners and people who have low demand
for  performance.
( ) 
In fact, Ziff-Davis reports that AOL was off-line for several hours
Thursday morning, with many users experiencing a five-hour e-mail outage. 
( )  Even pro-AOL
reporters are starting to become self-conscious.  "My computer-savvy
friends laugh at me when I give them my America Online E-mail address,"
one New York Times columnist recently confessed -- "or when I call them an
hour after sending mail to find out whether they've received it."

To address AOL's performance problems, users have had to take matters into
their own hands.  "AOL actually goes ahead and disconnect users even if
they're doing something else like downloading large files, surfing the net
with Netscape browser, or chatting with their buddies on IRC..." writes
the inKline Global Development Team.  "After the disconnection, attempting
to dial-up to AOL becomes Mission Impossible, especially during peak
hours."  So the group created a software to thwart AOL's 45-minute timer.
( ) 

Distrust is spreading through the service.  One rumor spreading has it
that "AOL is consciously, knowingly, intentionally causing people to see
'Carrier Has Been Lost' messages -- to appear on target individuated
groups and / or individuals."  One unsung hero created an obscenity-laced
sound-file to replace the cheery "goodbye"  that sounds when users are
disconnected.  ( ) 

But AOL has their own problems.  Apologizing for "profane and lewd text on
our main screen," the editor of AOL's "MoneyWhiz" area explained in an
on-line announcement that "On Friday, September 26th, around 5:10 pm ET,
we were the subject of a hacker." Just nine days after adding profanity to
screens in AOL's Business Week section, attackers identifying themselves as
"Spin" and "Hex" had altered text in the MoneyWhiz AOL content area. 
"Feel like this just happened?" the attackers wrote in the area's title
bar.  "Well, it did."

This time, they'd confined their graffiti to the main title screen.  One
paragraph, headlined "Women need more money," received the new headline
"Do you think AOL sucks."  Staffers moved quickly to erase the evidence of
the security compromise.  The content lasted "for about 20 minutes," a
MoneyWhiz editor told the AOL List.  But the stakes may be high.  The
security breach occurred directly across from an ad for on-line banking. 
("No brick, no mortar, no hassles....") 

The next night AOL continued displaying their standard sign-off screen --
"Satisfaction and security guaranteed when you shop at AOL." 

AOL face-saving public relations look like a standard practice.  Kesmai's
lawsuit against AOL describes "numerous instances where AOL customer
service representatives falsely told complaining players that Kesmai, not
AOL, was responsible for [$2.00-per-hour] charges."  The tactic could come
back to haunt them.  "These statements are false, malicious and designed
to harm Kesmai," the lawsuit contends -- and apparently made on the
highest authority.  "One of these statements was issued by a customer
service representative answering e-mail directed to AOL Chairman Steve
Case and speaking on his behalf." 
( )  Kesmai was forced to ignore
the statements "because they were barred from discussing pricing pursuant
to the non-solicitation clause in the new information-provider
agreement."  Despite Kesmai's complaints, the lawsuit says AOL "did
nothing to stop and, in fact, condoned the dissemination of false
information about Kesmai by AOL's customer service representatives." 

With their other complaints, Kesmai is seeking hundreds of millions of
dollars from AOL -- and as a subsidiary of Rupert Murdoch's News
Corporation, they've got powerful backing.  But even if they didn't, AOL's
invulnerability to lawsuits is questionable.  "They're no Perry Masons,"
one user said -- after successfully sueing AOL in small claims court in
1995.  ( )  Erroll Trobee
also prevailed in a small court case -- which AOL appealed, then settled
out of court.  Trobee complains AOL dragged their feet in fulfilling that
settlement, and AOL now finds themself in court again -- trying to fight
the service of a summons.  Trobee argues that AOL is hiding behind
technicalities -- and buttresses his claim by describing previous episodes
from his suit against AOL.  "In the Trobee v. AOL, PA Dauphin County Civil
Action 2458 S 1993, resulting in the out of court settlement on which this
current case is based, the Defendant was found in contempt of court three
times and had sanctions against them for their refusal to provide
discovery documents..." Trobee's motion notes.  "The final Sanction
Hearing in court, prior to settlement, was, in part, to determine if one
of their attorneys should be charged with perjury." 

Both parties agreed on an October 6 hearing date for their latest legal
battle.  One AOL subscriber has decided AOL must be getting used to it. 
"AOL's lawyers probably know the 'Defendant' section of the court better
than the original court designers ever will!" 


Keyword "Geraldo" takes users to the AOL's Geraldo Rivera message board,
where topics include "Teenage Drinking," "Adultery" -- and "Geraldo Sucks
dick."  Another topic is titled "Steve Case raped me." 

The topics appear to have been re-named -- since the first two are "Talk
with Hex live!"  and "Talk One on One with Spin."  The vandals who hit
Business Week may have struck again. 

One topic suggests a source for their bitterness.  "Marv Albert bit Hex."

        David Cassel
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