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By DANIEL OKRENT

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How big was it? In northern Virginia on Friday night, Jimmy Lynn, an AOL marketing executive, got an inkling that something was happening. "I usually go to the Redskins games with a guy from the mergers and acquisitions group," Lynn explained. When the friend canceledÐfor the Redskins' first playoff game in seven yearsÐLynn knew it was not just something, but really something. In downtown Manhattan early Monday, the 7:30 a.m. daily research call emanating from the fifth-floor conference room of Merrill Lynch headquarters was handled by analysts Henry Blodget and Jessica Reif Cohen. Traders who had nearly run off the road when they had heard the news on their car radios crammed the room; 1,000 more around the world were connected by telephone. Like everyone else on Wall Street, Blodget and Reif Cohen had been taken totally by surprise. They used words like brilliant and huge-but they were at a loss to explain to their colleagues what it actually meant.

It was on Tuesday afternoon, the day after the deal was announced, that the influential Silicon Valley venture capitalist Roger McNamee summed up the object of all this attention: "Let's be clear," he said. "This is the single most transformational event I've seen in my career."

Just what exactly was transformed? America Online, the newbie-friendly smiley face of the Web that just three years ago was an operational mess, had engineered the largest merger in American corporate history. Time Warner, the immense media conglomerate that had sprung from the loins of the magazine you are now readingÐhaving failed to beat the Internet upstarts with its own effortsÐhad decided to surrender to them for the best price it could get, about $162 billion in AOL stock. The companies valued the combination at $350 billion

For Time Warner chief executive Gerald Levin and AOL boss Steve Case, the common experience of groping through a rapidly mutating economy made this deal in some ways inevitable. In AOL, Case had built a brand, a customer base and (by Internet standards) healthy profits. But he faced a future that may see Internet access become a commodity, and he lacked access to the leading source of broadbandÐthe fat, fast pipes of cable television that could carry vast amounts of Internet content. And Case didn't have much in the way of content either. Time Warner's cable-television system, the country's second largest, owned plumbing aplenty to distribute AOL's services. The company also had the proprietary contentÐmagazines, books, movies, music, programmingÐto send down the pipes.

Yet Levin's company had remained inextricably mired in its own past, a dinosaur lurching its way through a world that would soon belong to swifter creatures, almost pathetically unableÐlike all the major media companiesÐto make the Great Leap Forward into the new Internet economy. The company's stock price had plateaued in a year in which Net stocks soared, and there was little excitement about the plans being developed in its recently hatched digital division, despite projected outlays this year of $500 million. "We had a big uphill job as a corporation" to catch up with the established Internet players, notes Time Warner vice chairman Ted Turner. Levin was even contemplating "an internal takeover" of CNN to make it the company's digital division, separate from the rest of the Turner networks.

Both Case and Levin were faced with what corporate strategists call a "make or buy" dilemma. Case must have contemplated that at some point Wall Street would come to its senses and that AOL's helium-supported Internet valuation would be punctured and deflate. Better spend those Net-flated dollars nowÐbuy. Levin, with his stock price sputtering, didn't have the currency to pay the price of admission on the Internet. The company, in fact, could neither "make" nor "buy," which left it with but one option-sell.

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