The internet is an enticing but treacherous business arena--for
every company that has prospered, hundreds have been mauled in a
fast-moving, continuously changing marketplace. Basic access is a
case in point: Just five years ago, the giant online access
providers were Prodigy and CompuServe. Now Prodigy is struggling
for survival as it fights against bruising newcomers such as
America Online (AOL) and Microsoft Network, while CompuServe has
been gobbled up by AOL.
But in the midst of this warfare, one company founded three
years ago by a 23-year-old has kept humming along and today ranks
as the nation's third largest Internet Service Provider (ISP),
with upwards of 350,000 members.
"We keep our eye on the customer. That's where our
focus is, and it's the key to our success," says Sky
Dayton, who, at 26 years old, presides as chair of Pasadena,
California-based EarthLink Network Inc. "We deliver the
service customers need to have a satisfying Net
experience."
Content Continues Below
Does EarthLink deliver? In just a few years, its membership has
grown tenfold. What's more, PC Magazine just touted it
"Editors' Choice" in the magazine's September
ranking of national ISPs and online services.
Read on for more of Dayton's recipe for succeeding against
giants, his insights into why the Net's popularity will keep
mushrooming, and his prescription for businesses that want to
prosper on the Net.
Entrepreneur:With ever-larger companies staking out
turf on the Internet--AT&T, the Baby Bells, Sprint--is there a
future for small ISPs?
Sky Dayton: As the market begins to mature, there will
probably be two tiers of ISPs: very small and very large. A mature
ISP industry may eventually look like the mature retail industry,
where thousands of small, local retailers coexist with a few
behemoths like Wal-Mart. In this example, EarthLink is already in
the Wal-Mart category.
There are now about 4,500 small ISPs in the United States,
almost all with fewer than 10,000 customers. Many want to get out
of the dial-up access business to focus on providing other
services, and we are offering to buy their customers. That's
good for the small ISP and good for us.
Entrepreneur:The problem you face, however, is
you're competing against heavily capitalized giants like
AT&T. How can you survive?
Dayton: The most important capital we have is our
management team. The expertise we have in deploying and running
complex Internet services surpasses that of most traditional
long-distance telephone companies. Telephone companies'
expertise in [telephony technologies] does not translate well to
interactive services delivered to personal computers.
Also, we have been very careful about how we invest in capital
equipment. We chose, for example, to lease Internet backbones
[communications wiring and modems] from other companies that
concentrate solely on building and maintaining backbones. If we had
built our own backbone in 1994, we would have spent about $1,500
per modem. Leasing leaves us free to invest capital in places where
we know we can be best-of-breed, such as our customer service.
Our entire company stays close to the customer. We have 800
employees, more than 400 of whom are directly involved with member
support. We answer 200,000 calls each month. The support is free
and available to all our members via an 800 number. This makes a
big difference in members' overall experience.
Entrepreneur:Still, aren't companies such as
AT&T seemingly unconcerned about the short-range profitability
of their Internet access businesses--which makes them tough to beat
for companies like EarthLink and others that are trying to get
their share of the market?
Dayton: I'm sure Dell and Gateway were asked the same
question in the '80s when AT&T announced its intention to
dominate the personal computer market. And I'm sure their
response was the same as mine will be now.
Providing Internet service is different from providing telephone
service. The technical support, technical infrastructure and user
experience are all totally different. With intense competition
spawned by recent deregulation, AT&T's core telephone
business is about to be under siege. If they take their eye off the
ball, their traditional business will be stolen from under their
nose.
Less than 20 percent of the U.S. population is on the Internet
today. Most of the other 80 percent will become connected in the
next 10 years--a job so big, no one company could hope to dominate
it. I spend more of my time looking at how to grow into this
untapped market than I do thinking about competing against
telephone companies.
Entrepreneur:You've always been an entrepreneur.
You started your first business--a coffee shop--at 18. What draws
you to entrepreneurship?
Dayton: I like to create my own game, I guess. At about
10, a friend and I wrote a business plan to build a candy store.
Unfortunately, our funding committee--our parents--shot down the
deal. We had to wait about nine years to start our first business,
Cafe Mocha.
Entrepreneur:So what prompted you to found EarthLink
in 1994, when the Internet still seemed a speculative,
insubstantial place to many?
Dayton: In late 1993, I heard about the Internet and
decided to get connected. It took me a week to find an Internet
provider and then another 80 hours of hell with my computer to get
connected. The whole thing was incredibly frustrating.
But once I was connected, I knew the Internet was the
world's next mass communications medium. So I set out to make
it easier to connect to and use with EarthLink. I wrote a business
plan and, through friends, was introduced to two founding board
members who provided "angel" funding for EarthLink. That
got us started. Afterwards, we raised more money in private
placements, and in early 1997, our initial public offering (IPO)
raised $26 million.
Entrepreneur:Will the Internet become a mass
medium?
Dayton: The Internet is the next mass medium. There is a
common belief that it will replace telephones, books, fax machines
and television. This idea is only partially correct. The Internet
will combine all those things on an open, global computer network.
In the future, your phone and fax will connect to your computer,
then to the Internet. Your computer will become your television.
The Internet will become the communications platform for the
Information Age.
Entrepreneur:What's behind the Net's
mushrooming popularity?
Dayton: A fundamental shift in the way and the amount
people communicate. In the past 50 years, we've evolved into a
TV society. Cloistered in its home, the average American family, by
some accounts, watches seven hours of television every day. This is
lost time, lost communication, lost production, which drags down
our standard of living.
The Internet has already begun to cause the first decline in
viewership in TV history. People want to talk back. They're
tired of having their world spoon-fed to them on "Dateline
NBC" and "Melrose Place." The Internet is all the
entertainment of television with a big feedback button. People want
to communicate with each other more. The Internet enables this
communication in a way never seen before.
Entrepreneur:Will users' loyalties be to Web
sites (i.e., content or "channels") or access
providers?
Dayton: I'm not fond of mantras such as "content
is king" or its rival, "distribution is king." In
the new communications paradigm, there is abundant content and
distribution. Distribution is open to anyone interested in
producing content. The traditional barriers of time and space
between creator and consumer are almost totally obliterated.
If anything, this means the consumer will be king. The Internet
will spawn a new age of consumer choice. Producers and marketers
will have direct access to the consumer for the first time, and
they will constantly hone their products and services to exactly
match consumer needs.
Entrepreneur:Can anyone make money providing
flat-rate, unlimited access?
Dayton: Absolutely. It's a matter of focus and
execution. In fact, it costs far less than [the monthly user charge
of] $19.95 for EarthLink to deliver its service. We have increased
our revenue while decreasing our net loss every quarter since the
third quarter of 1996.
Why haven't others been successful with flat-rate service? I
think it's less about the business model and more about
management. We have been able to manage explosive growth while
providing great service to our members. Our executives have
hundreds of years of cumulative experience in the computer and
telecommunications industries. Their experience is the backbone
that supports our business.
Entrepreneur:AOL, the industry leader, has had
recurring problems with technology glitches and unsatisfactory
customer service. How can you grow while avoiding these
pitfalls?
Dayton: AOL's problems have to do with its lack of
focus. It is both an access provider, like EarthLink, and a content
provider, like Yahoo! or The Wall Street Journal. While it made
sense to be both an access and content provider in the early days
of the online business, it doesn't make sense today. AOL is
focused on two very different businesses. As a result, it's not
best-of-breed in either.
Entrepreneur:Does every business need a Web
site?
Dayton: To do business today, a company must be on the
Internet. A company should have an e-mail address, which it can use
to correspond with customers, suppliers and staff, and a Web site,
which can be as simple as an electronic brochure or as complex as
an online catalog and ordering system.
The Internet is within the reach of any business today. All it
needs is a computer, a modem and a connection to a service like
EarthLink.
Entrepreneur:How can businesses ease new users onto
the Net? Many people still haven't even figured out how to send
and retrieve e-mail.
Dayton: The amount of value someone gets out of the Net
is in direct proportion to how well he or she is educated about it.
We go to great lengths to bring new users up to a level of
competency on the Net. We even have a group of support
representatives called the Guardian Angels. They make proactive
support calls to members we think might be stuck. If a member
hasn't used our service within a month of signing up, for
example, a Guardian Angel will contact him or her and find out what
we can do to help make the Internet understandable and useful.
Entrepreneur:Has your age been a hindrance in
building such a big business so fast?
Dayton: On our [IPO] road show, I was with our bankers at
a restaurant, and I got carded. It was very amusing.
Other than that, and some trouble renting cars, I haven't
had any problems with age. I didn't when I was 19 opening Cafe
Mocha, and I don't today.
Contact Source
EarthLink Network Inc., (800) 395-8425, http://www.earthlink.net