Sky's The Limit EarthLink's founder tells how he found his fortune on the Net - and how you can, too.

The internet is an enticing but treacherous business arena--forevery company that has prospered, hundreds have been mauled in afast-moving, continuously changing marketplace. Basic access is acase in point: Just five years ago, the giant online accessproviders were Prodigy and CompuServe. Now Prodigy is strugglingfor survival as it fights against bruising newcomers such asAmerica Online (AOL) and Microsoft Network, while CompuServe hasbeen gobbled up by AOL.

But in the midst of this warfare, one company founded threeyears ago by a 23-year-old has kept humming along and today ranksas 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 ourfocus is, and it's the key to our success," says SkyDayton, who, at 26 years old, presides as chair of Pasadena,California-based EarthLink Network Inc. "We deliver theservice customers need to have a satisfying Netexperience."

Does EarthLink deliver? In just a few years, its membership hasgrown tenfold. What's more, PC Magazine just touted it"Editors' Choice" in the magazine's Septemberranking of national ISPs and online services.

Read on for more of Dayton's recipe for succeeding againstgiants, his insights into why the Net's popularity will keepmushrooming, and his prescription for businesses that want toprosper on the Net.

Entrepreneur:With ever-larger companies staking outturf on the Internet--AT&T, the Baby Bells, Sprint--is there afuture for small ISPs?

Sky Dayton: As the market begins to mature, there willprobably be two tiers of ISPs: very small and very large. A matureISP industry may eventually look like the mature retail industry,where thousands of small, local retailers coexist with a fewbehemoths like Wal-Mart. In this example, EarthLink is already inthe 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 outof the dial-up access business to focus on providing otherservices, and we are offering to buy their customers. That'sgood for the small ISP and good for us.

Entrepreneur:The problem you face, however, isyou're competing against heavily capitalized giants likeAT&T. How can you survive?

Dayton: The most important capital we have is ourmanagement team. The expertise we have in deploying and runningcomplex Internet services surpasses that of most traditionallong-distance telephone companies. Telephone companies'expertise in [telephony technologies] does not translate well tointeractive services delivered to personal computers.

Also, we have been very careful about how we invest in capitalequipment. We chose, for example, to lease Internet backbones[communications wiring and modems] from other companies thatconcentrate solely on building and maintaining backbones. If we hadbuilt our own backbone in 1994, we would have spent about $1,500per modem. Leasing leaves us free to invest capital in places wherewe know we can be best-of-breed, such as our customer service.

Our entire company stays close to the customer. We have 800employees, more than 400 of whom are directly involved with membersupport. We answer 200,000 calls each month. The support is freeand available to all our members via an 800 number. This makes abig difference in members' overall experience.

Entrepreneur:Still, aren't companies such asAT&T seemingly unconcerned about the short-range profitabilityof their Internet access businesses--which makes them tough to beatfor companies like EarthLink and others that are trying to gettheir share of the market?

Dayton: I'm sure Dell and Gateway were asked the samequestion in the '80s when AT&T announced its intention todominate the personal computer market. And I'm sure theirresponse was the same as mine will be now.

Providing Internet service is different from providing telephoneservice. The technical support, technical infrastructure and userexperience are all totally different. With intense competitionspawned by recent deregulation, AT&T's core telephonebusiness is about to be under siege. If they take their eye off theball, their traditional business will be stolen from under theirnose.

Less than 20 percent of the U.S. population is on the Internettoday. Most of the other 80 percent will become connected in thenext 10 years--a job so big, no one company could hope to dominateit. I spend more of my time looking at how to grow into thisuntapped market than I do thinking about competing againsttelephone companies.

Entrepreneur:You've always been an entrepreneur.You started your first business--a coffee shop--at 18. What drawsyou to entrepreneurship?

Dayton: I like to create my own game, I guess. At about10, a friend and I wrote a business plan to build a candy store.Unfortunately, our funding committee--our parents--shot down thedeal. We had to wait about nine years to start our first business,Cafe Mocha.

Entrepreneur:So what prompted you to found EarthLinkin 1994, when the Internet still seemed a speculative,insubstantial place to many?

Dayton: In late 1993, I heard about the Internet anddecided to get connected. It took me a week to find an Internetprovider and then another 80 hours of hell with my computer to getconnected. The whole thing was incredibly frustrating.

But once I was connected, I knew the Internet was theworld's next mass communications medium. So I set out to makeit easier to connect to and use with EarthLink. I wrote a businessplan and, through friends, was introduced to two founding boardmembers who provided "angel" funding for EarthLink. Thatgot us started. Afterwards, we raised more money in privateplacements, and in early 1997, our initial public offering (IPO)raised $26 million.

Entrepreneur:Will the Internet become a massmedium?

Dayton: The Internet is the next mass medium. There is acommon belief that it will replace telephones, books, fax machinesand television. This idea is only partially correct. The Internetwill 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 theInformation Age.

Entrepreneur:What's behind the Net'smushrooming popularity?

Dayton: A fundamental shift in the way and the amountpeople communicate. In the past 50 years, we've evolved into aTV society. Cloistered in its home, the average American family, bysome accounts, watches seven hours of television every day. This islost time, lost communication, lost production, which drags downour standard of living.

The Internet has already begun to cause the first decline inviewership in TV history. People want to talk back. They'retired of having their world spoon-fed to them on "DatelineNBC" and "Melrose Place." The Internet is all theentertainment of television with a big feedback button. People wantto communicate with each other more. The Internet enables thiscommunication in a way never seen before.

Entrepreneur:Will users' loyalties be to Websites (i.e., content or "channels") or accessproviders?

Dayton: I'm not fond of mantras such as "contentis king" or its rival, "distribution is king." Inthe new communications paradigm, there is abundant content anddistribution. Distribution is open to anyone interested inproducing content. The traditional barriers of time and spacebetween creator and consumer are almost totally obliterated.

If anything, this means the consumer will be king. The Internetwill spawn a new age of consumer choice. Producers and marketerswill have direct access to the consumer for the first time, andthey will constantly hone their products and services to exactlymatch consumer needs.

Entrepreneur:Can anyone make money providingflat-rate, unlimited access?

Dayton: Absolutely. It's a matter of focus andexecution. In fact, it costs far less than [the monthly user chargeof] $19.95 for EarthLink to deliver its service. We have increasedour revenue while decreasing our net loss every quarter since thethird quarter of 1996.

Why haven't others been successful with flat-rate service? Ithink it's less about the business model and more aboutmanagement. We have been able to manage explosive growth whileproviding great service to our members. Our executives havehundreds of years of cumulative experience in the computer andtelecommunications industries. Their experience is the backbonethat supports our business.

Entrepreneur:AOL, the industry leader, has hadrecurring problems with technology glitches and unsatisfactorycustomer service. How can you grow while avoiding thesepitfalls?

Dayton: AOL's problems have to do with its lack offocus. It is both an access provider, like EarthLink, and a contentprovider, like Yahoo! or The Wall Street Journal. While it madesense to be both an access and content provider in the early daysof the online business, it doesn't make sense today. AOL isfocused on two very different businesses. As a result, it's notbest-of-breed in either.

Entrepreneur:Does every business need a Website?

Dayton: To do business today, a company must be on theInternet. A company should have an e-mail address, which it can useto correspond with customers, suppliers and staff, and a Web site,which can be as simple as an electronic brochure or as complex asan online catalog and ordering system.

The Internet is within the reach of any business today. All itneeds is a computer, a modem and a connection to a service likeEarthLink.

Entrepreneur:How can businesses ease new users ontothe Net? Many people still haven't even figured out how to sendand retrieve e-mail.

Dayton: The amount of value someone gets out of the Netis 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 ofcompetency on the Net. We even have a group of supportrepresentatives called the Guardian Angels. They make proactivesupport calls to members we think might be stuck. If a memberhasn't used our service within a month of signing up, forexample, a Guardian Angel will contact him or her and find out whatwe can do to help make the Internet understandable and useful.

Entrepreneur:Has your age been a hindrance inbuilding such a big business so fast?

Dayton: On our [IPO] road show, I was with our bankers ata restaurant, and I got carded. It was very amusing.

Other than that, and some trouble renting cars, I haven'thad any problems with age. I didn't when I was 19 opening CafeMocha, and I don't today.

Contact Source

EarthLink Network Inc., (800) 395-8425, http://www.earthlink.net