Copyright 2001 The Atlanta Constitution The Atlanta
Journal and Constitution
January 31, 2001, Wednesday, Home
Edition
SECTION: Business; Pg. 7D
LENGTH: 1285 words
HEADLINE:
EarthLink stronger after merger; After a year, the company formed in
deal with MindSpring stands at the top of the smaller ISP pack.
BYLINE: Frances Katz, Staff
SOURCE: CONSTITUTION
BODY: Is the whole always greater than the sum of its parts?
Given the rapid change in the Internet industry in the last 18 months,
the answer for EarthLink Network, the result of the merger between EarthLink
Networks and MindSpring Enterprises --- the answer may turn out to be "yes."
The merger will be a year old on Sunday, and what a year
it's been. Along with merging two very different corporate cultures three time
zones apart, the new company also had to deal with the AOL-Time Warner merger,
plunging stock prices, the explosion of broadband and wireless devices,
plus wrestle with Congress and the Federal Trade Commission about open access and absorb the departure of MindSpring founder and
local icon Charles Brewer.
"It hasn't been dull, that's
for sure" said company President Michael McQuary in an interview in the
company's Atlanta offices last week.
Even though
senior management was excited about the what the new combined company could
accomplish, rank-and-file employees on both coasts weren't quite as giddy.
"The legacy MindSpring people felt, they had been taken
over because of the name change," McQuary said. "But then I'd go out to
Pasadena, and the people out there felt like they'd been left behind because the
corporate headquarters were in Atlanta."
To aid the
melding, McQuary said the company brought in a consultant to do a cultural
analysis of the two companies.
"And he said, 'You're
both running the same race, but the EarthLink people take off as soon as the gun
sounds. They just start running, they hit a fence, but they keep running. They
take a wrong turn, but they keep running," says McQuary. "Meanwhile the
MindSpring people are all sitting at the starting line in a circle holding
hands, making sure they have enough water and trail mix, checking to see who's
got the maps and making sure they're all really, really, really ready to go."
But the corporate analyst also said that despite such
radically different approaches, both companies achieved their goals. And if they
had the same goals, they achieved them in the same amount of time.
"There were rumors that Garry (Betty, EarthLink's chief
executive officer) and I were going to kill each other because our personalities
are so different," McQuary said shaking his head. "We're different people, but
our goals are the same. Garry is more passionate, and I am more laid back, but
we got very comfortable very quickly."
Looking at it
through this prism, the merger actually makes sense if EarthLink could encourage
its new MindSpring colleagues to be more aggressive and the former MindSpring
staff could teach EarthLink to at least take a look at the map before charging
off into the wilderness.
"The merger of these companies
was really inevitable," said Dylan Brooks an analyst with Jupiter Research. "It
would have happened eventually."
Brooks said the need
for scale to support nationwide advertising and compete "at least somewhere in
the same league as America Online for advertising, commerce and other non-access
revenue made the merger a necessity."
EarthLink's goals
have shifted over the last year. Less than a month before MindSpring and
EarthLink finalized their merger, America Online and Time Warner announced a
merger of their own --- the largest corporate merger in history.
Betty and the new EarthLink had targeted America Online as its main
competition, but the merger forced them to rethink their strategy.
"AOL was the 'common evil' if you will," McQuary said. "We
wanted --- and we still want --- to be the largest player in our space. But the
AOL-Time Warner merger changed AOL's direction. Then they really became a media
company, and we weren't their biggest competitor anymore."
So Earthlink's priority became "to determine what our best prospects
were for long-term profitable existence."
"In general,
you are competing against the people who are competing against you," agreed
Jupiter's Brooks. "For now at least, AOL is not competing against anybody."
Betty and McQuary looked into their crystal balls and saw
the future was in high-speed Internet access. At the end of the year, EarthLink
had 219,000 high speed "always on" Internet subscribers. Betty said
broadband customers spend more time and money online and are less likely
to disconnect their service. Betty likes to call it a "snacking technology,"
because once your Internet access is always on, you can't stop using it.
The company's deals with telephone companies and small
cable companies such as Charter and Covad helped them learn how to deploy
broadband service and ramp up their technical support staff to handle
complicated questions from high-speed users.
When Time
Warner Cable was forced to allow EarthLink to offer service over its high-speed
cable-modem lines in order to complete its merger with AOL, EarthLink already
knew the drill.
The Time Warner cable modem deal was
brokered by Dave Baker, who was MindSpring's open access
advocate in Washington and EarthLink's vice president of law and public policy.
Open access had always been a high priority for MindSpring.
EarthLink, however, didn't devote nearly as much energy to that particular
cause.
"Size allows them to cut those good deals and
cut them on favorable terms," said Miles Russ, an analyst with Atlanta's
Robinson-Humphrey. "If they had not merged, we'd have seen EarthLink vs.
MindSpring fighting it out for cable modem access and maybe taking a deal not as
attractive just to get on the system," he said. "As a merged entity, they are
lighter on their feet, and they can make better deals because of their size."
"Before the merger it was AOL and then a pack of ISPs,"
McQuary said. "Now it's AOL, us and then the pack of ISPs."
That pack includes the Microsoft Network with computer rebate deals, an
alliance with Radio Shack and a huge marketing campaign. Jupiter's Brooks
advises keeping an eye on both AOL and Microsoft.
"MSN
is hot on their heels," Brooks said. "Proving that if you throw enough money at
a problem, you can definitely compete with merger activity."
"It's a question of resources," McQuary said. "As separate companies
there's only so much you can do. At MindSpring, we used to take tennis balls and
write the names of projects we wanted to do on them. I'd ask somebody to try and
catch all the balls, and maybe they'd catch two of them. Even if we had four or
five people, there'd still be some tennis balls that they couldn't catch. I'd
say the point of the exercise is to show that, no matter how hard we try, we
couldn't do all the things we wanted to. We just didn't have the resources."
But the sheer size of the combined company means there are
more people and more resources.
McQuary said it's
better to be big and loud than small and loud. "If you are small and loud, you
sound shrill," he says. "The arguments are the same, but nobody pays much
attention. When you get bigger, suddenly everything you do or say matters
more."
Even though EarthLink is a big fish in the ISP
pond, McQuary said the old " core values and beliefs" --- the golden rules of
business Brewer outlined even before he founded MindSpring --- are still a key
tenets of how EarthLink does business.
"We added
another core value --- 'we love to compete'," McQuary said. "It's all right to
want to win. But style matters. Think about Larry Holmes, possibly one of the
greatest boxers of all time. He got results, but he wasn't charismatic and
nobody remembers what a great boxer he was.
"It's they
way you get results that make you great. They way you go about winning really
does matter."
ATLANTA TECH: WEDNESDAY FOCUS on
TECHNOLOGY and TELECOMMUNICATIONS in METRO ATLANTA
GRAPHIC: Graphic EARTHLINK STOCK Feb. 4,
2000 --- MindSpring and EarthLink shareholders approve merger. New company name
officially becomes EarthLink Inc. Aug. 3, 2000 --- EarthLink
Chairman Charles Brewer, founder of MindSpring, leaves the company and sells his
stake in the company. Nov. 20, 2000 --- EarthLink announces deal
with Time Warner Cable for access to Time Warner's 20 million potential cable
modem customers. Jan. 30, 2001 --- EarthLink reports 4.7 million
subscribers and 219,000 high-speed customers and predicts a return to profitability before the end of the year. Tuesday's close:
$ 8.44, down 6 cents Source: Bloomberg News / VERNON
CARNE / Staff Graphic INTERNET SERVICE
PROVIDERS Before their merger, EarthLink and MindSpring were just
two ISPs in a pack running a distant second to powerhouse America Online. After
the merger, EarthLink moved into a strong second place position, leaving the
pack behind.
Top ISPs in the United States:.....
Subscribers 1. America Online................... 27 million 2. EarthLink....................... 4.7 million 3.
Microsoft Network....... ....... 3.5 million 4.
CompuServe........................2.8 million 5. Prodigy
Internet..................2.5 million 6. Excite At Home.............
......2.3 million 7. AT&T WorldNet................... 1.5
million 8. Road Runner..................... 1.1 million 9. BellSouth.net................... ... 956,000
Source: Jupiter Research / ROB SMOAK / Staff Photo Michael McQuary (front), president of EarthLink, is
known for using an unusual juggling exercise to illustrate the challenges of
accomplishing many things. / T. LEVETTE BAGWELL / Staff
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