EarthLink, Inc.

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EarthLink, Inc.

1430 West Peachtree Street Northwest, Suite 4
Atlanta, Georgia
U.S.A.
Telephone: (404) 815-0770
Toll Free: (800) 395-8425
Fax: (404) 815-8805
Web site: http://www.EarthLink.net

Public Company
Incorporated: 1994 as EarthLink Network, Inc.
Employees: 1,343
Sales: $670.43 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: ELNK
NAIC: 51331 Wired Telecommunications Carriers (pt)

EarthLink, Inc. is the second largest Internet service provider (ISP) in the United States, trailing 25-million-member America Online, Inc. EarthLink provides dial-up Internet access, high-speed broadband access using digital subscriber line (DSL), single ISDN, and cable modem technology to 4.2 million consumer and business customers. The company uses a nationwide telecommunications network of leased, high-speed, dedicated data lines and more than 1,700 dial-up access sites.

Background

EarthLink attained its phenomenal rise in the world of Internet-related business through the ambition and timing of its founder, Sky Dylan Dayton. Dayton was born in New York City in 1971, but he was raised in the Los Angeles area, where his parents moved while he was still an infant. For someone who gained national prominence as a teenager, it was not surprising that Dayton’s drive and ambition were exhibited at an early age. He set a goal at age 12 to become a millionaire by the time he was 24, an objective he intended to fulfill by embarking on his professional career as soon as possible. Deeply interested in computers, Dayton, at age 13, convinced his parents to send him to Delphian Academy, a progressive, private school near Portland, Oregon, that encouraged students to supplement their academic studies with experience in the workplace. Through the assistance of Delphian Academy, Dayton spent his high school years working for a Portland-area advertising agency, helping to create computer-generated music videos for artists such as Michael Jackson. By the time he was 16, Dayton was working full-time.

Dayton graduated from Delphian Academy in 1988, marking the end of his academic career. He never seriously considered attending college; instead, he returned home and began working at Wallen Green Design, an advertising agency in Burbank. His first position at Wallen Green was in the mail-room, but before long his employers noticed his computer skills and put him in charge of running the company’s computer system. Less than a year after joining Wallen Green, Dayton left and joined another advertising agency, Mednick & Associates, where he created computer-generated print advertisements. Dayton was 17 years old and earning $35,000 a year.

After a year at Mednick & Associates, Dayton moved in a completely different direction. Along with a friend, he opened a coffeehouse on Melrose Avenue called Care Mocha. Care Mocha, frequented by celebrities such as Julia Roberts, quickly blossomed into a trendy success, but after a year-and-a-half Dayton’s interests returned to computers. He sold his stake in Care Mocha and was hired by Executive Software as the company’s director of marketing.

Dayton’s executive position at Executive Software was the last job he held before founding EarthLink. The inspiration for his second entrepreneurial creation came from his own frustration in trying to connect to the Internet. In late 1993, Dayton became intrigued with the Internet, but the troublesome process of getting his computer online tempered his initial zeal. It took him a week to find a service provider and, he claimed, another 80 hours to get his computer connected and working properly. Dayton envisioned the Internet as a new medium for mass communication, but in order for the Internet to realize its potential the difficulty and cost of getting connected had to be reduced. EarthLink was his solution.

Launch of EarthLink: May 1994

Dayton spent the early months of 1994 mustering financial support for his business venture. He invested his personal savings, borrowed money from friends and family, and, after writing a business plan, secured a sizable investment from a professional venture capitalist. By May 1994, the 23-year-old Dayton had the money he needed to lease the modems and communications wiring to serve as EarthLink’s Internet back-bone. In July, the company’s first member logged onto the Internet through one of the company’s ten modems, and Dayton was on his way toward becoming a multimillionaire.

By the end of 1994, EarthLink had collected $100,000 in revenue, a total the company would exceed on a daily basis by 1996. Part of the reason for the enormous growth achieved by EarthLink during its formative years was the release of EarthLink’s TotalAccess software, the first open and direct Internet software ever released. Debuting on the company’s first anniversary in May 1995, the software was distributed in two versions, TotalAccess USA 800, which enabled subscribers to connect through a toll free telephone number, and TotalAccess Southern California, designed for southern California residents. Dayton hoped to distribute 500,000 copies of the regional version by the end of 1995.

Although TotalAccess USA 800 allowed residents outside of southern California to join EarthLink, Dayton at this point was concentrating almost exclusively on building his business regionally. By August 1995, however, the geographic scope of his objective had widened considerably. An alliance with UUNET Technologies enabled Dayton to roll out nationwide service. Within two weeks of signing the contract with UUNET, EarthLink was able to offer local dial-up access in 98 cities scattered across the country. Two months later, EarthLink be-came the first ISP to charge a flat rate, offering unlimited usage on the Internet for $19.95 a month.

The growth of EarthLink, measured by the number of the company’s subscribers, began to pick up speed in 1996, as the popularity of the Internet increased. The company eclipsed the 100,000-member mark on its second anniversary in May 1996, prompting Dayton to relocate headquarters from Los Angeles to Pasadena. After starting business with two employees, Dayton’s workforce had grown to 60, a number that was expected to increase by 300 in the coming months as waves of subscribers joined the EarthLink network. Strategic alliances played a crucial role in fueling the company’s growth during this period, including a partnership with PSINet in July 1996 that gave EarthLink hundreds of points of presence (POPs), or local access points, in the United States and Canada. After extending his service territory to include North America, Dayton signed an agreement with Microsoft Corporation in September 1996 that put EarthLink on the Windows 95 desktop. By October 1996, the company’s membership passed 200,000 subscribers thanks in large part to the mass distribution of its software. In the last three months of 1996, a record six million copies of EarthLink’s software were distributed through marketing partnerships with United Airlines, CompUSA, Simon & Schuster, CNN, and Warner Brothers, among others. By the end of the year, Earth-Link maintained a presence in 313 cities and towns in the United States and Canada.

In January 1997, EarthLink debuted as a publicly traded company, completing an initial public offering of stock that raised $26 million. With a fresh supply of capital, Dayton pressed ahead with expansion. By the end of 1997, EarthLink ranked as the third-largest ISP in the country, having increased its membership ranks tenfold during the previous three years. Dayton offered a simple explanation for the company’s prolific growth. “We keep our eye on the customer,” he told Entrepreneur magazine in a January 1998 interview. “That’s where our focus is, and it’s the key to our success.” The company employed 800 people by this point in its development, the majority of whom worked as customer service representatives. By providing comprehensive assistance to its customers, EarthLink, as evinced by its ever-expanding customer base, was attracting Internet users from other ISPs (there were roughly 4,500 ISPs in existence by the end of 1997) and luring the uninitiated consumers who wanted to access the Internet for the first time.

In February 1998, EarthLink announced a massive deal with Sprint Corporation that closed the ground separating Dayton’s company with Microsoft’s MSN. In exchange for a 30 percent ownership stake in EarthLink, Sprint gave the Pasadena-based company 130,000 of its Internet-access customers, a $100 million line of credit, and $24 million in cash. With the customers gained through the Sprint deal, EarthLink’s membership eclipsed 500,000 by April 1998, at which time Dayton’s interest in the company was worth an estimated $89 million.

Company Perspectives

What’s important at EarthLink? We are convinced that the key to creating a truly great organization is an intense focus on the values that guide its people’s actions. These are EarthLink’s “Core Values and Beliefs.” If we don’t seem to be living up to them, call us on it! We respect the individual and believe that individuals who are treated with respect and given responsibility respond by giving their best. We require complete honesty and integrity in everything we do. We make commitments with care, and then live up to them. In all things, we do what we say we are going to do. Work is an important part of life, and it should be fun. Being a good businessperson does not mean being stuffy and boring. We love to compete, and we believe that competition brings out the best in us. We are frugal. We guard and conserve the company’s resources with at least the same vigilance that we would use to guard and conserve our own personal resources. We insist on giving our best effort in everything we undertake. Furthermore, we see a huge difference between “good mistakes” (best effort, bad result) and “bad mistakes” (sloppiness or lack of effort). Clarity in understanding our mission, our goals, and what we expect from each other is critical to our success. We are believers in the Golden Rule. In all our dealings we will strive to be friendly and courteous, as well as fair and compassionate. We feel a sense of urgency on any matters related to our customers. We own problems and we are always responsive. We are customer-driven.

After finalizing the strategic alliance with Sprint, EarthLink officials projected the company would overtake MSN within 12 months and become the second largest ISP in the country. Toward this end, the company achieved meaningful strides in 1998, doubling its number of subscribers before the end of the year to reach the milestone of one million members. Helping to drive such expansion were two marketing alliances that made the selection of EarthLink a default option for many new computer buyers. Beginning in August 1998, EarthLink software was pre-loaded on all iMacs, a popular personal computer made by Apple Computer Inc. In November 1998, EarthLink became the official ISP for CompUSA, one of the nation’s largest computer retailers.

Merger with Mindspring in 2000

EarthLink continued to broker partnerships with original equipment manufacturers (OEMs) as it entered its sixth year of business. In April 1999, the company was named as the exclusive ISP on all Micron Millennia computers. In June 1999, a “Join EarthLink” icon was placed on approximately one million computers made by Phoenix Technologies. The following month, EarthLink was announced as the default ISP for all new Apple iBooks, the notebook computers manufactured by Apple Computer. In August 1999, EarthLink and USAA, a massive insurance and financial services concern, entered a three-year agreement that appointed EarthLink as the official service provider for USAA’s 3.3 million members. As they had in the past, the marketing partnerships of 1999 greatly increased the expo-sure of EarthLink’s Internet-access services, but, however important, the partnership agreements were overshadowed by one landmark deal announced in 1999. In September, EarthLink and Mindspring Enterprises, Inc., a leading national ISP, announced a merger agreement, a deal that created the second largest ISP in the country.

The EarthLink-Mindspring merger, valued at $4 billion, was concluded in February 2000, creating a newly formed company that used the EarthLink name and combined the senior executives of the two companies. Dayton, who had served as chairman of EarthLink, became a director of the new EarthLink. Mindspring’s founder and chairman, Charles Brewer, was named chairman of the new EarthLink, while the posts of chief executive officer and president were filled by the individuals who held identical posts at EarthLink and Mindspring, respectively. The new company occupied Mindspring’s headquarters in Atlanta, Georgia.

The combination of the old EarthLink’s 1,500 local Internet-service locations and Mindspring’s 890 local Internet-service locations created an ISP with more than three million subscribers and $650 million in annual revenues. Although the company lagged far behind the more than 20 million subscribers comprising America Online, the new EarthLink had overtaken MSN in the frenetic race to sign up Internet users. Considering the overwhelming lead maintained by America Online, the short-term prospects of eclipsing the industry’s behemoth seemed bleak, but EarthLink’s management was undaunted by the ambitious task at hand. At the time of the merger, more than 70 percent of U.S. households had yet to connect to the Internet, prompting the senior executives in Atlanta to boldly proclaim that their goal was to make Earth-Link the world’s largest ISP.

In the wake of the merger, EarthLink secured some of the financial resources it would need to wage the enormous battle that lay ahead. Because of the merger and a $200 million investment in EarthLink by Apple Computer in January 2000, Sprint’s ownership interest in EarthLink had been halved. In May 2000, Sprint recommitted itself to taking part in EarthLink’s future by increasing its investment in the company by $431 million. The money invested by Sprint increased EarthLink’s cash reserves 64 percent, giving the company $1.1 billion to spend on increasing its customer base. The following month, in June 2000, EarthLink announced a definitive agreement to acquire OneMain.com, one of the country’s ten largest ISPs, with more than 750,000 subscribers. OneMain.com, based in Reston, Virginia, provided Internet access to individuals and businesses predominantly located in small cities and rural communities. Once completed, the $308 million deal was expected to increase EarthLink’s membership to 4.2 million subscribers, a total that was sure to increase as the company pressed ahead with its plans to overtake America Online.

Principal Subsidiaries

EarthLink Operations Inc.

Principal Competitors

America Online, Inc.; AT&T Corp.; Microsoft Corporation.

Key Dates

1994:: Sky Dayton forms EarthLink.
1995:: After establishing a partnership with UUNET Technologies, EarthLink launches nationwide service.
1996:: EarthLink icon appears on the Windows 95 desktop; membership eclipses 200,000.
1997:: Company completes its initial public offering of stock and begins trading on the NASDAQ.
1998:: EarthLink and Sprint forge strategic alliance.
1999:: EarthLink and Mindspring announce $4 billion merger agreement.
2000:: EarthLink announces acquisition of rurally oriented OneMain.com.