Earthlink Inc

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EARTHLINK INC.

As the second largest Internet Service Provider (ISP), behind America Online (AOL), Earthlink Inc. serves more than 4.8 million consumers and small businesses. The company offers its members dial-up services; broadband access such as digital subscriber line (DSL), cable, and wireless; domain registration; Web design; Web hosting; and various other services aimed at helping enterprises with their e-business efforts.

EARLY HISTORY

Earthlink Network was founded in 1994 by Sky Dayton. Dayton had developed the idea for Earthlink when he became frustrated with his ISP after unsuccessful attempts to log on to the Internet. In 1993, he set plans in motion to create an ISP whose major focus would be providing customer service. Dayton sought out investors Reed Slatkin and Kevin O'Donnell and secured $100,000 in funding for his new business. Offering technical support by phone, Dayton had secured his first customer by July 1994. Earthlink's first member logged on to the Internet using one of the start-up's 10 modems.

Earthlink became increasingly popular as use of the Internet by businesses and consumers grew quickly. In 1995, the firm teamed up with Netscape Communications Corp. in a deal that provided Earthlink members with Netscape's Navigator, an Internet browser. Dayton also launched Earthlink Software, an innovative package that set up computers for Internet access. In August of that year, Earthlink broadened its service area dramatically when it signed a deal with UUNET Technologies. The alliance allowed Earthlink to use UUNET dial-up access numbers to provide national service in 98 U.S. cities. The company also became the first ISP to offer unlimited dial-up access for a flat rate of $19.95 per month, allowing members to surf the Web without time constraints.

Earthlink continued its expansion and in July of 1996 partnered with PSINet to offer dial-up access across the United States and Canada. The firm also teamed up with industry giant Microsoft Corp. and began distributing its Internet Explorer browser to members. Earthlink, in turn, was included on Micro-soft's Windows 95 operating system desktop. Along with capturing a large portion of individual accounts, the company also began to focus on providing services to businesses as well. In late 1996, it began to offer nationwide integrated services digital network (ISDN) and frame relay services, which provided higher-speed access to the Internet.

In January 1997, Earthlink went public with a membership of nearly 300,000 North American-based individuals and businesses. The firm launched its online mall later that year, promoting the e-business efforts of many e-tailers such as BarnesandNoble.com, NetGrocer, and Travelocity by offering links to their Web sites at the online mall. The company also kept pace with ever-changing Internet technologies and began offering 56K-flex modem lines, which were twice as fast as 28.8K modems. Earthlink and Charter Communications also initiated a partnership to provide high-speed Internet access through cable modems—an emerging technology at the time—to Charter's customers in California.

GROWTH VIA STRATEGIC ALLIANCES AND EXPANDED SERVICES

Working toward its goal of becoming the largest independent ISP, Earthlink forged several strategic alliances in 1998. In February, the firm teamed up with Sprint Corp. in a deal that combined the two companies' Internet services and gave Sprint a stake in Earthlink. It also positioned Earthlink as a major player in the Internet services market and gave the firm access to Sprint's large customer base. By April, Earthlink had signed on its 500,000th member. In another deal, Earthlink's Internet software became the default on Apple Computer's newly launched iMac computer. The alliance with Apple—one of the most successful in Earthlink's history—solidified the firm's commitment to expansion through original equipment manufacturer (OEM) channels. In similar deals, Packard Bell and NEC Ready Computers named Earthlink the default ISP on their computers in late 1998, just in time for the upcoming holiday season. The partnerships secured more member sign-ups than any other marketing promotion in Earthlink's history to date. Finally, an agreement with CompUSA, a major U.S. computer retailer, secured Earthlink as the chain's official ISP and also gave Earthlink access to CompUSA's customers and exposure in the store's promotional materials. By the end of the year, Earthlink's customer base had reached 1 million.

The ISP experienced continued growth into the following year. In March of 1999, Earthlink launched TotalCommerce, which offered small businesses the opportunity to set up online storefronts. It also continued to promote its Click-n-Build Web site creation tool that allowed members to build Web pages. Additionally, members had an opportunity to create a personal start page, which loaded automatically each time they logged on to their accounts. These pages could be personalized with links to various retail sites, investment information pages, and a variety of other online products and services.

Along with helping its members to create a presence on the Web, the company also began to offer high-speed access options. For example, utilizing Sprint's DSL network, Earthlink began offering its customers alternatives to basic dial-up access. It also teamed up with UUNET to offer nationwide DSL access to consumers—the first such offering in the industry. The firm continued to secure lucrative OEM partnerships as well, including being named the official ISP of Micron Millenna computers. Phoenix Technologies also added an Earthlink icon to its new computers.

Earthlink entered the new millennium with a mission of becoming the largest ISP in the world. To facilitate this, Earthlink merged with Mindspring Enterprises, an ISP formed in 1994 by Charles Brewer who, like Dayton, was frustrated with current ISP offerings. After the $1.3 billion deal was completed, Earthlink—which formally changed its name from Earthlink Network to Earthlink Inc.—served more than 3 million members and operated as the second-largest ISP in the United States. A few months later, Earthlink broadened its subscriber base once again with the purchase of OneMain.com, a leading ISP that served 762,000 dial-up, broadband, and Web hosting members in rural and suburban areas. Building upon that deal, Earthlink partnered with Hughes Network Systems in November 2000 to offer high-speed satellite broadband services to those in rural areas.

Believing broadband services were essential to remaining competitive in the ISP industry, Earthlink sought out rival AOL, looking to forge key technology partnerships. In December 2000, AOL agreed to allow Earthlink to use AOL and Time Warner cable lines to offer high-speed services to its members. Despite Earthlink's position as the second-largest ISP in the country, its membership base of 4.8 million was still far behind AOL's nearly 29 million users. Although revenues grew 32 percent in 2000 to reach $986.6 million, the firm had yet to record positive net income. Nevertheless, Earthlink management continued to focus its efforts on offering high-speed access and converting regular dial-up members to broadband services. The ISP industry, which had been experiencing considerable merger and acquisition activity for the past several years, continued to consolidate, prompting speculation concerning Earthlink's future. In a March 2001 BusinessWeek Online article, Earthlink CEO Garry Betty commented: "I could speculate all day about who would buy a company like Earthlink. Our story is that we've been successful providing the basics better than the competition." While Earthlink's future remains uncertain, the company pledges to continue to develop shareholder value in the future while pursuing strategic alliances that fit in with company plans to remain a leader among ISPs.