Three years ago, business was booming for Sky Dylan Dayton. The 23-year-old owned Cafe Mocha, a trendy L.A. coffeehouse; had opened a second one, Joe; and ran a computer graphics business on the side. Then he heard of the Internet. He signed up with a local Internet service provider but was forced to go through 80 hours of manually configuring his computer so he could tap into the ISP's network. Once Dayton was hooked up to the Web, he was awed by its potential but turned off by the experience. "I knew I could do better," he says.
Today, Cafe Mocha and Dayton's other ventures are history. Now, Dayton runs the nation's sixth-largest ISP, EarthLink Network Inc., which has built a name for itself as one of the easiest on-ramps to the Web. Buoyed by going national in 1995, EarthLink's annual revenue last year hit $32.5 million, a tenfold jump from $3 million the year before. So far, EarthLink has piled up net losses of $59.4 million, but analysts expect it to turn profitable sometime in 1999. And by the end of this year, EarthLink is expected to have more than 400,000 subscribers, up from 227,000 last year. Its stock, which opened at $13 when the company went public on Jan. 22, is now trading near $20.
If EarthLink continues on its trajectory, it will boast some 600,000 customers this time next year. That would put it in the same orbit as Microsoft Network, Prodigy, NETCOM On-Line Communication Services, and AT&T Worldnet, which have from a half-million to more than a million customers. Now, Dayton is betting that EarthLink will surpass those to become No.2 behind the Big Kahuna--America Online Inc., with its 10 million subscribers.
BROWSER FORESIGHT. The reason? EarthLink has become the Macintosh of the ISP world--the way for "mere mortals" to connect to the Net. EarthLink offers painless initial sign-on and superior customer service and technical support. It spends time educating customers with booklets and a bimonthly newsletter on how to get the most out of the Web. "We concentrated on where we could build a strategic advantage, where we touch the customers," Dayton says.
As part of this focus on customers, Dayton decided not to build his own network, as many of his competitors do. Instead, he leases capacity from companies such as PSINet Inc. and UUNet Technologies Inc. That strategy also makes EarthLink's network more adaptable. If Web access in the future shifts to cable-modem or satellite networks, EarthLink will not be stuck with an obsolete telephone-based network.
EarthLink also had the foresight early on to forgo developing its own Web browser--a costly endeavor that rivals have abandoned. Dayton instead licensed one from the company that later became Netscape Communications Corp. That arrangement jump-started the company's marketing program. EarthLink has cut deals with 250 companies, such as Sierra On-Line Inc. and CNN Interactive, to send out copies of its sign-on software, which includes Navigator.
But EarthLink was not a storybook success. Dayton and his two original financial backers, all Scientologists, faced a backlash on the Web, including an anti-EarthLink Web page that implied the company was owned by the Church of Scientology. That reference popped up again earlier this year on an investment Web site. "It was like I'm Jewish, therefore EarthLink was owned by the state of Israel," Dayton says.
VIDEO PAL. These days, Dayton considers himself the "keeper of the culture" at EarthLink. He's the "creative genius," says CEO Charles Garrett ("Garry") Betty, behind a new version of the company's sign-on software that starts shipping this month. The software features a video clip of an employee who walks customers through their first Net connection. And he's the leading advocate of EarthLink's personal start page, which just like the online services includes stock quotes, local weather, and CNET Inc.'s Snap! Online channels. "It's one of the sexier sign-on capabilities around," says analyst Jeff L. Sadler of brokerage Robinson-Humphrey Co. in Atlanta.
For Dayton's part, he sees himself as the "ultimate" customer. "I keep pushing operations to think of problems from the member's point of view instead of the engineer's," he says. As long as those customers have a founder as their ombudsman, they'll be happy.