Earthlink To Aol: Watch Your Rearview Mirror

The new No. 2 ISP is a long shot, but an ambitious one

Talk about your hot home-based business. In a mere five years, Charles M. Brewer has turned Atlanta-based MindSpring Enterprises Inc. from a desk in his studio apartment into one of the nation's largest Internet service providers. And thanks to his Sept. 23 merger with EarthLink Network Inc., of Pasadena, Calif., Brewer has vaulted over the likes of Microsoft, AT&T, and Prodigy to become the nation's second-largest ISP behind America Online Inc.

Next? Brewer and his scrappy team used their merger news as a chance to pick a public fight with their far bigger rival for supremacy of the Internet-access business. "The message to AOL is that objects in the rearview mirror are a lot closer than they may appear," says Michael S. McQuary, who will serve as president of the combined company, which will be known as EarthLink.

That may be a bit of bravado. Although the merger doubles Brewer's customer count to 3 million, and revenues to $650 million, that's a far cry from AOL, which boasts 20 million subscribers and $4.8 billion in sales. And given AOL's marketing muscle and masterful use of messaging and chat technologies to give users a sense of community, analysts give Brewer & Co. long odds of catching up. "I don't see anything in the merger that enables EarthLink to attack AOL's strengths--its ease of use and its reputation as the place to go for your first Internet experience," says Jupiter Communications Inc. analyst Joseph Laszlo.

Not surprisingly, Barry M. Schuler, president of AOL Interactive Services, agrees--deriding rivals like EarthLink as "players with onesy, twosy millions" that had to consolidate to get to even that level.

But Brewer & Co. sincerely believe they can narrow the gap between their company and AOL by attacking the giant where it's weakest: providing strong customer support and giving small businesses the customized services they can't get from AOL. "There's a high degree of dissatisfaction among AOL customers," says EarthLink CEO Charles "Garry" Betty, who cites a recent J.D. Power and Associates survey of the seven largest ISPs that ranked AOL and its separate CompuServe unit at the bottom in customer satisfaction (MindSpring and EarthLink ranked first and second, respectively). Schuler bristles: "Customer satisfaction and retention are at the highest in our history. And we continue to experience the fastest growth in the business."

For his part, Brewer is preparing to gamble a whopping $300 million--or nearly half his current revenues--on a marketing blitz that he hopes will enable EarthLink to sign up five million new subscribers by 2001. One group EarthLink believes is ripe for picking is AOL's estimated 3.5 million small-business customers, whom Brewer hopes to woo away with customized e-mail addresses, e-commerce support, and Web hosting. Given AOL's consumer focus, "it is definitely vulnerable on the small-business front," says Yankee Group Research Inc. analyst Eric Klein, who says the new EarthLink ranks second only to Verio Inc. in sites hosted, with 90,000.

LEAPFROG. Brewer is banking on partnerships to help close the gap with AOL. As more local and long-distance providers scramble to offer one-stop shopping, EarthLink officials hope to provide the Internet component for telecom companies looking to expand. Indeed, when Sprint Corp. unveils a new bundled service plan next year, the Internet access component will be provided largely by EarthLink.

Still, even on the Internet where overnight sensations routinely leapfrog leaders, analysts wonder if EarthLink is too late to catch AOL. With nearly half of U.S. homes already on the Net, "companies will have to start stealing customers from other ISPs to keep growing," says Strategis Group analyst David Eiswert. That suits Brewer, who relishes the role of David. The question is whether his stone can slay or even wound this Goliath.

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