The Battle of His Life

Can rescue artist Mark Goldston make a success of cut-rate ISP United Online?

Every day at around 4 p.m., a depressing stock quote pops up on Mark R. Goldston's cell phone: "NZRO $0.39." Never mind that the stock no longer exists. NZRO, the symbol for pioneering free-Internet-access provider NetZero, was changed to UNTD this past Sept. 26, after NetZero acquired archrival Juno Online Services to create United Online Inc. (UNTD ) Goldston, NetZero's CEO since 1999, runs the new company. UNTD has since climbed from $2 a share--after a reverse stock split--to $7. But Goldston refuses to erase "NZRO $0.39" from his phone. "I don't ever want to forget where we came from," he says.

Where United Online came from was a seemingly unstoppable slide toward the dot-bomb trash heap. Neither NetZero nor Juno had been able to turn a profit providing free Internet service that would be paid for by advertisers. Moreover, at the merged company's burn rate, United Online seemed destined to run out of money this year.

Goldston, a charismatic marketing specialist with a knack for curing sick companies, is facing his biggest test ever: He has to manage a merger and a tricky turnaround at the same time. So far, so good. He has cut 240 jobs and slashed the marketing budget from $23 million per quarter to $10 million. United Online's loss (before special charges and depreciation) narrowed to $2.6 million for the quarter ended Dec. 31, from $13.1 million the previous quarter. That puts the company on track to turn cash-flow positive in the June quarter.

Still, United Online won't succeed until Goldston delivers on the most challenging part of his strategy: eliminating its reliance on ads. He's trying to wean customers off free Internet services and get them to pay $9.95 a month for a plan offering virtually unlimited surfing but few extras (such as personal Web pages). So far, 1.5 million of United Online's 5.6 million customers are paying. The company lured 214,000 paid subscribers this quarter alone. And on Feb. 26, he announced a deal with Comcast Corp. (CMCSK ) that will provide his customers, for the first time, with broadband.

Despite the low-cost lure, United Online remains the underdog in the battle of the Internet service providers. By limiting the number of free hours and decreasing marketing, the company risks losing customers for Juno and NetZero, and falling off the radar of consumers looking for a new ISP. But if Goldston succeeds, United Online could bedevil leaders AOL (AOL ) and MSN--which charge $21.95 and up per month--by scooping up price-sensitive consumers for years to come.

This is the battle 48-year-old Goldston has been training for. Growing up in Chicago, Goldston caught the business bug from his father, Larry, who ran a 150-store chain called Community Discount. As a child, Goldston spent Saturdays visiting stores and peppering his dad with questions about the products he saw. "I thought Wilson basketballs were invented by my dad," jokes Goldston, a lifelong sports fanatic. "When he explained marketing people came up with product ideas, I knew that's what I wanted to do."

He got a quick start. As an undergrad at Ohio State University, he had the nerve to send a registered letter to the home of Ray Krok, McDonald's Corp.'s chairman at the time, suggesting a container for french fries that could be reused as a pencil holder. Krok invited him to headquarters and even offered him a job, but Goldston opted for grad school instead.

His career has been a mix of glitzy marketing and down-and-dirty turnarounds. After earning his MBA, Goldston worked a string of marketing jobs, including a stint at Reebok International Ltd. In 1988, as chief marketing officer, he led the team that developed the heralded Reebok Pump. But Goldston battled with top management over everything from the design of the shoe to its name. "He won through perseverance and logic, but he could be confrontational, and the battles rankled his bosses," recalls Reebok co-worker Robert S. Apatoff, now chief marketing officer at Allstate Corp. After just one year, Goldston quit.

He was drawn to turnarounds because they tapped all of his skills. At his next stop, buyout firm Odyssey Partners, Goldston's task was to introduce new products without spending a fortune. "Mark was the idea guy. He could always find a twist that would make things work," recalls Bill Benac, who worked with Goldston at Odyssey. Among his successes was Revell/Monogram, a model-kit company that was near bankruptcy. Goldston introduced snap-together kits using existing equipment and materials. The products caught on, the company turned profitable, and Odyssey took it public in 1991.

His creativity failed him at his next tenure, L.A. Gear Inc. The shoemaker was saddled with $100 million in debt when Goldston joined in 1991. As CEO, he cut costs and launched a line of children's shoes, L.A. Lights, which lit up when they hit the ground. The shoes took off, but in 1994, Hubert Humphrey III, Minnesota's Attorney General, lashed out at L.A. Gear for putting mercury in L.A. Lights. Goldston redesigned the shoes. He was ousted that year anyway. He is still haunted by the belief that, given more time, he could have made the turnaround stick. "I never got the chance to finish the game," he laments.

With United Online, Goldston is determined not only to finish the game but also to apply every lesson he learned along the way. His mantra: "Expect every turnaround to take longer than you think and to burn more cash than you expect." That's why he's combing the company for ways to conserve money. One painful decision was pulling out of the National Basketball Assn. halftime sponsorship, NetZero at the Half. "It was a coup" to win the sponsorship, Goldston says. But expensive: Industry sources say it cost $20 million a year. Goldston champions his own ideas, but he bends when necessary.

Now, Goldston is confident that he can fix United, even imagining a day when it will be successful enough to buy smaller ISPs. That may be a ways off. "We'll wait," Goldston says. "Profitability first." Wise words from a man who is reminded every day of the near-failure of his company.

By Arlene Weintraub

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