Online Extra: United Internet
Ralph Dommermuth, the 40-year-old chief executive officer and founder of United Internet, knows the blessing and curse of depending on a single big customer. Back in 1996, Dommermuth's company 1X1 was a marketing-service provider that had played a significant role in transforming the online service of phone behemoth Deutsche Telekom from a user-unfriendly Internet provider called Datex-J into a trendy Web portal called T-Online. Dommermuth provided the software and attracted customers to the service.
Then T-Online decided to stop outsourcing its marketing, and Dommermuth lost his biggest customer. "We had to decide between finding a new key customer or providing Internet service ourselves," he told BusinessWeek in a phone interview, while vacationing in Greece aboard his 30-meter sloop. "With the rise of the Internet it had become relatively inexpensive to become a service provider ourselves."
Dommermuth's wager paid off. In 1998, 1X1 went public and changed its name to United Internet. It hit a rough patch when the tech boom went bust in 2000. But since then it has come roaring back to become Germany's No. 2 provider, after T-Online, of high-speed Internet access over digital subscriber line, or DSL, connections.
United Internet is also the world leader in Web hosting with more than 4 million hosted sites, well ahead of its closest competitor, the U.S. outfit GoDaddy, which has around 2.3 million sites. United Internet also has some popular brands in its stable such as the Web portal and e-mail service GMX, which doesn't charge customers for additional storage capacity.
United Internet expects its business to boom along with broadband usage. About 5 million German households now have DSL connections, but in a few years that number is expected to quadruple to more than 20 million. "The big difference between United Internet and its competitors is that when it adds a DSL customer, it's a real net gain in customers and sales," says Oliver Maslowski, analyst at Vontobel Research in Zurich. "For the others, it's largely a transfer of dial-up customers to DSL, and there are then no additional revenues."
SMOOTH SAILING AHEAD?
Dommermuth already is raising his forecasts for 2004. He expects sales to rise to €505 million, from €415 million last year, and pretax earnings to climb to at least €79 million, from €62 million. And although Germany remains plagued by high unemployment, United Internet keeps adding jobs: nearly 300 in the first half of 2004. The one danger worrying analysts is the cost of maintaining United Internet's 20% share of the German DSL market in the midst of a bitter price war.
That's one reason Dommermuth is taking United Internet on the road. The company is launching an advertising offensive to win customers in the U.S., especially for its Web-hosting services, and is also branching out in Britain and Austria. "The big issue for us in the next few years will be going international with our business," says Dommermuth. "Within two years we expect sales to increase to €800 million." It might not always be smooth sailing, but Dommermuth has set a clear course.
By William Boston in Berlin