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By Michael E Kanell
Atlanta Journal-Constitution
Sunday, September 9, 2007
In just a dozen years, EarthLink has gone from being an entrepreneurial pioneer to playing the dinosaur.
With annual revenues of $1.3 billion, the Internet service provider is far from being a fossil. But EarthLink's future is clouded and its growth —- at least for now —- is unlikely. Not when the company is slashing nearly half its work force to regain profitability.
It is, perhaps, another story of a loss-drenched company struggling to right itself.
But it is more, said Peter von Stackelberg, a futurist with Social Technologies: EarthLink's pain serves as a warning.
"EarthLink is an example of what is likely to happen to a number of firms in coming years," said von Stackelberg, who is also an adjunct faculty member in the management and engineering school at the Alfred State College of Technology in New York.
Even worse, the coming risks for EarthLink are dire. The past, after all, is punctuated with stories of companies that accelerated to success and then spun out at the next turn in the road.
Some were crushed in the market: Atari, Ronco, Osborne Computer.
Some had the need for their product disappear completely: makers of buggy whips, for instance.
Some were replaced by companies that manufactured products that did what theirs did, only better: makers of typewriters, vacuum tubes, Super-8 film and eight-track cassettes. Old-style, 35 mm film may be joining that group.
Paradoxically, companies can get into trouble by sticking with what made them succeed, said Alan Weiss, president of Rhode Island-based Summit Consulting Group. "They get better and better at a narrow thing."
Surfers on technology waves find that, eventually, what was leading edge turns mundane. Companies that used to compete by offering special features and cool techniques suddenly find themselves selling a cut-rate commodity.
"Telecommunications is a commodity kind of service," said Lance Weatherby, former executive vice president of sales and marketing for EarthLink and now a "venture catalyst" at Georgia Tech's Advanced Technology Development Center.
That makes Internet access a kind of utility, Weatherby said.
"We used to talk about how people would stop saying, 'I'm going to get on the Internet,' " Weatherby said. "With the electricity grid, you don't say that. You just flip the light switch."
Back in the day
The story did start out with promise.
EarthLink and MindSpring, then two dial-up Internet companies, were early winners in the race to link Americans to the Internet. When they merged, the combined company was immediately a national player taking on the likes of America Online.
The dial-up business still has a sizable number of loyal —- and profitable —- customers, but all the growth has been in high-speed service. EarthLink leases phone or cable lines to provide high-speed Internet, giving an advantage to the companies that own the wires.
Still, EarthLink was a survivor of the telecom bubble. Hundreds of companies from WebVan to WebMD raised massive amounts of cash for vaporous plans without a penny of earnings, and then crashed.
In contrast, EarthLink had a real business that produced revenues from a devoted customer base. Demand was surging, and the future of the Net seemed increasingly solid.
EarthLink's ability to connect customers meant steady growth and even profits.
But that status quo sure didn't hold for long.
EarthLink's woes seem like proof of how much things have changed. Yet its troubles also show how the old rules apply. No matter what is being sold, the most crucial need is to keep serving the customer and not get stuck on some notions of what the company is or has been.
"It's the question of the outcomes for the customer," Weiss said.
"You don't buy a drill because you want a drill. You buy a drill because you want a hole."
Echoes of the past
History holds some patterns: A technology appears. It triggers research, marketing, innovation. The sector is crowded suddenly with competitors. Then comes the shakeout.
It happened with autos —- there were hundreds of carmakers before the Big Three emerged to rule the market for decades. But booms are followed by consolidation. First comes the gold-rush frenzy —- cash tossed at every long-odds opportunity, a mob chasing the big strike. Then comes reality and a lot of prospectors are heading back home —- or working for someone else.
To smaller players, consolidation is a threat —- as competition or in a potential takeover. Yet consolidation, too, is an old idea.
It happened with railroads, with radio. It happened with the telephone —- in fact, phone consolidation is happening all over again now. And EarthLink is one of the victims.
The company is the sixth-largest Internet service provider, according to ISP Planet. Four of the first five are phone or cable companies. The fifth is AOL.
Fast get faster
"This process has been pretty consistent over the last 150 years," von Stackelberg said. But hasn't the consolidation been happening much faster this time? After all, when EarthLink and MindSpring were founded, less than 14 percent of Americans were Net-connected. Now, it's 71 percent.
"The pace of technology is speeding up," said Emily Sanders, president and chief executive of Sanders Financial Management in Norcross. "It's not just the Internet —- it's all technology."
Consolidation this time has indeed been different, argued Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University.
The process has quickened —- partly because of the Internet itself, he said.
The flow of information is nearly immediate and global, while engineering skills, too, are spread worldwide.
Learning to respond
Even successful companies must respond to new developments, Ghadar said. "The market matures faster. If you don't manage that life cycle very quickly, competitors come out of the woodwork and you are doomed."
That life cycle change leaves EarthLink with another disadvantage.
Still, not all the winners from the old wave are destined to be swamped by the new one.
Look at IBM: By turns a punch-card company, a typewriter company and a maker of room-sized mainframes, the giant company, reshaping itself with each wave, still makes hardware but has also become a writer of software, a provider of financing and one of the globe's biggest business consultants.
EarthLink was never as dominant as IBM, but it, too, has sped from successful growth to a critical crossroads.
"What is amazing to me is that it happened in such a short time frame," Weatherby said. "Change is accelerating."
TECHNO-ROADKILL
The innovation highway is littered with an awful lot of gizmos and companies. Some were sideswiped by speeding technology —- and some were simply steamrolled by the blind rush of history.
Movie camera: Call grandpa, I can't seem to upload this thing to the laptop.
A 5 1/4-inch floppy disk: Even the accessories to a winning technology can go out of fashion —- how many computers can even read a floppy now?
Vacuum tube: Vacuum tubes were a great way to amplify, switch or create electrical signals. Then came solid state and integrated circuits.
Typewriter: Where do you plug this thing in? And where's the darned screen?
8-track tapes: Perfectly fine technology that did exactly what it was supposed to do, except people bought other stuff.
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