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TAKING STOCK
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In January 1998, when this column last
featured Network Solutions Inc. (Nasdaq, NSOL: $54.86), the company's monopoly status as
the registrar of Webdom — the keeper and distributor of .com, .org and .net addresses
— was about to expire. What next, we wondered, for this Herndon-based company? The exclusive federal contract to register domain names was what shot Network Solutions, founded in 1979, to stardom. The contract was unique in the land of the Internet, a mostly unregulated frontier. New companies weren't quite ready to jump into the fray, however, and the contract was extended through September 2000. At the same time, a test program has a small group of companies — Dulles-based America Online (NYSE, AOL: $92.75) among them — registering addresses under a cooperative agreement with Network Solutions. Even America Online may not pose a big threat as a competitor, says Jim Pettit, an analyst with San Francisco-based Hambrecht & Quist. "You have to look at AOL's big constituency — consumers over businesses. ... Network Solutions has built a franchise around providing identity and registration services to businesses, not consumers." How does registration work? Anyone wanting a domain name shoots off a request to Network Solutions, which checks to make sure no one else has already signed up for that particular address. If the site hasn't been claimed, the registrant can sign up for two years for $70. Network Solutions then sends notice of the address to the Internet's root servers across the country. So does the end of the monopoly signal doom and gloom for the company? Is this yet another millennial dark cloud? Hardly.
Network Solutions has a number of cyberbullets in its belt. The monopoly contract gave the company a perfect environment in which to learn the business: It's the hands-down industry expert, and it enjoys high brand recognition. The corporate infrastructure of service, support and billing is in place. The company also has reduced registration fees and improved service — it processes new addresses more quickly, for instance. And because there are vast numbers of businesses that haven't yet ventured online, competitors are likely to go after new-to-the-Web clients, rather than try to steal the company's existing customers. So Network Solutions will continue to enjoy a predictable revenue stream — $35 a year from 5 million registered addresses and climbing. "This is a market that will support a number of players," Pettit notes. In any event, competitors are playing catchup. "Has [Network Solutions] developed a sustainable market position? I would answer yes. ... They've been doing this for years now. The byproduct is knowledge about database management and relationships with a growing list of domain names." Keep in mind, too, that experts are predicting exponential growth for this market. It won't level off, they say, until there are 100 million or more domain names. And many Web-savvy businesses already pay Network Solutions far more than $35 per year. They generally want a corporate Web address plus addresses for different products and subsidiaries — one address for the movie studio, for instance, and one for each film produced. Virginia Business magazine has registered its own stable: virginiabusiness.com, va-business.com, virginiasites.com, virginiapolitics.com, virginiaworks.com and virginiameetings.com. The Walt Disney Co. has registered more than 1,000 domain names. Network Solutions is not just another tech-stock company. Those have been subject to huge market fluctuations, and with good reason. Network Solutions has things most tech stocks don't: a track record, growing revenues and solid profits. The registration business accounts for well over 90 percent of the company's revenues, and it is starting to branch into other lines of business. It's already leveraging its contact with small businesses to provide network services, help with intranets and offer other online consulting. Network Solutions also is diversifying with its Dot Com Directory, the Internet address equivalent of the Yellow Pages. The federal government had criticized the company for the move; regulators and legislators were grousing that the company was using its monopoly position to block competition. But the Commerce Department dropped its objections after Network Solutions agreed to license its registration data to third parties. If all goes as planned, the directory will launch this month. Network Solutions will generate revenue both from advertising on the site and from upgrades and enhancements of listings, the way most phone books do. "The new service could be a tremendous opportunity," Pettit says. "It will be the definitive source for directory listings at the online business level." Leigh Anne Larance |
© SEPTEMBER 1999, Media General Business Publications Inc.,
publisher of Virginia Business Magazine