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Movers & Shakers By David Rocks August 25, 1999


Charles Brewer's Plan to Bounce MindSpring Ahead of the Pack
The founder of the now No. 5 ISP has his sights set on becoming No. 2. And that's just the start

Even by the offbeat standards of Internet companies, Charles Brewer is quirky. The chief executive of Internet service provider MindSpring Enterprises Inc. has had not one but two different three-legged Rottweilers (Henry and Louie) accompany him to work daily. When he was an MBA student at Stanford University, he dared corporate recruiters to beat him at an obscure board game called Pente, suggesting that if he won, they should offer him a job. (No one took up the challenge.) And two years ago, he introduced then-Georgia Governor Zell Miller by singing a homespun version of the Beverly Hillbillies theme.

Quirks aside, you can't quibble with Brewer's success. By recognizing early that customer service is paramount -- something many other ISPs are only today realizing -- Brewer has built MindSpring into the fifth-largest player in the industry, with more than 1.2 million customers. MindSpring this year is on track to triple its revenues to more than $300 million. Better yet, Brewer has achieved the Holy Grail of the Internet: profitability. For five consecutive quarters, his company ran in the black, although charges related to recent acquisitions gave MindSpring losses of $3.3 million in the first quarter and $7.1 million in the second quarter this year.

FREE-WAY TRAFFIC. But with the industry undergoing seismic change, Brewer faces fresh challenges. A flood of new entrants is offering cut-rate or free service to users willing to wade through a sea of advertisements on their way to the Web. And cable companies are hoping to offer their own Internet service over their high-speed networks, shutting out ISPs such as MindSpring. Brewer is trying to chart a middle ground between the many ISPs that are now focusing on hosting Web sites and the giants such as America Online and MSN.com, which provide Net access to consumers who also want these providers' wide array of information and entertainment.

 

Citing his low customer churn rate of 3.3% a month vs., the industry average of 4.4%, Brewer says: "We have happier customers"
 

Is Brewer worried? No way. "We are the leanest, most profitable ISP out there," he says confidently. But he also sees a need to build his customer base -- rapidly -- and is planning a costly new marketing plan to vault into the No. 2 position behind the industry's 800-pound gorilla, AOL, which has more than 17 million customers. "There's a very high degree of dissatisfaction, and people are looking for something better," Brewer says. While some question whether Atlanta-based MindSpring will reach that goal, the lanky 40-year-old founder simply chuckles and cites the company's low customer churn rate: 3.3% a month vs., the industry average of 4.4%. "We have happier customers," he says.

 NO GRAND DESIGN. That commitment to service has always been a pillar of MindSpring's business. Brewer quit as CEO of fax-on-demand software developer AudioFax Inc. a year before founding MindSpring in 1994. He was frustrated with the daily grind of American corporate life but had no grand design in mind. He just knew he wanted to start another company. During his hiatus, Brewer thought over why he didn't like his previous jobs and came up with a set of nine core values even before he knew what his new company would do. Anchoring the list: "We are customer-driven."

His other core beliefs aren't bad either. They include: "Being a good businessperson does not mean being stuffy and boring," and "We are frugal." Indeed, some of Brewer's office furniture was scavenged from an Atlanta street. "Charles is quirky and cheap and proud of it," says Alan Taetle, an Atlanta-based venture capitalist who ran MindSpring's marketing and business development until April, 1998.

MindSpring emerged out of Brewer's own frustrations with getting on the Internet. In the fall of 1993, he attended a technology conference and toyed with the nascent Mosaic Internet browser. Excited by what he saw, he signed up with one of the original ISPs, NetCom -- a company MindSpring later bought -- and fired up his computer. "The starter kit was a piece of paper with a phone number, and I dialed it and was greeted with an asterisk [on a blank computer screen]," Brewer recalls. "I had no idea what to do."

After typing "run," "go," "start," "help," and dozens of other words, he called NetCom's customer-service number in California but couldn't reach a live representative. "Finally, a month later I got through and the guy came on and said the first thing you have to type is 'menu,'" Brewer says. "It was the one four-letter word I hadn't tried."

 

"Charles' vision was to have an ISP that would answer the phone and talk to you when you called"
 

That experience planted the seed for creating an easy-to-use, customer-oriented Internet service. Brewer met with friends who had some technical expertise and in February, 1994, founded MindSpring. Soon, he had several dozen customers and four employees working out of his studio apartment. "Charles' vision was to have an Internet service provider that would answer the phone and talk to you when you called," recalls Ron Hutchins, a Georgia Institute of Technology specialist in information technology who helped Brewer formulate his business plan early on. "Before Charles did this, the biggest ISPs were run by techies who couldn't figure this out."

As MindSpring prospered, Brewer began to lose interest in day-to-day operations. In 1995, he promoted his old friend Michael McQuary to president and asked him to run MindSpring. "Charles is better at looking ahead, while Mike is more of a detail-oriented, nuts-and-bolts kind of guy," says Lee Raker, a high-school chum of Brewer and college buddy of McQuary who introduced the two in 1982. While Brewer and McQuary are best friends to this day, their relationship doesn't seem to hamper the operation of MindSpring. "I have 12 people reporting to me, and Charles has one -- me -- and he's got the harder job," quips McQuary.

STARTING LATE? Today, Brewer's primary focus is figuring out how to build MindSpring, with the bulk of his time spent forging industry alliances and acquisitions -- the company has bought more than 40 smaller ISPs. While Brewer says he plans to continue his acquisition spree, he has also hatched plans to more than double spending on marketing. His goal: To reach 2 million customers by the middle of next year and break out of the pack of second-tier ISPs. "There's a window of opportunity for this to happen, and it's wide open right now," Brewer says.

Others are less convinced. MindSpring's stock fell by more than 30%, to below $30, in the days following the marketing-plan announcement on July 28 -- and it has recovered little ground since, compared with highs of more than $60 in April. And it's clear that MindSpring's rivals such as Earthlink, AT&T WorldNet, and Prodigy all see the same window of opportunity to pump up their subscriber lists. "MindSpring is starting a little late, and my fear is that they're going to have to increase spending just to stay level," says FAC/Equities analyst Jeff Sadler.

But Brewer has made big bets before -- and won. He first staked his future as an ISP before the acronym had been invented. Then as a regional player in Atlanta, he saw he needed a national presence to survive, so he bought PSINet's dial-up customers -- at a time when many said there was no money to be made serving consumers. "I have faith in the management team at MindSpring," says Scott & Stringfellow analyst Thomas Morabito. "They know how to make money in this business, which is pretty impressive."

 

If he gets broadband access, Brewer says MindSpring will soon look more like a phone company
 

A thornier issue is open access to cable systems for ISPs. In that debate Brewer has some heavy allies -- AOL and the Baby Bells, which also want to use the high-speed Internet connections that cable networks provide. But it has some even weightier opponents such as AT&T, now a major cable player, which wants to restrict Internet access to its own services. "More and more your Internet connection is the core telecommunications service that you'll use," Brewer says. "If we're going to have a competitive market for this service, the only way to get there is to have some effective way to share the limited number of wires coming from the home." States and communities are now deciding whether to open up cable systems.

If he's given access to those wires, Brewer predicts that in five years his company will look more like a phone company and less like what we know today as an ISP, offering a full suite of services possibly including local and long-distance voice connections over Internet-style networks. As MindSpring's resident seer, he believes in a future where dozens of devices in the home will be connected to the Internet. And he wants his company to provide the channel linking all of those new gadgets. MindSpring's advantage? The same asset the company touts today: service. "The bit-carrying part of the business is getting more commodity-like, and service and support take center stage even more prominently than they have in the ISP business today," he says. "We really think that plays to our strength."

If he's successful, maybe he'll even buy some new office furniture.

Rocks, based in Business Week's Atlanta bureau, writes about technology


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MindSpring founder Charles Brewer




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