VeriSign's New Target: Consumers


VeriSign has made an art out of being in the right place at the right time. Ten years ago, the Silicon Valley company, which provides much of the backbone for the Internet and telecommunications networks, was just a fledgling startup spun out of computer-security company RSA Security (RSAS). With just four people and $2 million in venture capital, its initial business was issuing so-called digital IDs -- software files that could tell browsers whether the eBay- or Amazon-labeled site someone was trying to access was indeed the real eBay (EBAY) or Amazon (AMZN) and not a clone set up by hackers.

A then-newborn Netscape asked to include the technology in its browser, and Microsoft (MSFT) followed suit. "We got lucky," says VeriSign (VRSN) Chief Executive Stratton Sclavos.

RFID MASTERMIND. As it turned out, that whole Internet thing took off, and VeriSign scored big-time by winning a government contract to manage the dot-com and dot-net directories. Today, it has built a formidable telecommunications business that represents 60% of its revenues. As with the behind-the-scenes role it plays with the Internet, someone making a call likely never realizes VeriSign's role in connecting it.

But now Verisign is starting to make forays into the consumer world, with the recent acquisition of Jamba, a company that sells and promotes ringtones and other mobile-phone content.

Up next? VeriSign is building a business in the growing radio-frequency identification (RFID) tag business for tracking products -- retailers like Wal-Mart Stores (WMT) and Target (TGT) expect it to be the next barcode. In January, 2004, VeriSign won an industry contract to build and operate the master database containing the information stored on RFID tags used in retail stores around the world.

ON THE RISE. RFID, the Internet, and telecom may sound like disconnected businesses, but they share two things in common. They all need huge, central repositories of information for phones, computers, and other Web-enabled devices to connect with one another. And they're all growing businesses.

VeriSign's revenues fell by 13% in 2003, but rose 6% last year, to almost $1.2 billion. The company expects that to jump to $1.75 billion in 2005 -- its 10-year anniversary. Investors have noticed the turnaround: The stock closed at $30.59 on July 12, a long way from its 52-week low of $16.21.

BusinessWeek Online Silicon Valley reporter Sarah Lacy sat down with Sclavos recently to talk about the good times and the bad times acting as the Internet's invisible hand. Following are edited excerpts of their conversation:

Q: Your company has enabled so much of what happens online, but even during the boom you weren't a headline grabber. Was it a decision not to be flashy during that time, or were you just overshadowed?

A: Well, I think you always have short-term envy, right? I can remember Ariba (ARBA) growing 60% in a quarter, or eBay and Yahoo! (YHOO) getting all this press.

At the same time, we really liked our business model better than anybody else's. We were going to grow at the rate that the network and e-commerce were growing, and we had very few natural competitors. We understand that the best our customers will ever do is take us for granted. It's only when we screw up that they'll really notice us.

Q: Growing at the same pace as the Internet wasn't so good after the bubble burst. From 2000 to 2002, what was going through your head with this business?

A: Let's see, the things you can print? You know, I think we really believed we had a great business and a great franchise, and yet everybody was feeling this economic crunch, whether it was the telecom providers or it was these new Internet companies.

For some period of time, you try to talk yourself into believing that it's all just short time. And then you realize this is really a macroeconomic effect, and you have to learn some discipline. I think that's a very hard thing for a company that for its first five years had been nothing but successful.

So I would say those two years [were] certainly the hardest period of my working career. We really had to refocus and get back kind of our core values and our core purpose in the company. We had to get our employees completely motivated and energized around this mission, and we had to forget about the stock market and investors for some period of time. And I will tell you from the day we all looked in the mirror and said that's what we were going to do, things around here started turning up.

Q: That's pretty radical to say you're going to forget about the stock market and investors.

A: You know, I've spent a lot of time with a lot of CEOs, and I sit on some boards, and the general refrain is, "We have three constituencies: employees, customers, and shareholders." But I think if you believe you're doing the right thing for customers, and if you believe you have a great set of employees who are all motivated, then the third constituency gets rewarded, right?

And I can tell you -- I spent 25% of my time in the 2000 to 2002 period with investors, and finally realized that that 25% would have been better spent with customers and employees.

Q: So you've gone from making online transactions more secure to selling ringtones. That's confusing to a lot of people. How do all your businesses fit together?

A: Oh yeah, from the outside we look like we're in supply chain with RFID, we look like we're in domain names with dot-com and dot-net, and we look like we're in telecom with Jamster and our traditional voice stuff.

But think about those things at another level. Those are just [ways of] enabling an interaction or protecting an interaction. It's all built on the same technology base. It all connects into the same networks. It's all run by the data centers that we've owned for many, many years. RFID, at a technology level, you can't distinguish it from what we do in domain names. It's exactly the same addressing scheme, right? So for us, we could build that in literally four months.

Q: What new areas of the business have been really exciting to you personally?

A: In the communication space, Jamba and wireless content. It's so funny. People talk about it as ringtones, and they kind of crinkle their noses and say, "Who would want that?"

It's not [just] ringtones. It's about mobile entertainment. It just happens to be, because of the speed of the networks and the functionality of the phones, that the first thing we can do is ringtones and graphics. But there will be full download songs, there will be video-on-demand, there will be TV, and there will be multiplayer gaming.

So we're at the tip of the iceberg on mobile entertainment. I think that's incredibly exciting, because I'm watching it through my children's eyes. It's that generation that we're seeing use this new technology, because they're the first generation that's growing up with the network always on.

Q: What's the ringtone on your phone right now?

A: Right now, it's a funny one that we have that says, "Hey, pick up the phone." But it changes frequently. My kids are the funny ones. Man, I hear a new song on their phones weekly.

Q: Do you put them on a budget, or do you let them spend whatever they want since you're making money off it?

A: They understand that this stuff costs, so they come and ask. And they're pretty good about it.

Q: Like a lot of software executives, you've been the CEO from the beginning. Ever wonder if you're still the guy to be running this company?

A: Sure, I wonder it every day. I didn't know how to run a startup, I didn't know how to run $100 million business when we got there, I didn't know how to run a billion-dollar one when we got there, and I certainly don't know how to run a $2 billion one.

It energizes me and scares me every day. That still excites me about coming to work. So yeah, I worry about whether we are quote-unquote a scalable management team, but you know what? Go pick me a successful company, I mean, literally a multidecade successful company, where they changed the CEO just because the revenue got bigger. What metric is that?

Q: Are there things you miss about running a smaller company?

A: You know, it's tougher when you're in this many locations and you've got this many people. There are people who will come up to me at a company event and call me Mr. Sclavos. That still shocks me 10 years later.

So I miss that part of running a small company. On the other side, you can't be bored with what we're doing. As I said, I have no place else to go, and the things we're working on are more exciting than what I see most other companies working on. So I plan to be here as long as they'll have me.


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