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""The ISP with ESP""
If you're looking to bet on an ISP, big-talking, big-buying PSINet wants you to look past the red. From the October 24, 2000 issue.
Constance Loizos
Like so many of their dot-com cousins, Internet service providers' stocks have rolled this year, with most trading 50 percent to 75 percent off their year highs. Not only have shareholders grown averse to money-losing Internet firms, few industry observers seem at all sure which ISP business model will ultimately work best.
That hasn't kept William L. Schrader from swinging for the fences. Even while Wall Street has grown hungry for positive cash-flow reports from the barracks, Schrader, the bearded, motorcycle-riding, 48-year-old founder and CEO of PSINet (Nasdaq: PSIX), has barreled ahead on an eye-popping $4.1 billion buying spree. "We intend to be the world's largest provider of corporate Internet services," he declares. His strategy is simple: "Buy the assets so we have absolute control over our destiny. We did, and we do."
Schrader's plan mirrors that of the many technology providers gunning to provide one-stop shopping to their customers. It has meant expanding–and spending–aggressively. Over the last two years, PSINet has paid nearly $1 billion to the likes of Metromedia Fiber Network, IXC Communications (now owned by Broadwing), and Viatel, in order to possess and operate its own globe-encircling fiber network. Today, the company controls more than 100,000 miles of fiber-optic cable, half of it undersea. It has sunk another $800 million into nine colossal Web hosting centers, many the size of a city block, that cater to 900 metropolitan areas, from Atlanta to Neuchâtel, Switzerland. By year-end, PSINet will have built or retrofitted 10 more, from Boston to Berlin.
Even so, the Ashburn, Va.—based firm is putting most of its eggs in the shopping basket. PSINet has thus far spent $2.5 billion for 76 companies in 29 countries. Its most meaningful acquisition to date is Houston-based Metamor Worldwide, a systems integrator it gobbled up last March. Metamor 's business focuses on packaged software set up, application hosting, and network integration. And it came with an added bonus. Metamor handed PSINet its 80 percent stake in Xpedior, a Chicago-based consulting outfit that helps companies with their Web strategies, ecommerce branding, and design. The deal not only added to PSINet's Internet business applications, it doubled the company's size.
But there's more to distinguish PSINet from its rivals than the rate at which it's burning through money. First, while competitors like AT&T and WorldCom's UUNet offer enterprise applications through third-party ASPs, PSINet offers the services directly to its customers. PSINet is also the only Internet service provider for businesses that has its own consulting arm, thanks to Metamor, now renamed PSINet Consulting Services. The acquisition not only allows PSINet to act more quickly in deploying new services for customers–at least, theoretically–it gave the company 4,500 strategically placed consultants. In India, for example, where Metamor had more than 800 employees, PSINet now has a solid foothold.
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