Verio:
Justin L. Jaschke, Chief Executive Officer
Interviewed by George S. Mack
Founded in 1996 as a venture capital startup, VERIO (VRIO: research, earnings), an Internet Service Provider, opted to serve small and medium-sized businesses. Today the Englewood, Colo.-based company has acquired more than 50 ISPs and now serves as host to more than 265,000 Web sites. Chief Executive Officer Justin L. Jaschke was asked to put VERIO together by former venture capital partners from a cellular communications company he used to head. Mr. Jaschke and his partners developed a plan to begin acquiring ISPs and Web design companies that had already developed a point of presence in various markets. VERIO, with a market cap of $2.35 billion, is expected by analysts to more than double its revenue to $250 million this year.
[THE INTERNET ANALYST ? GEORGE S. MACK] What are the advantages of having a local presence in many areas?
[JUSTIN L. JASCHKE] Our customers are the small or medium-sized companies that typically don't have the capability for internal information technology. We go to their physical locations and connect their local area networks to the Internet. We help them install routers, and then we install and configure their firewall systems. This is a much higher level of hand-holding than you'd typically get from a distant national provider.
[GSM] You're a Tier 1 ISP. What does that mean?
[JLJ] We now operate one of the five or six largest national Internet protocol data networks, along with MCI WORLDCOM (WCOM: research, earnings), UUNET Technologies (a subsidiary of MCI WORLDCOM), SPRINT (FON: research, earnings), GTE (GTE: research, earnings) and PSINET (PSIX: research, earnings). These companies are known as Tier 1 ISPs because they connect their networks to each other and exchange traffic at private network exchange points free of charge.
[GSM] What are the typical costs to a small business for an e-commerce solution?
[JLJ] We've made it very economical for small business. Our e-commerce offerings range from $50 per month at the low end, to a couple of hundred dollars a month. We have one bundled Verio Store solution for $299 per month.
[GSM] What does it include?
[JLJ] It's a complete, integrated e-commerce solution, giving the merchant everything needed to get its shopping cart up and running. First, we get a digital certificate in place through VERISIGN (VRSN: research, earnings), and then we set up a merchant account with FIRST DATA CORP. (FDC: research, earnings) to process credit card transactions. We will even put their products and services on an online portal that will drive traffic to their site.
[GSM] Tell me about your relationship with AMERICA ONLINE (AOL: research, earnings).
[JLJ] We are the exclusive provider of Web-hosting and e-commerce services over AMERICA ONLINE's major portals. If you're scanning its channels, you'll see various banner ads and button placements for Web hosting, and if you click on one of those, it takes you to a co-branded Web site called Verio@AOL. It's the centerpiece of our direct marketing program.
[GSM] How else do you market yourself?
[JLJ] There are three other broad channels we focus on. First, there is the direct sales route, with roughly 200 sales representatives who take a professional consultative selling approach. Next we have more than 5,000 resellers in 170 countries. And finally, there's our OEM channel, where large national and international corporations use our platforms to provide Internet and Web-hosting services to their customers.
[GSM] Who are some of your OEM customers? Vital Statistics:
Verio
(VRIO: research, earnings)
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Market Cap: $2.35B
Shares Outstanding: 76.22M
Recent Stock Price: $26.75 (9/20/99)
52-week High: $42.50
52-week Low: $6.50
EPS:
1998A: ($5.71)
1999E: ($5.31)
2000E: ($5.00)
Revenue:
1998A: $120.6M
1999E: $253M
2000E: $415M
[JLJ] Well, three are Regional Bell Operating Companies, which use our platforms as their means of providing Web-hosting services. Internationally, SWISSCOM (SCM: research, earnings), the major player in Switzerland, uses our Web-hosting platform. Japan's NIPPON TELEGRAPH & TELEPHONE (NTT: research, earnings), the largest telecommunications company in the world, private-labels our services. We are signing up additional carriers that are major telecommunications companies, banks, consumer products companies, etc. that will use our Web-hosting services with a "Powered by Verio" co-branding moniker and provide services to their customers.
[GSM] How big is your market?
[JLJ] It's seven million small to medium-sized businesses in the United States alone. But we also have a presence in 170 countries through our indirect channels, which increases the total size to about 21 million businesses. We don't expect to get all 21 million of them, however. Our second quarter revenue growth of 117% was about 50% to 60% internal growth, and the rest was acquisition growth. We expect to continue at that pace on an internal basis and continue to compound it further with acquisitions. If you extrapolate, we would expect to have a billion dollars in revenue in the next three years. |
