How the Class of '84 became the class of '99
by Helen Jung Seattle Times technology reporter
Fifteen years after Russell Horowitz and John Keister took to Lakeside School's soccer fields, the center forward and the goalie are assembling the team again.
Only this time, the team is called Go2Net, the field covers all of cyberspace, and progress is measured in millions of dollars.
Horowitz, Go2Net's chief executive, and Keister, the company's president, are leading the charge for the Seattle-based company to become one of the top six or seven destinations on the World Wide Web.
In three years, the founders have quietly constructed a collection of financial, entertainment and informational Web sites that draws more than 5.3 million visitors a month and ranks as the 24th most-visited network on the Internet. The longtime friends, both 32, relied on their own money and business savvy to turn a fledgling business into an Internet trendsetter with a market capitalization of $1.5 billion. They've hired 100 people whom they plan to make into millionaires while netting a healthy fortune for themselves.
Even as one deal gets done, Go2Net is aggressively looking at what battle to take on next, how to propel the company further, ways to keep the buzz alive. Because the Internet business, Horowitz said, is all about momentum - and momentum is what Go2Net is building.
Last Monday, Go2Net landed its biggest fish yet - a $300 million to $750 million investment by high-tech billionaire Paul Allen.
Suddenly, the company that has attracted only modest attention from Wall Street is emerging as a hotshot stock and a superstar that has Internet and financial analysts alike watching and wondering: Just where will Go2Net go to next?
Hallowed halls
Horowitz and Keister met in the same prep-school hallways that several years earlier graduated another pair of friends who would emerge on the high-tech scene - Microsoft founders Bill Gates and Paul Allen.
But while Gates and Allen had pursued their technical futures and fortunes shortly after their graduation, Horowitz and Keister found themselves following different paths.
Keister attended Occidental College in Los Angeles, majoring in international affairs and philosophy until graduating in 1989. He played pro basketball for 2 1/2 years in Europe, where he learned French and German.
Meanwhile, Horowitz majored in economics at Columbia University in New York, graduating in 1988.
Horowitz then worked in investment banking in New York and helped start a clothing business. Keister joined him after his European adventure and honed his marketing skills with a New York-based exporter. They shared an apartment in New York for a while before they found their way back to Seattle.
Here, Keister headed a software company and Horowitz started a merchant bank from the wealth he had accumulated.
Along came the World Wide Web. Horowitz was looking for a hot investment, and Keister felt it was time to leave the software company, ViewCom Technology International, which later went out of business. The former soccer teammates, poker pals and roommates decided to become business partners.
At Go2Net, Horowitz and Keister are assuming their old soccer field positions. Horowitz, the forward, fires the goals. Keister, the goalie, plugs the company's internal gaps and, as the sales, marketing, hiring and operations troubleshooter, directs the traffic on the field.
Horowitz and Keister have since rallied two other Lakeside alums to join their team as well.
Their talents were obvious years earlier at Lakeside, said Bruce Bailey, the prep school's director of college counseling. He taught both economics and coached them in sports as well.
"They know what it takes to work hard and be successful," he said. "I think, first of all, they had a real interest and passion in both."
Bailey calls Horowitz "the smartest guy I ever taught" and credits his natural talents, rather than the econ class, for Go2Net's rise.
In February 1996, Horowitz and Keister founded Go2Net as a provider of sports, financial news and other information.
About a year later, with little outside help, the founders slapped together the complicated filings needed to go public. They skipped the pomp and circumstance that sometimes accompanies initial public offerings, including a road show - an exhaustive tour of high-profile investors. When they went public at $8 a share in April 1997, they raised nearly $13 million.
Bailey believed in the duo so much that he bought 300 shares in its initial offering, netting the envy of other faculty members who wished they had done the same. His $2,400 investment is now worth about $70,000.
"The sky's the limit," Bailey said.
A new strategy
But about a year after starting the company, Go2Net's founders were realizing that their strategy wasn't working. The site wasn't drawing as many visitors as they wanted.
So Go2Net found a new strategy: If you can't build it, buy it.
The company looked around the Web, identifying sites with growing audiences, strong technology and little overhead to weigh them down.
Little by little, Horowitz and Keister swapped their sites for ones following that formula.
They started with PlaySite, an online games Web site, and MetaCrawler, a comprehensive Web search engine. They added StockSite and WebMarket, a comparison shopping site. And then came their biggest coup - Silicon Investor, a financial-discussion site.
That company had been started three years earlier and was growing faster than the two founders, Brad and Jeff Dryer, could keep up with. They decided it was time to sell.
With two other similar buyout offers from major Internet companies, the brothers had to decide which offer they wanted to take, Brad Dryer said by e-mail. They liked Go2Net's organization and culture. "There was an amazing energy among Go2Netters," he said. Horowitz was impressive, Dryer said. "His energy and vision keeps Go2Net going full blast ahead at all times."
Horowitz himself seems to be going full blast. E-mail messages - day and night - often are answered within minutes.
"Sometimes we think he's not human," Dryer said.
While Horowitz handles external matters, Keister manages the internal operations. Horowitz calls him a chameleon able to parachute into any situation and tackle any problem.
"They are both extremely busy, yet manage to make time for every employee at Go2Net," Dryer said. "They see every employee as a valuable contributor and owner of the company."
The pace of acquisitions has grown as the company's name and reach have spread.
"Sometimes you're smart, sometimes you're lucky," said Keister. "Sometimes you're both."
Profits: a new concept
With countless Internet companies and countless more on the way, Go2Net wondered how to distinguish itself.
Make money fast, the two decided.
Interestingly, that's not a common trait among Internet companies, which take an exponential approach to the concept of "burn rate" - the speed at which a company spends cash.
But squeezing money out of thin air is something for which Horowitz has a particular talent.
Although Horowitz's family was well off, his parents challenged him to provide the majority of his tuition at Columbia. He used multiple credit cards to charge the upcoming semester's tuition. He worked as a night security guard and unloaded trucks until 3 a.m. four nights a week in New York's flower-shop district.
At the same time, he loaded up on classes, taking twice the normal course load for two semesters, so he could graduate a year early and save on tuition.
That lesson isn't lost today. Look at the founders' salaries: Last year, Horowitz earned $36,000. Keister, who holds considerably less stock in the company, received a salary of $72,000, up from $45,000 the previous year.
It's odd, then, to go to Go2Net's posh office on the top floor of the First Interstate Center, in downtown Seattle. The floor-to-ceiling windows giving panoramic views of Seattle and the plush carpet and fine wood furniture seem a bit lavish for a start-up that only now is planning to turn a profit for shareholders.
But this, too, reflects the company's thrift and strategy. When the company was looking for bigger office space, the founders learned that First Interstate Bank, which was being taken over by Wells Fargo, would be vacating its pricey real estate.
"The broker wasn't even going to show us the space," Horowitz said. But Horowitz wanted the office and offered the rent Go2Net had budgeted for. The worst the building manager could do was refuse, he thought.
To his surprise, it worked. The deal even included $300,000 worth of furniture, from carpets and desks to the decorative accents that Horowitz can't even identify beyond "that vase with those sticks." The company is paying less than half the going rate of $40-plus per square foot.
Enter Paul Allen
The company still has about $8 million in the bank, trying to spend prudently and stem the losses that have grown to be associated with most Internet companies. Its bootstrap approach has gained some attention, particularly considering that Go2Net's last quarterly results showed it breaking even. Analysts are expecting a profit for this quarter.
The company reported sales of $2.6 million for the quarter ended Dec. 31, coming mostly from advertising on its sites. But Go2Net expects that to change this year, with more money coming from subscriptions to its Silicon Investor discussion board, commissions from online businesses whose storefronts are handled by HyperMart and other Go2Net sources.
Meanwhile, other favorable mentions - one Internet seer named the company as a hot stock to watch in 1999 - have helped its climb.
In February, the company split its stock 2-for-1. The split-adjusted stock that cost believers like Bailey $4 a share was worth $87 a share earlier this month, just before Go2Net and Allen made their announcement. It closed at $117.25 Friday.
That deal calls for Allen to purchase $300 million in preferred stock in Go2Net. Allen also will buy 1.4 million shares of common stock from Go2Net's executive officers and directors and may purchase up to an additional 3.6 million shares of the company's outstanding stock at $90 a share. If the deal is completed, Allen would own more than 54 percent of Go2Net's outstanding shares.
In addition to building up a strong business, Go2Net was attractive to Allen and his Vulcan Ventures investment firm for its management and entrepreneurial spirit, said President Bill Savoy. His firm is expecting to have a "fair level of involvement" in guiding Go2Net, although he said it is too soon to determine how it will steer the young company.
The huge investment means Go2Net has ready cash for more aggressive Web-company purchases. But the alliance has a strategic value as well: Allen's extensive cable operations are expected to provide high-speed access for cable customers to Go2Net's services.
The company is now looking to beef up its profile even more, launching a campaign to get its name out. It is devoting $2 million - small by many Internet standards - to advertising the Go2Net.com name in everything from USA Today to Evander Holyfield's boxing shorts.
It's all part of the company's aim to be one of the top 10 visited networks by the end of the year, Keister said. Its portal - a Web site jam-packed with links to a variety of information that serve as a starting point for Internet users - is also seeing more viewers.
The Allen deal not only gives added credibility to the company, but it also has gotten Wall Street's attention, said Dalton Chandler, an analyst with New York's Needham & Co. who has been following the stock.
The company's strategy is sharp, focusing on high-traffic but low-cost sites that don't require a lot of overhead, Chandler said.
The network isn't as integrated as it could be, he said. And although the mix is similar to other major portals on the Internet, it could use a free e-mail service as well, he said.
But the deal with Allen is promising, both from the capital and strategic advantage such a high-profile investor can give, he said.
Horowitz and Keister are ready to accept the involvement that Allen's large investment buys in their home-grown company. And they are excited about the chance to show Allen that, like Microsoft, Go2Net can be a winner and its staff is a championship team, Horowitz said.
"We feel a real obligation to make sure it's the second-best investment he makes."
Posted at 09:38 p.m. PST; Sunday, March 21, 1999
Copyright © 1999 Seattle Times Company
From: seattletimes.com |
