RCN Cable, phone and Internet service HEADQUARTERS: Princeton, NJ
REVENUES: $245 million TICKER: RCNC FOUNDED: 1997
EMPLOYEES: 2,500 WEB: www.rcn.com
A friend of mine in Manhattan loves RCN, the company that provides her
with cable service. She has every reason to--she hasn't received a bill in three
years. Though RCN has cast itself as a low-cost provider of local and
long-distance phone, cable, and Internet service, CEO David McCourt is
chagrined about such oversights. Demand for the company's services
sometimes outstretches its billing and service capabilities, he says, and RCN
is spending $100 million to fix these problems.
Despite the miscues, RCN is growing fast: Its revenues climbed 92%, to $245
million, in 1998; it acquired four Internet service providers, becoming the
largest in the Northeast; its stock is at a 12-month top of $36; and it's flush
with more than $2 billion in cash and capital. RCN needs every dime it can
get, since it is building an expensive fiber-optic network to carry all that
voice and data traffic. That's why, on an operating cash-flow basis, RCN will
lose $96.3 million this year, on top of the $48.5 million it lost in 1998, says
Dan Reingold, an analyst at Merrill Lynch. Despite this, Reingold has a buy
on the stock.
Since it was spun off from C-TEC, a phone and cable outfit, in September
1997, RCN has become a standout among the companies challenging the
Baby Bells for a share of the $100 billion local phone market. With networks
stretching from Boston to Washington and San Francisco to San Diego, RCN
has distinguished itself by targeting residential neighborhoods--its
competitors tend to court business customers. Once it builds into a
neighborhood--a process of digging up streets that can take months--the
company offers phone, cable, and Internet service about 5% to 10% below
prevailing rates. Choose all three, and the savings can climb to 30%.
The youngest of seven children, McCourt, 42, a gregarious man who speaks
at rapid-fire speed with a Boston accent, wanted to be a cop or a hockey
player. Instead the would-be Bobby Orr created one of the first independent
local phone companies, Corporate Communications Network, which merged
with MFS Communications. (Worldcom bought MFS for $14.4 billion in
1996.) Given McCourt's history of creating successful takeover targets,
analysts predict that RCN may not be independent for long. Eric Paulak of
the Gartner Group in Stamford, Conn., says the most likely suitor is a
regional bell without access to the Northeast corridor. My friend had better
hope that doesn't happen soon. Those guys actually send bills. --Julie
Creswell
WORLDSPY E-commerce outsourcer HEADQUARTERS: Ardsley, N.Y.
REVENUES: N.A. TICKER: Private FOUNDED: 1997 EMPLOYEES: 55
WEB: www.worldspy.com
You're the CEO of, say, a toy company, and all this e-commerce stuff you've
been reading about in FORTUNE is making you nervous. So what do you
do? The execs at WorldSpy, based in tragically unhip Ardsley, N.Y., hope
you'll give them a call. WorldSpy is hardly the world's first e-commerce
outsourcer, but it may be the only one that allows even the most e-challenged
company to sell products directly to consumers via the Web. Unlike online
retailers such as Buy.com, WorldSpy never owns inventory--it handles all
merchandise through a third-party warehousing agreement. "They really
have more in common with UPS than a Buy.com," says James McQuivey, a
senior analyst with Forrester research, based in Cambridge, Mass. "What
they do is move stuff from one point {the manufacturer} to another {the
consumer}. To the best of my knowledge, no other e-commerce retailer
operates like this."
Here's how it works: Say you need to buy a laptop. You log on to
WorldSpy's site, which allows you to evaluate various models by reading
proprietary content licensed from magazines like Consumers Digest. Then
you click over to WorldSpy's virtual department store, which has dedicated
"pavilions" for products ranging from diamonds to PCs. Once there, you can
sort through the selection of 108 different laptops until settling on, say, an
IBM ThinkPad. After your credit card is verified, your order is
electronically transmitted to WorldSpy's warehouse, and the laptop is
shipped to you.
By linking manufacturers directly with consumers, WorldSpy avoids
intermediate players and the markups they attach to products. Most of the
time, WorldSpy's 5% to 25% cut on each purchase (depending on the deal it
has negotiated with the manufacturer) is significantly less than these add-ons.
That means its clients--companies like Brother, Sumdex luggage, and
Fieldcrest Cannon--can sell directly to consumers and take a bigger profit
for themselves. Not a bad incentive to sign on.
A pair of graying ex-commodity traders, WorldSpy co-founders Alan
Clingman and Henry Schachar don't look like central casting's ideal Internet
wunderkinder. At first the duo wanted to invest in a startup, but they quickly
abandoned that idea. "A lot of the companies we looked at were nothing
more than online catalogs with .com after their names," says Schachar.
Now Clingman and Schachar will have to prove that their concept is
better--no small feat when you consider that Buy.com has all of the buzz,
momentum, and name recognition from selling products like 3Com's Palm
hand-held computers below cost. Meanwhile, WorldSpy has the burden of
wooing companies one by one to sell their products.
But some analysts doubt the long-term viability of Buy.com's strategy,
saying WorldSpy's model is a wiser, more sustainable business plan. Its
executives will spend the year trying to prove these pundits right. The
company will refine its Website, launched this winter, and push for fame and
fortune later this year with a $10 million ad campaign aimed at holiday
shoppers. --Ed Brown
MUZE Searchable kiosks HEADQUARTERS: New York City REVENUES:
N.A. STOCK: Private FOUNDED: 1990 EMPLOYEES: 141 WEB:
www.muze.com
You may never have heard of Muze, but chances are you've used its
product--searchable in-store kiosks that'll find a song or book from a single
keyword or lyric. Armed with a catalog of 220,000 CDs, 85,000 videos, and
1.6 million book titles, the kiosk's database filters, say, REM albums, by the
most recent (Up) or alphabetically (Automatic for the People). Since 1992,
Muze has sold more than 4,000 of these machines to retailers in ten
countries, including Tower Records, Camelot, and Barnes & Noble. Priced
at about $5,500, the kiosks are powered by a six-gigabyte hard drive and
equipped with a proprietary search engine designed by the company. Now,
with the explosion of online commerce, Muze's database is also powering 65
Websites, including heavyweights like Amazon .com and CDnow. For the
use of its vast library, the company receives a cut of every transaction.
Muze is the brainchild of Trev Huxley (a grandson of author Aldous).
Bummed out that a girlfriend got custody of his stereo after a breakup in
1986, Huxley started a radio call-in show to fill the musical void in his life.
On the syndicated program Digital Radio Network, Huxley and his friend
Paul Zullo provided album trivia and information about a new technology
called compact disks. Encouraged by the influx of calls, the two decided to
create a computerized catalog of CDs. They programmed the clunky
machines with the help of a 12-person staff working on rented PCs in a
cramped Brooklyn warehouse.
Their idea took off quickly with backing from pal Bob Weir, the guitar
player from the Grateful Dead, and telecom firm Metromedia, based in New
Jersey. While there are no plans to go public, Huxley doesn't discount the
possibility: "In this market, it's hard to ignore; everything is for sale."
Today, with offices in London and Paris, Muze's eccentric staff is stocked
with musicians, published novelists, and Ph.D. candidates. They're finishing
the ultimate toy for pop-culture junkies, to be released later this year: a sleek
unit stocked with music, video, book, and DVD data with easy
cross-referencing. Think this is what Trev's granddad had in mind for the
Brave New World? --Tyler Maroney
COLOR PHOTO: ANNA CURTIS David McCourt, CEO of RCN, vows to fix
early billing problems. COLOR PHOTO: WALTER SMITH WorldSpy's Alan
Clingman and Henry Schachar want to take on established e-tailers like
Buy.com. COLOR PHOTO: STEFFEN THALEMANN Muze's Paul Zullo and
Trev Huxley build kiosks for stores like Tower. Pal Bob Weir of the Grateful
Dead is an investor. COLOR PHOTO: SUSANA MILLMAN {See caption
above} |
