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Unusual Attitude On Access

A pilot for 23 years, Dave Garrison knows what “unusual attitude” means. And he wasn’t the least bit fazed when …

A pilot for 23 years, Dave Garrison knows what “unusual attitude” means. And he wasn’t the least bit fazed when a Netcom On-Line Communications Services board member recruiting him for the CEO position likened the job to the training maneuver in which the pilot’s eyes and some instruments are covered while the plane is flown in a straight up or down configuration. Then the eye blinds are removed and the pilot instructed to correct the plane’s path.

Garrison recalls: “The director said to me, ‘In this job, you have to figure out how to fly the plane in a way no one has ever had to before, because no one has faced this set of challenges and opportunities.'”

On becoming president and CEO in 1995, Garrison, 41, set out to apply his experience in leading technology-driven companies through periods of enormous growth to San Jose, CA-based Netcom, the world’s largest provider of Internet access. Founded in 1988 by Stanford University student Bob Rieger as an off-campus alternative for network access to university computer facilities, Netcom hit the half-million subscriber mark last July, the first Internet service provider to reach that milestone. Subscriber growth has been clicking at around 25 percent each quarter for the past eight quarters, and some analysts see Netcom reaching 600,000 by the end of the year. “We grew 325 percent in the past 12 months,” says Garrison, who gained his growth and technology expertise from heading up SkyTel, a division of Mobile Telecommunications, and Dial Page, a regional paging carrier.

Revenue also has been growing at Netcom. In July, the company posted second quarter revenues of $28 million, up 166 percent from the same period a year earlier-the sixth sequential quarter of record revenue since going public in December 1994. Revenues for 1995 were $52 million, with a loss of $14 million.

With Netcom still running in the red (second quarter net loss was $11.4 million), Wall Street and Garrison don’t expect the company to turn a profit until 1998. The main reason: It is plowing everything into infrastructure, adding subscribers and opening new markets. Roughly $4.6 million of the second quarter loss, for example, was from Netcom’s international start-up operations.

Tim Summers, senior vice president and technology analyst for Principal Financial Securities in Chicago, says Garrison is doing the right thing by trying to build subscriber and market share as fast as he can. But he questions whether the Internet can stand alone as a profitable consumer business.

The Internet access business-although only a few years old-already is experiencing pricing battles (currently around $19.95 a month for unlimited access time) and shakeouts. Netcom currently competes against MCI, CompuServe, AT&T, America Online, OSI, UUNET, and the Baby Bells for an ever-diminishing number of customers. The Yankee Group, an industry source, sees the access business going from around 2,500 providers to roughly 60 by 1999. Garrison hopes Netcom’s combination of critical mass, cash flow, and market savvy will allow the company to develop the elusive brand loyalty and heavy user-friendly content necessary to remain in the arena.

That’s also why Garrison has been fashioning Netcom into a full-service Internet services company, offering Web hosting and authoring services, corporate Internet connectivity, and Web page content development. The company also offers software connectivity products that have been marketed through major retail outlets.

“One of the biggest risks we face is missing the big changes in customer behavior and interest, both at the corporate and individual levels,” Garrison says. “The on-line businesses, for example, said the Internet was just a scientific community toy, and they missed the sea change. We can’t afford to do that.”

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