Network Solutions' Latest Strategy Brings Success

Ben Turner, director of product marketing for Network Solutions

Network Solutions' Latest Strategy Brings Success

By John Makulowich

Network Solutions Inc. has added a new wrinkle to its federally anointed business of registering Internet domain names: a fast-growing service that targets small business owners and others who want to reserve and control their own domain names.

The Herndon, Va., company is offering companies and individuals the chance to reserve a domain name, even when they lack an Internet service provider to host their site, for $149.

"It's for those small businesses who have yet to make a decision, but want to get an online brand name. It gives the business owner complete control over his or her online identity," said Ben Turner, director of product marketing for Network Solutions.

Under the new process, a company or individual can get a domain name in real time without an ISP via the company's Web site (www.worldnic.com). There is no immediate need for a middleman and the customer can eventually change service providers simply by giving the new Internet company access to its domain name file. In the past, the ISP had to register the domain name.

The month-old service is "exceeding" company expectations, said Turner, who declined to give any hard figures. Overall, there are more than 1.7 million domain names registered worldwide that end in .com, .edu, .net, .org and .gov. The majority of these domain names end in .com.

The company had record revenues of $45.3 million in 1997, an increase of 140 percent over net revenues of $18.9 million the previous year, according to the company. The company reported that it registered a record 960,000 net new Internet domain names in 1997, up 96 percent from the 1996 total of 489,000 names. In the fourth quarter of 1997, the percentage of international registrations grew to 34 percent of the total registrations in .com, .net and .org.

In September, the company started trading on the Nasdaq National Market under the symbol NSOL when parent company Science Applications International Corp. sold part of its stake through an initial public offering. San Diego-based SAIC still retains a 78 percent stake in the company.

At least one analyst likes what he sees.

Rai Archibold, vice president for J.P. Morgan & Co. in New York, said Network Solution's new service reflects a natural evolution in meeting the needs of small businesses.

"We have a buy rating on the stock with a target price of $28 in the next 12 months. [NSOL closed at $20.25 on Feb. 27.] We think the company will perform well as people get more comfortable with its role in domain registration," he said.

According to Archibold, what had been hampering the stock is the confusion that surrounded the domain registration issue with the National Science Foundation. As part of a 1993 cooperative agreement with the National Science Foundation, the company won a competitive bid to serve as registrar for companies desiring their own domain name. While that agreement was set to end March 31, NSF recently extended it to September.

"The agreement always contained an optional six-month period to phase out the program. We will exercise that option. We certainly do not intend to extend beyond that, however," said Elizabeth Gaston, a public information officer at the National Science Foundation.

Once that happens, Network Solutions will lose its monopoly on registering Internet domain names. Instead, registration will become a competitive business and new entrants in the market will vie for registration fees.

According to Gaston, a number of persistent myths contribute to the continuing confusion about the respective roles of Network Solutions and the NSF. One of the more popular depicts the relationship as a contract in which there was little, if any, competition. In fact, NSF awarded the cooperative agreement after an extensive peer-reviewed process, Gaston said.

Historically, the Federal Networking Council, a group of government agencies involved in networking, asked the NSF in the early 1990s to take responsibility for nonmilitary Internet registration. In 1992, the NSF solicited competitive proposals for registration services. In 1993, it awarded a five-year cooperative agreement for this service to Network Solutions.

It was only in September 1995, with the demand for Internet registration largely commercial (97 percent) and exceeding NSF's ability to fund the program, that the NSF authorized Network Solutions to charge a fee for domain name registration. Part of that fee went to a special NSF fund, the disposition of which is now in litigation.

Even with that, no one expected the explosive growth in the Internet or the demand to register domain names that led to the windfall profits for Network Solutions.

The future of the domain name scheme now lies with the Clinton administration and its senior policy adviser, Ira Magaziner. His office released the administration's draft discussion document, known as the Green Paper, late last month offering ways to improve the technical management of the Internet Domain Name System.

The proposed rule, published in the Feb. 20 Federal Register under the aegis of the Department of Commerce, set March 23 as the deadline for public comment.

"Now, we are getting a sense of what the free market will look like. The Green Paper gives a footprint about that. We see investors doing more homework about the prospects for the stock and for the industry," said Archibold.

Network Solutions' Turner said his company welcomes publication of the Green Paper. "We are happy the way the Green Paper came out. From our standpoint, it set the framework for a competitive environment. More importantly, it ensures the stability of the Internet," said Turner.

The company's latest strategy for meeting the needs of small business seeks to take what many consider a complex technology and put on it an easy-to-use front end. It is based on the company's perception of a three-stage process or what Turner calls the Internet value chain.

"The small-business guy should not have to be a computer scientist to use the [Internet] technology," Turner said.

In his view, the first stage is going online or gaining Internet access, which amounts to establishing an identity. This stage includes setting up a messaging service and getting your name listed in search engines.

"The second stage is creating a Web site, enabling interaction. The third stage is developing electronic commerce. There are opportunities here because the market is still so undefined," says Turner.

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