Master of the domains: The revival of Network Solutions

In 2003, when corporate turnaround wizard Champ Mitchell became chairman and CEO of Network Solutions, the company was in serious trouble. At a recent luncheon meeting of the W. P. Carey School's Economic Club of Phoenix, Mitchell described how he rebuilt the crumbling corporation into "the most successful online company in the world."

Corporate turnaround wizard Champ Mitchell knows a dog of a company when he sees it, and back in 2003, Network Solutions was troubled. Initially a technology consulting firm, Network Solutions had landed a once-in-a-lifetime break after the fledgling Internet migrated from the Department of Defense to the National Science Foundation. It was 1994, and the NSF tapped the Herndon, Virginia, company to create a registry for Internet domain names.

As cyberspace grew, if you wanted an Internet address, Network Solutions was the only place to get it. "We invented the domain system with dot-com. First it was free. We began charging for it in 1996, and then things went completely crazy. It was a great time to cash in," Mitchell told 500 business leaders gathered for the W. P. Carey School's Economic Club of Phoenix luncheon on January 23.

In 2000, a year after competitors began chipping away at Network Solutions' domain monopoly, California-based VeriSign bought the company for a reported $15 billion (some accounts peg the acquisition at $21 billion), making it the then-largest Internet purchase in history. For the next three years, Network Solutions lost market share and leaked cash. By 2003, when VeriSign sold off 85 percent of Network Solutions to investors for a sorry $100 million, the once-mighty company had crumbled.

Enter Mitchell, the chairman and CEO hired to rebuild it. "The company had gone from 100 percent market share to 28 percent market share in six months, a record-setter. Without doubt, Network Solutions was the worst-run company with the worst customer service — such a debacle," he recalled. For instance, the company had 13.5 million domains under management. But 4 million of them were non-payers, former customers or scofflaws that staffers simply didn't know how to delete from the system.

Mitchell spent his first couple of days at Network Solutions looking around and asking questions. Happening upon the customer service director, he asked, "What is our call abandonment rate?" The director answered, "Thirty percent." Mitchell assumed there was some crisis going on to cause such a high number of dropped incoming calls, but the director assured him that there was no crisis.

The 30 percent was status quo. In fact, customers calling in waited an average of 2.5 hours. Remember "Ernestine," the officious, annoying telephone operator played by Lily Tomlin on television's vintage "Laugh-In" comedy show? Mitchell says in 2003, when he took over, Network Solutions' customer service department was staffed by 400 Ernestines. They shared what he calls "a monopolistic attitude." Ernestine used to tell furious customers: "We don't care. We don't have to. We're the phone company!"

Listening to Network Solutions' customer service reps interact with customers, he said, made him want "to transfer to a competitor … The next day, I fired the customer-service director and all 400 customer service reps, padlocked the building and outsourced customer service operations for two years."

But the company was still "hemorrhaging cash," so he continued the overhaul, eventually cutting 70 percent of the overall staff and slashing expenses by 40 percent. The replacement employees were chosen for their attitudes as well as job skills — "people who would be nice to customers" — and enjoyed, in return, perks such as health benefits effective the first day on the job. And he managed to rebuild the company on a 1:2 ratio, with one replacement employee for every two who were cut.

To direct them, he recruited 11 top managers from competitors and other industries. The revamped customer service became free, 24 hours a day, 7 days a week. By this point, Network Solutions' business consisted of 91 percent domain registrations and renewals, and 9 percent other Internet products and services. Mitchell had a decision to make: where should he take the company, in light of the niche industry's stiff competition? "That was maybe a good time to go home. But I believe in the Internet and its billion-plus users," he explained.

Mitchell decided that Network Solutions could wangle a bigger piece of the $26 billion Internet pie by catering to small businesses using the Internet for sales and enhanced visibility. After studying the market, he decided the company's role was simple: to provide the products and services enabling its largely small business/home business customers to "get noticed." These business need four components, he said: a domain (address), Web site (face), e-mail (voice) and platform (host). So Network Solutions re-focused on providing additional online services.

Now, customers can build a Web site using a Network Solutions kit, or pay to have it built and maintained. Need to analyze your Web traffic, set up a secure credit-card process, design a logo, offer discounts, protect your PCs from viruses and hackers, expand e-mail capacity, stay fresh with search engines or find a hosting company?

Network Solutions delivers. And thanks to last year's purchase of MonsterCommerce, a supplier of e-commerce software and services, getting those jobs done is easier and faster than ever, Mitchell said. The Sharp sisters of Wisconsin are typical Network Solutions customers. The women make and sell cheese — most especially, a cheese spread based on family recipes, packaged in small milk cans.

Initially, the Sharps needed Network Solutions' most basic services, but as their online cheese boutique grew, they asked for help processing credit cards. "We put in an electronic gateway and digital encryption for them," he continues. "Three and a half years later, they've got a $5 million business, have built a brick factory on the farm and employ 12 people. They couldn't have done that without the Internet."

Network Solutions' commercial clients make fewer distress calls to customer service than its small business/home business clients, who make up the bulk of the company's market share. In general, for every commercial-client call logged, the small business/home business customer makes three calls.

And the small biz customers stay on the phone for much longer, Mitchell said. Over time, the company devised a winning customer-service approach: answer the phone with a live voice, don't use pre-written scripts and avoid talking down to people. "If a customer has to call us, that means we have messed up. It is our fault. But if you talk to them, people will stay with you, and they will buy [more services]," he said.

As a result, the average "ticket" for products and services has grown, non-domain items now account for 31 percent of existing-customer sales and the net margin is above 30 percent. "We have taken a very sick puppy that should have died, done radical surgery, pared it down, and made it into the most successful online company in the world," Mitchell adds. Next up for Network Solutions: going global through a series of partnerships.

Bottom line:

• By Mitchell's calculations, the Internet is growing by 20 percent a year outside the U.S., so globalizing services and products makes marketing sense.
• Network Solutions has approximately 4 million customers, 3.5 million of which are small business/home business concerns, Mitchell said.
• 65 percent of Network Solutions customers with Web sites "want a rebuild by someone else" rather than doing it themselves, Mitchell said.