EarthLink Finds Multi-Site Niche
For most of us, the name "EarthLink" still conjures up the days of dial-up Internet access, but while today's EarthLink still serves a million consumer Internet access customers -- and even still sells dial-up access -- the company has evolved well beyond its origins to become a managed services provider firmly focused on a very different type of customer: large mass-location businesses with many small sites and very specific service needs.
Initially, EarthLink Inc. (Nasdaq: ELNK) focused specifically on the retail segment, and is finding success selling cloud-based data and hosted voice services along with specialized features such as PCI compliance validation and secured WiFi with customer data analytics, as part of a managed service that includes connectivity. The service is designed to specifically address the needs of retail outlets, which require rock-solid connectivity and high levels of security for credit card transactions, but rarely have on-site IT personnel, and often face rapid staff turnover.
Having proven this multi-location business model in the retail world, EarthLink is now preparing for expansion into other industry verticals, such as retail healthcare and banking, and professional services, where some players operate in a similar fashion to many retailers, with small offices spread around the US, says Mike Toplisek, executive vice president, sales and marketing.
This expansion of the multi-location business model is part of a transformation which EarthLink is undergoing under Joseph Eazor, who took over as president and CEO from long-time leader Rolla Huff in December of 2013. While Huff led EarthLink's move away from the consumer market to become a national provider of managed IT and communications services to businesses, Eazor comes to EarthLink having been an IT consultant for companies such as EMC, HP and EDS, and is expected to further refine that strategy.
On the early May earnings call, Eazor told analysts that EarthLink will move away from competing for single-location small businesses, a market in which its economics compare unfavorably to those of cable companies with whom it competes. He also promised to realign EarthLink's cloud portfolio, and its investment in IT and cloud technologies to fit the multi-location customer base, and also to complete internal company transformation to match this new opportunity.
This strategy casts a different light on EarthLink's recent spending spree, as the company spent much of the last few years acquiring CLECs and companies that delivered cloud and IT services, with no fewer than 10 acquisitions in total, Toplisek says. The CLEC assets helped build its 30,000 route miles of fiber networks, on which EarthLink now operates Gigabit Ethernet fiber rings and a national IP-MPLS network. In 2012, it added four new data centers, making a total of eight, and in 2013, a next-gen cloud hosting platform connected via fiber to its data centers. (See Adtran Wins EarthLink Deal and EarthLink Back in the Game, Buys ITC.)
Now those resources are being focused on the multi-location customer segment, where EarthLink is making strides but still has a lot of room for growth: Eazor told analysts that even with recent successes in the retail space, EarthLink has captured only 10% of the market.
Interestingly, EarthLink's focus on the retail space echoed the aspirations of one of its earliest acquisitions, made way back in 2006, when EarthLink acquired New Edge Networks, a CLEC that had targeted retailers but was unable to get to profitability. Greg Griffiths, former New Edge chief marketing officer, is still with EarthLink and heads up the retail channel team that Toplisek put together.
"We created a team of three people whose entire job has been to literally know and speak retail," Toplisek tells Light Reading. "I got a little resistance to targeting retail initially. It is a potentially troublesome market because the revenue per store on a monthly basis is low, and you have to be mindful to control expenses."
Where EarthLink has found success is in selling directly to major national chains and providing not just the managed data connections into all of their locations -- removing the need to negotiate those separately with multiple carriers -- but also layering on cloud-based computing and data storage, hosted voice, managed firewalls, and other advanced services.
These companies don't typically draw the attention of the big systems integrators such as IBM or Accenture, and aren't really in the wheelhouse of the cable MSOs, who are finding success serving the SMB market within their regional footprint. That leaves EarthLink to compete mostly against AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ) and CenturyLink Inc. (NYSE: CTL) and, to a lesser extent according to Toplisek, with other national CLECs such as Level 3 Communications Inc. (Nasdaq: LVLT), XO Communications Inc. (OTC: XOHO) and MegaPath Inc. He singles out tw telecom inc. (Nasdaq: TWTC) as a formidable competitor on the transport services side as well.
Standing out in that crowd is where the retail targeting comes in.
"We've launched a product that was very well received where we give [retailers] an EarthLink PCI validation tool," Toplisek says. Basically, the retail location runs through a point and click checklist that asks the right questions to determine the level of security and then provides a read-out at the end that shows how compliant they are with PCI standards. EarthLink can then offer assistance on boosting that compliance, if the retailer chooses to do so, but no matter where they are on the compliancy range, EarthLink offers $100,000 of data protection insurance to every site it serves.
"We also offer managed firewalls that are either premises-based or cloud-based and we have enhancements on the roadmap to make the security offering more robust," Toplisek says.
Uptime is another major concern: If connections go down and a store can't accept credit cards for any extended period, the lost sales can be devastating, particularly in the busiest periods of the year such as the run-up to Christmas. And flexibility is important as stores can increase their workforce by as much as 300% during those busy periods.
Increasingly, retailers are using WiFi, both internally and for their customers. In April of this year, EarthLink launched its new Secure WiFi service featuring a Wireless Intrusion Protection System. The service lets a large retailer with multiple locations deploy and manage both public and private wireless networks so they can support mobile point-of-sale applications and give employees access to corporate training, applications, product, and inventory information and provide customers WiFi for their mobile devices and social media.
"Increasingly, retailers need WiFi for their customers for competitive reasons, but it's another overhead cost for them," Toplisek says. "By offering analytics on customer usage, we can help them pay for it."
He cites a large national tire chain that realized consumers would go elsewhere if they couldn't get wireless access while their tires were being installed. EarthLink gave them a way to keep the public and private WiFi networks separate and, by offering consumers the option of signing into the public WiFi via social media, the chance for the retailer to then gather and analyze data on those customers. Retailers can learn things such as how often consumers are checking out the competition and other prices while shopping.
"It gives them intelligence into what people are looking at so they can better target their offers," Toplisek says. "It's essentially a way they can pay for the WiFi network."
As EarthLink looks to expand the multi-location strategy to other verticals, the company will develop products specific to other industries' needs, and will once again look for companies that have many different smaller sites to serve.
"In healthcare, for example, we won't target the big hospitals but we will go for the doc-in-a-box type clinics," Toplisek says. "In finance, we'll go for the smaller retail banking or investment firms."
At this week's Metaswitch Forum 2014 in New Orleans, Toplisek highlighted EarthLink's value to one of its retail customers, the Ciao Bella gelato company. EarthLink moved that company's entire IT operations into the cloud, hosting its data and apps in its New Jersey data centers, to save the company money and headaches and to reduce outages. Three weeks after the cutover, Hurricane Sandy hit, and Ciao Bella's headquarters building lost power.
"If they hadn't moved to our cloud, they would have been out of business for two weeks," Toplisek says.
— Carol Wilson, Editor-at-Large, Light Reading