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Reaction to VeriSign-NSI Break Up

On October 16, 2003, VeriSign announced the sale of its Network Solutions (NSI) business unit three years after its purchase from SAIC. This is a report on the historical snapshot of Network Solutions and a collection of commentaries made in response to this event.

The Historical Snapshot:

1979: Network Solutions, Inc. was founded by Emmit J. McHenry as a joint venture with the National Science Foundation and AT&T

Mar 1995: Science Applications International Corporation (SAIC) acquired Network Solutions for a reported $3 million

Sep 1997: Network Solutions goes public

Mar 2000: SAIC sold the entire company to VeriSign for a reported $15.3 billion in stock in March 2000

Oct 2003: Pivotal Private Equity, a Phoenix-based investment firm, acquired 85% stake of Network Solutions for $100 million

Stratton Sclavos, VeriSign CEO:

"We believe we can be the best in the world at delivering critical network services for voice and data. Network Solutions, as it exists today, is more focused on Web presence services for consumers and small business. It is not a critical-infrastructure service. The transaction allows VeriSign to pursue its core mission while giving Network Solutions the flexibility to determine its own destiny."
(Source: Computerworld)

Jahm Najafi, CEO of Pivotal Private Equity:

"The acquisition of Network Solutions fits well into our strategy of investing in companies that shape the future of the communications industry. Market demand for the Web presence services Network Solutions provides, such as Web sites, professional e-mail and domain names, is growing. The company is in a unique position to take the majority of this growth, given their large base of more than 4 million business and consumer customers...We think the domain-name industry has not yet been tapped...As broadband becomes more prevalent, we believe the market is going to dramatically increase."

Joshua:

"Ahhh ... now the whole story comes out, and the re-institution of Site Finder makes a lot more sense. VeriSign is selling off a big portion of its cash flow, and it can't afford to not have something in place to make ends meet. And, of course, Site Finder is the best answer to that problem.

Add together 60 million visits to the site in the first week with 11 million of those hits resulting in searches and you have dollar signs in front of VeriSign's eyes ... all without the hassle of managing a registry business, too. Now all the company has to do is hire another advertising agent or two.

This also makes it harder for individuals to combat the Site Finder "service," since it removes the possibility of hitting VeriSign's pocketbook by pulling site registrations from Network Solutions.

Oh well, I guess a government-sponsored monopoly that has no real accountability to the consumers of the world is not a new thing."
(Source: Geek.com)

Sarah Friar of Goldman Sachs:

"At first glance, the price appears somewhat disappointing, however, given that the Network Solutions business was a drag on overall growth and margins, we believe that investors will now get a clearer picture of VeriSign's growth potential."

John Schwartz, The New York Times:

"The deal has been expected for some time by Wall Street. Although the registrar business makes money, its profitability has been declining in an increasingly brutal market, said Drew Brosseau, an analyst with SG Cowen Securities. The portion that is being sold off "isn't really well aligned with what VeriSign is trying to build," he said, and so the sale "removes a ball and chain from their ankle."

VeriSign shares rose 66 cents, or 4.5 percent, to $15.46.

Selling Network Solutions will not affect a controversial VeriSign initiative known as Site Finder, which the company calls a service to help consumers navigate the Internet more easily.

When consumers mistype Web site names, Site Finder redirects them to a page that helps them search for Internet sites — and, the company hopes, generates advertising revenue for VeriSign."

Dave Marino-Nachison, The Motley Fool:

"VeriSign at one time spent heavily to build its registrar business, but is now selling it off despite profits as revenue growth slows. Certainly the fresh cash is a meaningful addition to the balance sheet, and in press reports the company, citing considerable interest, hinted that it got a good deal.

The bigger picture, however, feels more like another dot-com tombstone than anything else: Company pays too much for asset that delivered too little, then sells it at a deep discount. Remember, VeriSign returned the Network Solutions name to the business earlier this year, while keeping the cash cow registry business, renaming it VeriSign Naming and Directory Services, and folding it into its Internet Services Group. The writing was seemingly on the wall.

With the company unprofitable in recent quarters, VeriSign has clearly decided that $60 million in cash (plus the rest of the "take") was a better deal than struggling to re-register bubble-era customers and maintaining growth in a difficult, competitive business that sometimes has brought it bad publicity."
(Source: The Motley Fool)

Walter Pritchard, SoundView Technology Analyst:

"VeriSign as a whole has about a 17 percent operating margin — meaning that before deducting interest, taxes and nonrecurring expenses, the company makes a profit of 17 cents for every dollar of revenue. Network Solutions only had a 9 percent operating margin. It was definitely a drag on the company."

Page Howe:

"The price is shockingly low, I bet that NSI on its own probably has $10-20,000,000 in prepaid domain name fees received alone for future years registrations.

The low number tells me that NSI was never adept at leveraging its one time monopoly into selling registrar and hosting solutions and other products in a "competitive" marketplace....assuming at one time they had the lions share of 28,000,000 customers, 100 Mil is quite a drop in value given what other smaller registrars have fetched.

Now the important part, since they couldn't compete in an open marketplace, it seems they are only willing to be in businesses supported by their registry monopoly like sitefinder and WLS."
(Source: ICANNWatch Observer)

VeriSign Press Releases:

"When VeriSign acquired Network Solutions in 2000, it obtained two distinct businesses:

- The customer-facing Registrar business is the world's leading provider of domain name registrations, and an industry leader in value added services such as business email, websites, hosting and other web presence services. The Registrar, which re-assumed the Network Solutions name in January of this year, constitutes the current Network Solutions business that is being sold.

- The Registry business that is the backbone of the global .com and .net domain name infrastructure currently handles over 10 billion interactions per day, remains with VeriSign as a critical component of its business. This Registry business was recently renamed VeriSign Naming and Directory Services and is a core piece of VeriSign's Internet Services Group."

Note: VeriSign is keeping the Registry business.
(Source: VeriSign)

Eric Longman:

"I worry a bit about this quote from the press release:"

"We believe that this transaction will strategically position VeriSign to focus exclusively on our core mission of providing critical infrastructure services for the Internet and telecommunication networks, while allowing Network Solutions to pursue its own independent strategy in the web presence market." said Stratton Sclavos, Chairman and CEO of VeriSign."

"My concern is that this actually translates into something more like this:

We believe that this transaction will strategically position Verisign to focus exclusively on screwing around with the registry and the Internet's basic stability, without having to answer to consumers who may choose to punish us by taking their business elsewhere. By paring the company down to only its monopoly components (vis-a-vis domain name services), we feel that we can more freely muck around in the fabric of the Internet in ways that bring us financial gain while locking all potential competitors out of the picture. Stewardship? No, we prefer to focus on profiteering."
(Source: Eric Longman Weblog)

Eric Smith:

"If Versign spins off their registrar services, that won't include Sitefinder because the registry (which Versign is keeping) does not and can not provide registrars (the part Verisign is spinning off) with the ability to insert wildcards in the registry.

Sitefinder was an abuse of the registry side of the business. Since the registry business is operated under contract to the Commerce Department and ICANN, and Verisign has violated that contract by not operating the registry in compliance with applicable contract requirements (such as releasing expired domains after the grace period) and technical standards (DNS responses for non-existent domains), the Commerce Department and ICANN should cancel the contract and award a new contract to a non-profit corporation. Preferrably one that has demonstrated an ability to provide responsible stewardship of public infrastructure, such as the Internet Society.

The expiration dates for the .com and .net registry contracts are 10-NOV-2007 and 30-JUN-2005; if the contracts aren't cancelled by then, I hope ICANN and the Commerce Dept. at least have the good sense not to renew them, and instead evaluate and choose new registry operators."
(Source: Slashdot Observer)

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