NetZero Founders Move Into The Fast Lane

The original four founders of the popular free Internet service NetZero have taken their show on the road with a new venture that caters to the ISP market that once loathed their very presence in service sector. Is it time to let bygones be bygones?

by Jim Wagner of internetnews.com [September 7, 2001]

When Ronald Burr, Stacy Haitsuka, Harold McKenzie, and Marwan Zebian first built their scrappy advertising-based free ISP, many Americans didn't know what the Internet had to offer. Three years, 5,000 cities and 8 million registered users later, NetZero is credited with having introduced millions of new users to email and the World Wide Web.

Looking to escape from the corporate mindset creeping into the company as it tries to become profitable in today's economy, the original four founders—the first four "defenders of the free universe," are returning to their roots.

It's not about money
"You know, we've been together for 12 years now and through three startups, people who do things like this do it for more than just the money," Burr said. "You don't get presented with too many real opportunities in your life. When you see them, there are two factors that make any business successful—a real product and the ability to execute on that opportunity. Our team has been able to do that successfully and we feel like we have the opportunity to do it again."

The fearless foursome hope to bottle lightning a second time and spur the broadband service sector forward—into mainstream use. Their new venture dubbed Layer2Networks, is a broadband wholesale company that hopes to fill a gaping hole in the high-speed access marketplace by facilitating the connection between the backbone carrier and the network edge for independent ISPs.

The one thing Burr & Co. don't need to worry about is finding a new house. Layer2 headquarters are just down the street from the NetZero offices in Westlake, California—in view of the company that Burr built.

The business model Layer2 is pinning its hopes on is similar to the wholesale dial-up offered by companies like MegaPOP, which buys up large amounts of bandwidth from carriers like AT&T, UUNet and Sprint, and then offer discounted pricing on POP servers around the county for smaller or virtual ISPs who cannot afford to buildout their own nationwide infrastructure.

It's a model Burr sees as the eventual evolution of independent ISPs throughout the U.S., as they move from providing their own dial-up and broadband infrastructure to reselling the bandwidth they need, as purchased from a wholesale company like Layer2.

Wholesale broadband
Right now there isn't much in the way of a market for broadband wholesale services. MegaPOP is one of the few companies that offer broadband connectivity and related wholesale services via a fixed wireless solution style—and that's just in the Midwest at the moment.

Pricing for the wholesale service hasn't been nailed down completely, but Burr said when Layer2's service is launched ISPs can expect to pay between $5 to $10 per subscriber per month for a broadband connection.

Burr ignores the fact that this very low price point flies in the face of incumbent carriers attempts to nudge interconnection costs higher, not lower, for DSL service. But he says that the pricing is "right in the sweet spot of where it needs to be."

Burr, who resumes his role as chief executive officer at Layer2, said the idea is the result of years working as an ISP owner himself and fruitful talks he's had with other national ISP operators.

"I spent a lot of time in my former life talking to and building relationships with other ISPs," Burr said. "And as we talked we saw that there was a significant hole in the broadband market, something that's become more apparent in today's market. So we knew that there was a definite opportunity at the network edge.

"Besides big dogs like America Online, EarthLink Inc., and the Microsoft Network, who can take care of themselves," Burr continued, "there are many smaller ISPs who we think will find the product we have useful and will let them concentrate on marketing their business."

While Layer2 will eventually offer aggregated bandwidth to ISPs from all four branches of the big broadband pipe—fiber optics, revved-up copper, fixed wireless and cable access—Burr said for the time being it is concentrating on building up DSL services.

Time to market
Currently in talks with telephone companies like SBC Communications and Verizon, Burr doesn't expect Layer2 to be up and running for another three to four months. Despite its initial debut, the only thing parked on its Web site right now is a logo and email contact address. A redesigned site complete with substantive content is scheduled to go live the third week in October

Burr said there's been billions spent on building up the broadband infrastructure. The problem these days is that there are not a lot of companies taking advantage of all the bandwidth available. Lighting up dark fiber with a brilliant stream of data is essential to continued fiber optic buildouts.

Burr believes that companies like Covad and Rhythms, which are both enduring painful bankruptcy proceedings at this time, are the result of competing against, not working with, the incumbent carriers that operate the central offices making DSL access possible. Burr says Layer2 will nearly steps in to fill the void left by these data exchange carriers, only Layer@ will act as a neutral facilitator.

"If you look at companies like Covad, which were competing against the phone company for voice and data services and with the ISP for customers while they performed that middleman position of providing aggregated services, we're not like that," Burr said. "Our position is that we're strictly in the wholesale business and we're helping to get more traffic for the ISP—at the same time we're helping the carrier, who really wants to get more traffic out there."

Funding for the Layer2 has come from a combination of seed money by the founders and angel investors. Burr said they are currently in the midst of the first round of venture funding, which he expects to finish with in the next four to six weeks.

Stay turned, folks. High-speed services for your customers might still make a profitable addition to your ISPs business mix. That is, if Layer2 can deliver what few other wholesalers have—a profitable business proposition for reselling broadband access to the masses.

— End