PSINet

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PSINet was one of the first internet service providers (ISPs), and a major player in the commercialization of the Internet until the company's bankruptcy in 2001 and acquisition by Cogent Communications in 2002.

1 History
- 1.1 Growth
- 1.2 Collapse
2 References

[edit] History

[edit] Growth

PSINet was founded in 1989 by Martin L. Schoffstall and by William L. Schrader, who initially funded the company using credit cards and by selling the family car. In May 1991, the company acquired NYSERNet, the corporation that had created the first regional Internet network under Schrader's leadership, an acquisition that gave PSINet commercial access to what would come to be known as the Internet.

The company met with early success, capitalizing on the growing potential of the growing global network, an expansion in which the company played an active role. In 1991, PSINet and Alternet co-founded the Commercial Internet eXchange (CIX), a trade association of Internet Service Providers. By 1995, the company had revenues of $32.9 million.

Pressured by increasing competition in the dial-up internet market, the company restructured in 1996 to focus on its commercial Internet business, selling its retail ISP accounts to MindSpring in June of that year, and began its expansion into Europe. Co-founder Schoffstall left the company that year. As a leader in the ISP arena, PSINet was frequently mentioned in trade publications for its accomplishments and reputation. For example, Interactive Week, a trade publication that covered the nascent Internet industry, mentioned the reputation of the PSINet sales force as being "Hitler Youth" because of its relatively young sales and inexperienced force and sales management which were very abrupt and inflexible with customers. In 1997, the company raised $1 billion in bond capital and undertook a series of rapid acquisitions, making 76 acquisitions between January 1998 and December 2000. Regional ISPs were a frequent purchase, and according to Congressional testimony by CEO Shrader, the company was by 1999 the largest independent facilities-based ISP in the United States, the second largest ISP in Japan, and had more than 500 points of presence around the world.

In an attempt to drive more brand recognition, in 1999 PSINet committed $100 Million dollars for naming rights of the new stadium in Baltimore, Maryland that was to be the home for the recently franchised Baltimore Ravens NFL team. The irony of this marketing faus pax was that the Ravens won Super Bowl XXXV, but PSINet, whose large neon sign hung on their home stadium, had never turned a profit.

The company's largest acquisition came in March 2000 with the purchase for more than $1.3 billion in stock of Houston-based Metamor Worldwide, a consulting services conglomerate it purchased in an effort to become a "single-source provider" for IT outsourcing services. The company also invested heavily in its fiber-optic network, anticipating strong demand, and planned in early 2000 to invest $1.4 billion over three years to build to expand its services and operations.

[edit] Collapse

Despite its rapid growth and significant position in the commercial Internet services market, the company was never profitable. It was a popular stock with analysts during most of the dot-com boom because of its rapid revenue growth and aggressive expansion plans, but by 2000, PSINet was beginning to struggle. The company lost more than $5 billion in 2000 despite having close to doubled annual revenues to $995 million. Some analysts point to the Metamor acquisition as the turning point for the company, burdening it with the demands of integrating business operations while it was already struggling with significant debt from its earlier acquisitions, and facing the slowdown in the computer services industry that preceded the stock market downturn of 2002. However, the company had missed earnings estimates the year before, and was said to be looking to sell parts of its operation in late 1999.

A wave of senior officers, including the company's president, chief operating officer, and an executive vice president departed the company in early 2001, and Schrader was himself fired from the CEO job in March. The company's stock price plunged in response to the departures and to wider-than expected losses: the stock, which had traded as high as $60.94 a share in 2000 (after a split), closed at 18 cents in late March, 2001.

In May 2001, the company was delisted from NASDAQ because the company's stock had traded below one dollar for 30 consecutive days. The company delayed filing its quarterly 10-Q filing with the U.S. Securities and Exchange Commission. Finally, overwhelmed by debts in excess of $3.7 billion and with dwindling cash reserves, the company announced on June 1, 2001, that it had filed for Chapter 11 bankruptcy protection along with 24 of its US subsidiaries, and that four of its Canadian subsidiaries had filed for protection under Canada's Companies' Creditors Arrangement Act (CCAA).

Most of the PSINet assets were acquired by Cogent Communications in April 2002.