On-Line Overload : Netcom Struggles to Keep Pace With Its Rapid Growth

Bob Rieger wants to be a high-tech version of his hero, Henry Ford.

Just as Ford’s goal was to put every American behind the wheel of a Model T, Rieger dreams of steering everyone to the Internet, that electronic information pastiche through which users can browse card catalogues of libraries worldwide, keep up with news as it’s happening and chat on-line with kindred spirits.

Rieger’s biggest problem might be that he’s succeeding too well. Lured by a flat monthly rate for dialing up the Internet through his service, so many new customers have subscribed to his Netcom On-Line Communication Services Inc. that the system at times has practically ground to a halt.

Netcom’s expansion--and occasional stumbles--illustrate the frenzied rush onto the Internet as users take to heart the notion of an “information superhighway” and seek the quickest on-ramp.

Other types of electronic information networks are having similar problems. In January, America Online, a booming on-line service that enables personal computer users to read news, shop for merchandise and exchange messages, had to shut down temporarily and revamp software to handle a subscriber overload.

Netcom is far from the only provider of Internet access, but it is surely one of the fastest growing, with a noticeable proportion of messages posted in Internet forums coming from Netcom users. Only 5 years old, Netcom is now the nation’s fifth-largest Internet service provider, no mean achievement given its popularity with individuals as opposed to big corporations that access the Internet directly.

Having long ago outgrown the den of Rieger’s house, Netcom is setting up shop in a San Jose office building where engineers hustling day and night cannot install modems fast enough to keep up with all the new subscribers hankering to dial up the Internet. Each day, the electronic-mail equivalent of 4 million pages of text passes through Netcom’s equipment.

Netcom was the first commercial company to provide individuals with access to the Internet, born about 20 years ago as a Defense Department network and long the province of the military-industrial complex, computer geeks and academics. Users gain access by dialing a local number at Netcom that patches them into the network.

This year the company expects to see sales explode by about 700%, from $2.8 million in 1993. Its subscriber base is projected to shoot up from the current 20,000 users (a user might be an individual or a company with dozens or hundreds of employees signing on).

A nationwide expansion is well underway, a new management team is in place, and an initial offering of stock to the public is in the works.

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So what’s the problem? Rivals are popping up like crazy. (Most of them are small, regional operations, but on-line services such as America Online, Prodigy and CompuServe plan soon to provide a full array of services on the Internet, beyond electronic mail.) And disgruntled customers complain of sluggish response time during peak hours and difficulty in getting through.

“Netcom has been going through some growing pains,” said Arthur R. McGee, a computer consultant in El Segundo who spends hours logged on each day. “But no one’s about to abandon ship.”

With its flat-rate pricing of $17.50 or $19.50 a month (plus a $20 set-up fee), McGee said, Netcom is “pioneering the way that will make the information superhighway more affordable.”

As an aerospace company employee and night-school student in the 1980s, founder Rieger had a more modest goal: to help other students gain access through his personal computer to their university’s computer facilities. When enough students signed up, Rieger began to charge a modest monthly fee so that he could buy more equipment. In exchange, his customers clamored for more services, so Rieger added electronic mail, software packages and some games.

After 18 months, Netcom outgrew Rieger’s house. Besides, he added, “the noise, heat and racket drove my wife crazy.”

Relocating the phone lines and beefing up his computing resources required major funds and time. Rieger quit his job in artificial intelligence with Lockheed Missiles & Space and cashed in his retirement package, refinanced his house, sold a vehicle and borrowed from relatives to come up with the necessary $300,000.

To date, Netcom has installed modems to connect customers to the Internet in nearly 30 cities, with many more planned. Figuring a way to track usage so that the company can plan for the right equipment and the proper number of phone lines is proving daunting.

“People and systems are never in equilibrium,” acknowledged Netcom’s new president, John Anthony Whalen Jr.

Chairman and Chief Executive Rieger, 45, claims that the company has never lost money. But some industry watchers see some risk.

“It’s not all that difficult for a company to grow so fast and so well that . . . they outpace themselves,” said Joel Maloff, a former telecommunications executive in Ann Arbor, Mich., who consults with businesses about how to use the Internet.

“There may be some hiccups, and they may have overextended,” he added. “If not, fabulous.”

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Also, “there’s a risk that this Internet fever is going to be a fad,” noted Victor Wheatman, a Santa Clara-based analyst for the Gartner Group, a technology research firm in Stamford, Conn. For companies and individuals with secrets to hide, he added, the information superhighway is a hostile environment, filled with computer hackers striving to uncover sensitive information. Wheatman also suspects that much of the Internet growth could vaporize. “I’d like to see a study of inactive (subscribers),” he said.

With about 5% of Netcom’s users hogging 30% of the Internet action, Rieger fears that some sort of fee based on usage might be necessary, mainly to encourage use in off-peak hours. But his goal is to keep access as open as possible.

“I don’t want Aunt Molly not to be able to afford the Internet,” he says.

The Boom in Internet Access

Based on a rough survey, consultant Joel Maloff of Ann Arbor, Mich., projects that connecting organizations and individuals to the Internet by phone will be a $230-million business in 1994 in the United States, up from about $50 million last year. Here are companies that provide the links and their projected 1994 market share:

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PSI (Performance Systems International)*+: 14%

Sprint*+: 13%

Uunet*+:12%

ANS (Advanced Network & Services)*+: 9%

Netcom*+: 8%

Barrnet*: 3%

Cerfnet*: 3%

Suranet: 3%

Nearnet: 3%

World: 3%

+ Available in major markets nationwide

* Available in California

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Source: Maloff Co.