Network Solutions Seeks to Make Bigger Name for Itself

No longer content with being the Internet’s leading real estate agent, the company in charge of registering .com, .net and .org addresses now has empire-building on its mind.

Network Solutions Inc. aims to become one of the Web’s business barons by transforming itself from a mere broker and directory for Internet domain names into a one-stop shop for e-commerce services.

“The name of the game is much bigger than domain names now. It’s all about building a greater Web presence,” Chief Executive Jim Rutt said.

A lot is riding on Network Solutions’ expansion plans. Mountain View, Calif.-based VeriSign Inc., a leading maker of security software, bought Network Solutions for $19.6 billion six months ago with the hope that the name-registration business would serve as the foundation for an Internet powerhouse.

“We want to create something in the mold of Cisco Systems, General Electric and Intel,” said Anil Pereira, a VeriSign senior vice president who oversees the company’s Internet services division. “We think we are barely scratching the surface now.”

VeriSign and Network Solutions together plan to offer companies and entrepreneurs all the tools to name, build, promote and protect their Web sites.

Network Solutions also positioned itself to resell Web sites with the recent acquisition of GreatDomains.com, which brokered high-profile name deals such as the $3-million sale of Loans.com and $823,000 sale of Drugs.com.

Merrill Lynch analyst Mark Fernandes views VeriSign as a rising star largely because of Network Solutions. VeriSign is Merrill Lynch’s top-ranked software stock for 2001, topping more established names such as Microsoft Corp., Oracle Corp., PeopleSoft Inc. and Siebel Systems Inc.

Network Solutions “is already taking the tickets at the entry to the ball, so they have a great opportunity to sell even more once people are inside the door,” Fernandes said.

Other analysts are more doubtful about VeriSign’s vision.

Critics think Network Solutions’ name-registration business has about the same chance of selling more services to Web sites as an auto dealer would have making deals with car owners walking into a Department of Motor Vehicles office to do paperwork.

Investors have lumped VeriSign with other questionable Internet business models. The company’s closing price of $68.81 on Friday was more than 70% below the stock’s value at the time of the Network Solutions purchase. The slide left VeriSign with a market value of $13.5 billion--less than what the company paid for Network Solutions.

VeriSign remains a long way from joining the business elite. In 1999, the company made a $4-million profit on revenue of $85 million. Sales last year soared with the contribution of Network Solutions’ business, which accounted for more than half of VeriSign’s third-quarter revenue (the most recent figure available) of $173 million.

Accounting for the Network Solutions deal wiped out VeriSign’s profit in 2000. Goodwill and other costs produced a $1.3-billion loss in the third quarter.

Although it is little known or understood outside technology circles, Network Solutions has played an integral role in the Web’s rapid development.

In 1995, the U.S. government put Network Solutions in charge of registering the Web addresses ending in .com, .net and .org.

The monopoly ended last year when the government required it to let other companies register names, but Network Solutions still controls the Web’s master directory of some 25 million addresses and has ample room to grow, given that only 17% of U.S. businesses have a domain name.

Network Solutions receives a $6 annual fee for each name stored in its master directory, known as the registry.

Last year’s deregulation allowed dozens of other processing agents, known as registrars, to file addresses in the Network Solutions registry too.

Network Solutions remains the leading registrar, having helped put about 14 million sites on the Web’s map. In its role as a registrar, Network Solutions typically charges $35 to process a name.

The landscape will change even more in 2001 with the creation of seven domain suffixes: .biz, .info, .aero, .coop, .museum, .name and .pro. The expanded menu is expected to open the door even more for other rivals looking to make a dent in Network Solutions’ market share.

By spring, Network Solutions also must sell its controlling stake in either the registry or its registrar business. VeriSign expects to disclose its plans during the first quarter, Pereira said.

Network Solutions has been preparing for the changes by expanding its reach.

Besides snapping up GreatDomains.com, Network Solutions also expanded its domain menu to include .tv in anticipation of Webcasting improvements that will make video transmission a staple of the Internet experience. VeriSign holds a small stake in Pasadena-based DotTV Corp.

In a controversial move, Network Solutions also began registering domain names in Japanese, Korean and Chinese characters effective Nov. 10.

The move has exceeded expectations with the registration of 700,000 Asian-language addresses in the first 30 days, but the expansion also has outraged the Chinese government, which views Network Solutions as an unwelcome trespasser trying to wrest control of the country’s language.

In response, China has established a competing registry to accept Chinese-language domain names, raising the prospect that Web surfers typing in the same address could be routed to different sites.

Network Solutions has no intention of backing down.

“We play aggressively and we play to win,” Rutt said. “Our feeling is that you only lose when you start playing a prevent defense.”