Web Masters Episode #33: Ron Burr

In the earliest days of the Internet, if you wanted personal, at-home access, you were going to have to pay… a lot. That changed thanks to NetZero. Hear the full story on Web Masters:


NetZero - Wikipedia

Ron Burr:

It was confusing at first from a business perspective, because nobody owned the internet. You could just put a website up. You could be on the internet. But, to get on the internet, you still had to pay somebody, because somebody had to pay for the infrastructure to put a pipe and connect it to the internet. You had to use your modem. You had to dial up from your computer and connect that computer to a server somewhere. And for that piece, which that’s the internet server provider, that’s an ISP piece. You ended up paying. And in fact, some of those same companies, like CompuServe and Prodigy, started recognizing that maybe they should offer a connection to the internet. And then ISPs independently sprung up like EarthLink and MindSpring. And literally back in those days, there were probably thousands of ISPs that were just local to a city, some small city.

That was where we started looking at this thing and saying, “Let me get this, so nobody owns the internet. It’s free, but I still have to pay somebody to get on.” And we started thinking, that’s kind of like putting a toll booth on the freeway on the ramp and saying, “Hey, if you want to come on this on ramp, you got to pay me five bucks.” I don’t own the freeway, but you still got to pay me five bucks to get off. So how can we change that? And that’s where we started thinking about it that much. It’d be like TV and radio. I’m listening to FM radio or I’m not paying for that. That’s being paid for by advertising. And that was the Genesis of the idea for NetZero.

Aaron Dinin:

NetZero. It was a revolutionary idea for a business in its day. It was the company that gave 100% free access to the internet, just installed their software, and you’re online and surfing the web. No more expensive dial up fees to AOL or EarthLink or any other costly ISP. But as we all remember from high school Econ class, there’s really no such thing as a free lunch or in this case, there’s no such thing as free when it comes to the internet. If you’re not paying for something online, you’re not the customer, you’re the product. In fact, that’s what all of us are to Google and Facebook and the other internet behemoths providing us with the quote unquote free services we use every day. We’re their products because they’re selling us and our data to advertisers. But Facebook and Google didn’t invent that strategy. Heck it was a successful strategy.

Well, before the web existed back with radio and broadcast television and people figured out how to leverage that same strategy on the web surprisingly early, but the company that truly elevated the model was NetZero. And the person you heard describe the thought process that led to it was NetZero’s founder and first CEO, Ron Burr. Are you ready to hear the story? Let’s get dialed in.

[INTRO]

Aaron Dinin:

Hello and welcome to Web Masters. This is the podcast where we explore entrepreneurship and what it takes to build successful businesses. We do it by talking with the innovators who first commercialized the worldwide web. My name is Aaron Dinin and I’m your host. I teach Innovation and Entrepreneurship at Duke University and I research internet history. On this episode, I want to explore an important topic that’s been at the center of debates about the best way to commercialize the web for a long time. It’s a debate about the trade-offs between subscription pricing versus free model supported by advertising. But since this podcast is clearly using an ad supported model, before we can get to our episode, I’ve got to take a minute to tell you about our sponsor.

Web Masters couldn’t exist without the generous support of Latona’s. Latona’s is a boutique Mergers and Acquisitions broker that helps people buy and sell their cashflow positive internet businesses. Those can be ad supported businesses like content, websites, and blogs, or they can be subscription services, e-commerce stores, Amazon FBAs, domain portfolios and any other type of online work from anywhere internet business. If you’ve got a profitable internet business you’re thinking of selling, be sure to contact the team at Latona’s so they can talk to you about how to get the best price. And if you’re thinking of buying an already profitable internet business, check out the Latona’s website, where you can search their listings filled with ready to buy businesses, waiting for a new owner, just like you. That website is of course, latonas.com, L A T O N A S.com.

Lots of them media technologies over the centuries have relied on advertising to generate huge portions of their revenues, newspapers, magazines, television, and radio, to name just a few. But when the web relies on advertising, the relationship between consumer and advertiser is a bit different because as we all know, the internet allows for an unprecedented level of individual tracking. This ability to track and target consumers can make web advertising extremely effective, but it also leads to important questions about privacy. Do we, as users of the internet have a right to expect our online actions to remain private or do the companies that allow us to access and explore the web, especially the ones that provide those services for free, have a right to track and profit off our private activities.

I’ll tell you right now, I don’t have the definitive answer to that question, but that doesn’t mean it’s not worth exploring. And to help us do that, I’m going to turn to a conversation I had with Ron Burr. In the late 90s, Ron founded a company called NetZero. It gave people free, dial up internet access. And I’ll let Ron explain the trade-off people made for their free internet.

Ron Burr:

For your audience. It doesn’t know how it works. You would start the software application on your computer, it would give you a choice of a local phone number you could connect to. You would connect, and then you would be online and a little window would pop up on your desktop. And in that window, we would display advertising and that would roll rotate initially every 30 seconds, we would rotate through the new app. So it’s just like a banner ad that you see today. It was very simple, but it stayed ever-present on the desktop. And that was the value exchange is you got in on the net for free, and you watched our advertising.

Aaron Dinin:

In the process of building that service, Ron and his team pioneered and even patented a lot of today’s online marketing strategies that rely so heavily on private user data. As you can imagine, he’s got some interesting thoughts about internet privacy. We’ll get to those, but first let’s talk about access. After all, NetZero was built to give people free access to the internet. After talking with Ron, it seems clear his early experiences with computers are a big part of why he built NetZero. When Ron was growing up, computers themselves were still a precious commodity that only a few people could afford to access.

Ron Burr:

As a kid, we had a family friend who worked for Digital Research. So this is back in the dark ages of computing, right in the NASA moon landing time period. So this is when I was very young. But he had something in his home, he was up in Danville, California, Bay Area. And he had a terminal at his house which was very unique in those days. Computers were something that he went to the office, to university, and he had an acoustic modem. When we were there one summer, he said, “Hey, I’ve got this really cool game called Adventure, you have to try this.” And it was the old adventure that you typed in. Like it would say, oh, there’s a dwarf standing in front of you, what do you want to do? And you’d say, I’ll pick up knife, or run away or whatever it might be. So, I mean I thought that was the coolest thing ever. And I really cannot be on computers at that point.

Aaron Dinin:

Digital Research, the company Ron mentioned was kind of like the first Microsoft. By that, I mean it was the first major software company for what were then called microcomputers. And to have had a neighbor with a computer terminal in his home would have been unique to say the least, as you heard, Ron mentioned his access to that computer ultimately set him on his career trajectory. The same would have been true for the internet a couple decades later. Yes, people were starting to get internet access at home, but access to it was being guarded by expensive Internet Service Providers, ISPs who are charging onerous fees for entry. You heard Ron describe his perspective on that at the top of this episode.

Ron Burr:

Back in those days, there were probably thousands of ISPs. They were just local to a city, some small city. That was where we started looking at this thing and saying, “Let me get this, so nobody owns the internet. It’s free, but I still have to pay somebody to get on.” And we started thinking, that’s kind of like putting a toll booth on the freeway on the ramp and say, “Hey, if you want to come to this on ramp you got to pay me five bucks.” I don’t own the freeway, but you still got to get in five bucks to get off. So how can we change that?

Aaron Dinin:

The model Ron and his partners turned to was the same model they were seeing with things like broadcast, television and radio, rather than charging users for access to the internet. Something that seemed like it should be free and available to anyone. What if they gave users free access and paid for that access with advertising. Sounds simple, right? But giving away internet access wasn’t going to be cheap, and they were going to need lots of users before advertising could become a viable monetization strategy. How are they going to make it work?

Ron Burr:

It was a big idea. So we sat down and we said, “Look this is a really, really big idea. How do we even scope this to see if we should do this?” And we came up with the list of like 15 things that we look at, really understand the network topology and what the costs would be to build an ISP, so we could figure all that out. And then the next side of it was we don’t know anything about advertising. Ranging yes. So what do we need to understand about how the advertising world works.

Aaron Dinin:

It sounds like you’re saying you built what was basically an advertising product without knowing anything about advertising. How’d you figure out how to do that?

Ron Burr:

We went and talked to agencies that were in the advertising industry, specifically agencies that had a focus on local advertising, because one of the things that we thought was really powerful was knowing where the customer was when they call them. Because they’re calling a local phone number and that’s how the modems worked and that’s how you connected to internet in those days. And so by that local number, I knew that you were in Pasadena, California, or Nashville, Tennessee, or wherever you were. So it was a very powerful opportunity to just buy local advertising teams.

Ron Burr:

So anyway, so here we are, we figured, we got to figure these things out and understand whether or not this is even viable and how much it would cost. And we came to the conclusion that we could do this. And our initial thought was, well, we can do it on a regional basis, we’ll start just the way a lot of ISPs were built in those days, city by city, we’ll start in Los Angeles and we’ll move to the bay area and then we’ll go to New York and we’ll build it up that way.

Aaron DInin:

It doesn’t seem like that model would have scaled very well. Did you get any attraction with it?

Ron Burr:

I was out trying to raise venture capital. I had never raised venture capital before, so I think we went through something like 36 nos before we finally got to a yes.

Aaron Dinin:

So the answer is that clearly nobody thought it would work on a regional level. How’d you eventually get to your yes. What changed? What did you start pitching differently?

Ron Burr:

Ultimately, we got introduced to a gentleman by the name of Bill Gross, who was the founder of Idealab. I know they’re a big player in the early internet days.

Aaron Dinin:

Note that Ron isn’t kidding when he’s describing Bill Gross as a big player in the early internet. Bill and Idealab have been involved in over 150 companies, including big businesses of young web, such as Overture, tickets.com, eToys and Citysearch.

Ron Burr:

When we showed it to Bill, he was just in love with the whole concept. Bill looked at it, and I’ll never forget in the first meeting, he was enthralled with it. He called me up that evening and said, “Hey, let’s have dinner tomorrow.” We go out to dinner and he says, “I don’t understand why we can’t just launch this thing immediately. It works.” I said, “Well, this is a prototype. We can’t go to market with this right now. We’re going to do this regional launch.” He said, “No, we can’t do a regional launch. We have to go national.” He says, “You have to get, first of all, the internet is global. There’s no such thing as regional. And you need to have a massive presence to attract the advertising dollars.” And he was right. So we switched strategies and we went to this national launch strategy right out of the gate. And that was critical toward attracting ad dollars.

Aaron Dinin:

So how were you able to go from a regional strategy to a national strategy? I mean, that couldn’t have been an easy switch, right?

Ron Burr:

We were thinking initially at this kind of local concept, oh, we’re going to go in local market. We were thinking just the cost to build infrastructure. But it took us a year from the time we had the concept until the time we got our first capital raise. And during that year, it was 96, 97, only would change in quickly. And companies were coming out with new network devices that allowed you to connect to the internet. And one of the things that changed dramatically was these things called super pops. And when a super pop was, was basically a big piece of iron that could sit in a major Metro area and they could field thousands of phone calls. So instead of having to go into every major metropolitan area that you wanted to provide service in and build physical space and install servers and install modems, you could pick five strategic locations across the country and put these super pops in. And then you could actually offer local access to large markets around that. That was far less capital intensive than having to go out and build that infrastructure market by market.

Aaron Dinin:

Okay. So you launched this new free ISP across the entire United States, then what happens? How does it grow?

Ron Burr:

So the viral spread was fairly amazing. We launched the service, we got a big splash in Los Angeles times, that got picked up and syndicated through APA, got picked up on papers all across the country. Then we started getting radio and we had so much free press. We didn’t spend any money on advertising for users for the first three years. We were spending all our money on advertising to get advertisers as you point out our customer, but we really didn’t spend any money to get customers until, let’s say till about 99 was when we did our first real ad campaigns for users. We did some billboards, we did some radio, then we moved into TV. We did a lot of big stuff then. And we went public in 2000. So it was a lot of great stuff. We did a deal with Compaq computer, which was a huge distribution deal for us. So another great way to acquire customers and so we were pre-packaged on all the Compaqs that were sold at that time, which was pre-Christian HP, for those of you who don’t remember Compaq.

Aaron Dinin:

Oh, I remember Compaq. It was my first computer. What about competitors? What did AOL and other services think of this upstart company basically giving away their product for free?

Ron Burr:

The competition, of course at first, they just shoved us off as kind of in a relevant threat because they were America online and they were the biggest player on the block and we weren’t really going to do anything in their book. But I think when they started to take notices, we had a couple of different approaches. First of all, we recognized that by being free, there was probably this inherent suspicion that the service must suck. We needed to do a good job of providing a quality experience, so we actually got rated in the top three in terms of customer support or online customer support portal. And we focused heavily on connectivity and we actually got patents around this, and the way we tracked the connection experience. Because back in those days, again, you got to remember it wasn’t like today, the infrastructure wasn’t solid.

So you could dial up, get a bad connection. Your speed would be slow, your connection might get dropped. So we monitored and tracked all of that and we would cut out numbers that didn’t work. And that’s how we managed our suppliers, companies like level three and big backbone providers buying for our business. So ultimately that was a key toward getting more and more success in the space. But it was a big growing pie, so we didn’t have to disrupt AOL and refresh to grow. It was just a massive growth opportunity.

Aaron Dinin:

I mean, it must’ve been wildly massive because you went public in what, 1999, I think I read. And you started this idea in 96 or 97. That’s really fast from idea to IPO in like two or three years. What was that experience like?

Ron Burr:

I’ll tell you, it becomes surreal at some point. I can remember we were on the roadshow to go public, the IPO roadshow. And that’s for people who are familiar with it, this is where your investment bank takes you around. They set up all these appointments and you go talk to all these institutional investors, Fidelity and Janice funds and all these everybody who buys into today, hedge funds, all these different big investors. And so like a grueling two week process of four or five meetings a day and you’re flying over the place. So it sounds really cool and it’s very glamorous. And part of it, you’re going and talking to some really popular influential people, and you’re trying to pitch your business now differently than you worked at the BC. Now you’re pitching it to these public institutional investors.

But I just remember that was a goal. That was a dream, like I wanted to get that. I wanted to do that. And after the two weeks, and we were sitting in Goldman Sachs trading floor and the stock was about to trade, I just had this massive migraine. I hadn’t slept. I was not feeling well. And I thought, God, how disappointing? I mean, this should be like one of the most exciting days of my life and all I want to do is go to sleep. So it’s not always what you think it’s going to be, but certainly I will say overall it a fantastic experience. I wouldn’t trade it for anything.

Aaron Dinin:

And you went public as the president and CTO, right? Rather than being the CEO. If you don’t mind me asking, did you get pushed out of the CEO role by investors or was it a voluntary choice?

Ron Burr:

So I was really upfront early on with the investors that at some point I would see a need to replace myself. And as we started getting close to going public, it was just a natural conversation we had to start to have report meetings.

Aaron Dinin:

That’s pretty unusual. I haven’t met many CEOs who’ve had the self doubt or maybe, I guess I should say the self-confidence to fire themselves. How’d you make that decision?

Ron Burr:

It was hard for sure, because your ego is telling you something over here as you’ve got the angel on this shoulder and the devil on this shoulder. They’re both telling you different things and other people are coming in and tell you, “Ron, you don’t need to do this. You’re doing great. You took out what you’ve done. You don’t need to do this.” Then you look back and you second guess, should I have done that, did I need to do that? But the reality is I measure it by the success and we were successful. So I’d say it was the right decision.

Aaron Dinin:

Is that a strategy you think more founding CEOs should follow?

Ron Burr:

I can’t speak for everybody. I just know for myself that I had a real clarity at the time that this was a unique opportunity and that you may only get one of these kinds of opportunities once in your life. And so don’t screw it up. And so don’t let your ego get in the way. And that was a mindset I had really from the beginning. So it wasn’t like I had to suck it up and make a change. It was something that was like, no, I knew at some point that was probably going to happen because I wanted to get public and I had never been a public CEO and didn’t have the background for it. And we needed somebody like that on the team.

Aaron Dinin:

And to be fair, it’s definitely hard to argue with that choice, considering the results going from idea to IPO in less than three years. But of course this was the late 90s. A lot of companies were making similar leaps and it was all going to crash down pretty soon.

Ron Burr:

We went public in 99 and going through the crash was very gut wrenching, I guess. I think our stock was at one point $50 a share, which had our market cap at like four billion. And its low point it was, I think at 15 cents, you go down to, I don’t remember what the market capitalization, 125 million or something I’m just terrible. And then the NASDAQ, if you trade for more than 30 days under a dollar, you can get the listing. It was this constant battle to try this stay listed. And it was a challenging time. And of course everybody thought internet advertising is not going to make it. And boy, you’re giving away this stuff for free. You’re never going to make it. But the reality is we ran a good business and we had raised our IPO. We had managed to do a follow on financing group private means with Qualcomm who did a big investment in us.

So we had a big war chest of capital and we were able to weather the storm. And in fact, we took advantage of it because so many companies were distressed. We went through acquisition spree with 14 different companies. The biggest one being we merged with probably I guess, one of our bigger rivals at the time, which was a company called Juno. When we did that, we printed a new holding company called United Online, and United Online became the parent of the NetZero brand and the Juno brand and all a bunch of other brands we’ve bought over the years.

Aaron Dinin:

The holding company United Online managed to stick around until 2016 when it was acquired by a private equity firm and surprisingly NetZero still exists. According to Ron, lastly heard around 2018, it still had roughly five million accounts. But according to Ron, the real measure of NetZero’s impact isn’t necessarily the user base.

Ron Burr:

There’s a lot of focus. It’s always put on the free internet access, which was the compelling component that drove the customer base. But we put a lot of effort into developing an advertising product that was better than what was available traditionally on the internet. So two of the big differentiators, the one I mentioned was this concept of local targeting. So I could target an ad specifically to a geographic region. And the second one was what we called URL targeting, basically click stream, if you will. So if you’re on a Ford motor company site, you could display a Chevy ad, right? You couldn’t do this before. I laugh at people who didn’t grow up without the internet, they don’t understand this, but you could not do something like that. Pre-internet. And so it was very revolutionary. We got a patent on it and that patent’s actually cited and silly feature patents, including some of Google’s patents was a real revolutionary concept. And we grew revenue from four and a half million dollars the first year, and five years later, we did $550 million. It was a massive scale for us. Yeah.

Aaron Dinin:

I’ll say four and a half million to 550 million in revenue in five years. That’s pretty incredible. And all that revenue was coming from advertising. Was it just the one box with rotating ad banners or were you monetizing in other ways too?

Ron Burr:

What we did early on was there were companies like Comscore and others and Nielsen, that ratings who were trying to aggregate what they did in traditional media and to the internet. And so we were a big source of data for them too, we would actually absolutely sell that click stream data as another source of revenue. But we also could see that your point, where the most traffic sites were. And of course it was no surprise what the most traffic sites, where they’re still the most traffic sites today, which is important.

But there were also a lot of other interesting things you could see and you could gauge kind of where our user was going, compared to what was being published on the web. And they were generally pretty close, but I think the rankings would vary by positions here and there. You had kind of the birds I see on what people were doing and where they were going. We could see, for example, the rise of Google coming out of nowhere, got with being the dominant search engine. And then Google was just like everybody else, they started as a startup.

Aaron Dinin:

That’s actually really interesting. It must’ve been fascinating to have all that data. So it sounds like you weren’t just monetizing with ads. It sounds like you were selling that data too, is that correct?

Ron Burr:

The two biggest streams were what we called the banner window, which was the primary ad window and the click stream data that we would sell in mass, anonymized to, like I said, Comscore and those kinds of companies. We also found ways to sell what was called the landing page. So when you connected, you initially landed on a homepage that became very valuable real estate. So we could charge for that. We could throw up an ad when you were connecting and an ad when you were leaving. So we found all kinds of creative ways to put new advertising products out there. Ultimately, here’s another interesting thing about the business model. So when I was originally pitching it, it’s not necessarily intuitive from an investor perspective. You’re like, wait a second, you’re telling me, you’re going to give this thing away, it’s going to cost massive dollars and you just got to try and make up by the advertising.

But the reality is you have a business model in advertising that scales with your cost structure. So if somebody spends an hour of time online, I’m generating an hour of revenue through advertising. If you compare that to a traditional ISP, even today, like your cable companies or whoever, they’re charging you typically at flat fee for access. Their costs vary based on how many people use it and how much they use it. So they’ve got this fixed revenue against this variable cost. So that made our model really powerful, and we had over 90% gross margins. So it was a very profitable business.

Aaron Dinin:

You know, this is fascinating because I remember using NetZero when I was a teenager, I can’t believe all that was happening without me even realizing it. On one hand I feel kind of deceived. But on the other hand, I guess I’m also thankful. That was one of the earliest ways I was able to get connected to the internet because I had trouble convincing my parents to pay for dial up. Without NetZero, I don’t know if I’d be where I am today.

Ron Burr:

That’s really cool. That’s really cool. I’ve heard a lot of stories like that. There’s a lot of people who’ve got their first experience on NetZero which is really a need for me just to be able to know that, “Hey, listen, we contributed an interesting piece to the history of getting people online.” I, at one point we had registered like 15 million users. So it was quite a few people who found their way to the internet through NetZero.

Aaron Dinin:

So here’s the thing about a company like NetZero. On one hand, it’s a company that gave millions of people like me, our first exposure to the internet and the worldwide web. Simply put, if it wasn’t for NetZero, I may not have had the career I’ve had. And surely among its millions of users, there are plenty of other people just like me. We got our start on the web, thanks to Ron Burr and his crazy idea to give people free internet in exchange for letting him advertise to us. But of course that simplifies the trade off that was happening. Remember, as Ron told NetZero went from 4.5 million in revenue to 550 million in revenue in five years, they were clearly really good at advertising. And in order for a company like NetZero to be so effective at advertising, the technology wasn’t just showing random ads, it was carefully looking at everything people like me were doing online and selling that info to advertisers, so we could be explicitly targeted. In other words, NetZero set a precedent for how online value exchanges would work, that the world continues grappling with today.

Ron Burr:

I look back on it, I think I’m not happy with where things have gone as a consumer and as a citizen and user on the internet. It was the value exchange was like, “Hey, listen, you come on to our service. We’re going to track everything you do.” And we did. We tracked everywhere you went, everything you did, and we built an anonymous profile and we really truly did anonymize the profile. We didn’t just say it. We did it. But yet we track that and that’s how we targeted the advertising. So it was definitely the beginning of that whole kind of pervasive internet, knowing everything you’re doing, which probably, it’s a trade that I think has to be managed very carefully. There’s a huge responsibility that goes with it and it can be abused. It has been abused as we’ve seen.

Aaron Dinin:

This brings us to the big question we have to ask ourselves, not just about NetZero, but also Google and Facebook and freely any other online service that gives us access in exchange for our data. A lot of people want to argue that digital privacy is a fundamental right for everyone on the web, they don’t disagree. But what about digital access? Is that a fundamental right too? If so, as Ron just explained, it costs lots of money to give people access to the internet. It also costs lots of money to let people search the web, and it costs lots of money to provide social networks where people can interact with their friends and family. The companies that provide those services have to be able to pay their bills, either they need to charge us a subscription fee, which would restrict access, or we have to give them something valuable in exchange for letting us use their services.

The one universal thing every person on the planet can give is access to our user data, while it infringes on our right to online privacy, it simultaneously supports equal access. That seems important too. So maybe the question we need to be asking ourselves is which fundamental right do we value, more access or privacy? What do you think? Tell you what, you can let us know by reaching out. We’re @WebMastersPod on Twitter and hey, I’m on Twitter too @AaronDinin, that’s A-A-R-O N D I N I N. Be sure to send us a message and let us know what you’d think.

I’d like to thank Ron Burr for spending the time to share his story and the story of NetZero. If you’d like to see what he’s up to these days, you can find them on Twitter. He’s @RonBurr.

I also want to thank our sound engineer, Ryan Higgs for helping pull together this episode and I want to thank our sponsor Latona’s for all their support. Remember, if you’re interested in buying or selling an internet business, be sure to head over to latonas.com. You can support this podcast too. It’s easy. Just be sure you’re subscribed on your podcasting app of choice. Leave us a five star review and share it with a friend. If you do those things, you’ll be all set for our next episode with another amazing internet entrepreneur that’s coming soon. I promise. But until then, well, it’s time for me to sign off.

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