Web Masters Epsiode #30: Sky Dayton

Connecting to the Internet wasn’t always easy. But Sky Dayton changed that when he created EarthLink. Hear the full story on Web Masters podcast.


File:Earthlink logo.svg - Wikimedia Commons

Sky Dayton:

By the late ’90s, early 2000s, you’re kind of taking your internet for granted. If you ask kids today what an internet provider is, nobody knows. Because the internet is just a thing that exists like water, it comes out of the tap, you just turn the tap and there it is, right? People don’t talk about the water company, the power company that much, it just is a thing. It’s what you do with the internet that became much more interesting to me at that point. And that has led me into online education and AI and satellites and a lot of other cool applications I’m working on now.

Aaron Dinin:

That was entrepreneur and investor Sky Dayton, talking about the technologies he’s currently interested in pursuing. As you heard him explain, he’s focused on building things on top of the internet. That includes everything from a billion dollar edtech startup to an IoT device acquired by Amazon, to electric, vertical takeoff and landing aircraft. In other words, he’s had some impressive entrepreneurial successes. But none of those successes would be possible without easy access to the internet, which is something most people these days take for granted.

Aaron Dinin:

However, that wasn’t the case when Sky was getting started on his entrepreneurial journey. Instead, the first time he wanted to connect his computer to the internet, it took them a week to get the configuration right. So before Sky could build all the things he’s helped build on top of the internet, he first had to make the internet easy to access. He did it by building EarthLink, one of the world’s largest and most successful early internet service providers. Are you ready to hear the story? Let’s get dialed in.

[INTRO]

Aaron Dinin:

Welcome to Web Masters, the podcast that explores entrepreneurship by talking with some of the internet’s most impactful early innovators. I’m the host, Aaron Dinin. I’m a serial entrepreneur, I teach innovation and entrepreneurship at Duke University, and I study the history of the internet. Of course, as you just heard, this episode’s guest mentioned these days accessing the internet is about as easy as turning on a faucet. However, it took lots of people and lots of hard work to turn internet access into something that’s well, pretty boring. But don’t worry, the story of how internet access became boring isn’t actually boring. And we’re going to hear some of that story today by talking with Sky Dayton, founder of ISP behemoth EarthLink. But before we do that, I want to tell you about another great opportunity all of you listening right now have because of Sky Dayton and all the work he did helping make the internet so darn easy to access.

This episode of webmasters is being brought to you thanks to the support of our sponsor Latona’s. Latona’s is a boutique mergers and acquisitions broker that helps people buy and or sell cash-flow positive internet businesses and digital assets. Those include things like e-commerce stores, SaaS apps, domain portfolios, Amazon FBAs, content websites, and any of the other numerous types of online businesses that exist thanks to the internet. If you’ve got a profitable internet business and are thinking about selling it, be sure to contact Latona’s his team, because they’ve got a huge audience of interested buyers just waiting for the perfect opportunity. And if you’re looking to buy an internet business, you can head over to the Latona’s website and see all the listings of businesses being sold. You can buy any of them right now. That website is latonas.com, L-A-T-O-N-A-S.com.

I’ve told you that this episode’s guest Sky Dayton builds lots of successful things on the internet. To explain just how successful, I feel compelled to share some of the highlights. In addition to being founder of EarthLink, Sky founded Boingo, the global wireless internet provider. He founded eCompanies which has incubated multiple other companies that went on to have nine figure acquisitions. He’s also a key investor or advisor to another collection of internet and tech companies with a combined valuation well into the many billions of dollars. Seriously, go check out this guy’s LinkedIn profile when you have a few minutes, you will be simultaneously amazed and jealous of what he’s done.

A big part of how he’s accomplished so much is that he started really young. In fact, Sky first learned to code back in 1980 when he was nine years old, and computers weren’t common household items. So how does a nine year old get access to computers in 1980? Well, it helps to have a grandfather who was a famous and highly respected early computer scientist named David DeWitt.

Sky Dayton:

I was introduced to computers when I was nine years old by my grandfather, who was an IBM fellow. He was working at the company as one of their top engineers and he brought me to an IBM facility in Palo Alto, and at the time, this is in the 1980 timeframe, it was a room with a bunch of whirring tape drives and machines making loud noises. And he told me what these computers were doing and it just completely captured my imagination.

Aaron Dinin:

And what was so interesting about 1980s computers to a nine year old?

Sky Dayton:

I just thought that there was a incredible possibility in this room. You could program these things to process information, to… No, at the time, to be fair, our imagination about what computers might do and this extended later to the internet was pretty shallow. If you asked Bill Gates in the early ’80s, “Hey, what can a PC do in the home? He’s like, “Well, it can help you with your taxes, or it can organize your recipes, or…” It was pretty basic. Kinds of stuff we do today with computer technology we just had no idea. Maybe it’s like if you ask Thomas Edison, “Hey…” I’m not comparing myself to Thomas Edison here, but if you asked him, “What will people do with electricity?” I doubt they would have answered autonomous cars or something, right?

But I just thought that there’s something wonderful here and I started playing with computers that my grandfather helped me get into and then my first computer was a Timex Sinclair ZX81, which had a membrane keypad and one kilobyte of memory and you could pay $200 and get the 16 kilobyte memory extension pack that had some power supply. I didn’t own a television at the time so my dad went out and went to Sears and bought a black and white TV which we hooked this computer up to and I used it to program games, and every time I wanted to play a game I’d have to program it and then when I shut it off everything would be erased. So eventually I figured out you can get a tape recorder and you could connect it and so I had these cassette tapes where my little games that I programmed in basic were recorded, and if I wanted to play them I could put the cassette tape in and then load the game.

Aaron Dinin:

And that’s crazy, you were doing that when you were nine years old?

Sky Dayton:

Sort of 9 to 11, that period. Yeah, that was my sort of seminal computer moment.

Aaron Dinin:

So coding computers at nine. I don’t remember what I was doing when I was nine years old but it definitely wasn’t that. Sky would graduate from high school when he was just 16 and along with computers he had a healthy passion for the visual arts, a byproduct of growing up with parents who were both artists, those two passions combined to form a teenager who was unusually skilled with digital graphics, so skilled in fact that as a teenager he wound up running digital design departments for a couple of California based ad agencies.

Sky Dayton:

I got really excited and into computer graphics and desktop publishing specifically in the late ’80s and early ’90s as I was coming out of high school and worked at ad agencies in the very early days of this desktop publishing revolution. Used to be if you were wanting to make, let’s say, an ad for a newspaper or a magazine you would physically cut and paste and take a photograph and then send that photograph off to the magazine, and people were starting to do that on computers. Obviously, something we totally take for granted today. So I was using QuarkXPress 1.0 and Adobe Illustrator 1.0 and Photoshop 1.0, literally reading the manuals, figuring out how to do these things and ended up running these ad agency’s computer graphics departments at the age of 17, 18 years old. It’s a pretty amazing experience.

Aaron Dinin:

And why you’d think that running computer graphics departments at ad agencies in the late 1980s would have been the thing that touched off Sky’s involvement with the internet, somehow that actually wasn’t the case. Instead, his career took an odd twist but it’s a twist that taught Sky a lot about running businesses and the power of bringing people together.

Sky Dayton:

So my journey to the internet actually started in desktop publishing and then at 19 I got together with a longtime friend that I had grown up with and we started a coffee house in West Hollywood called Cafe Mocha that went on to be kind of world famous and we were 19 years old, decidedly an analog activity, but it gave me an appreciation for this notion of bringing people together, communicating, we have poetry readings and concerts and people would come and write and work there and it was really neat. And then not long after that, it was probably about two years later I heard about this thing called the internet and it was… I can’t remember, somebody was telling me, “Hey, there’s this network, it’s kind of like the defense department designed it to survive a nuclear war, all the computers are connected independently to each other, and you can get connected to this thing, and you can send electronic messages and download files.” And was like, “That sounds really interesting. I wonder how I would get connected to that?”

Sky Dayton:

I don’t know if you remember 411, but you could pick up the phone, dial 411, and it’s like a Yellow Pages, somebody would answer. So I said give me the number for the internet, and the operator was like, “I’ve searched internet, literally nothing comes up anywhere.” “All right, well, can we do a nationwide search for any company with the word internet in their name?” And it was nothing. And so it was just this sort of interesting mystery.

Aaron Dinin:

So how did you eventually find this mysterious internet thing that you’d been hearing about?

Sky Dayton:

Around that time I’d enrolled in a UCLA C programming class, and there was a little notice on the bulletin board outside the classroom, it said, “Internet,” and had a phone number for a defense contractor in San Diego that offered connections to students. So I called them up and told them I was enrolled in this class and asked him what I needed to do. And they said if I paid, I think it was $2 an hour, they would give me a phone number I could use with the modem, and I could connect my computer to the service and get connect to the internet. Said, “Great, sign me up.”

Sky Dayton:

So they mailed me a sheet of paper with a bunch of data on it, which I later learned were things like IP addresses and things like that. And I spent the next week just pounding away on my little Macintosh trying to get it to connect to the internet. I had to download the TCP IP software in order to connect and it was just a whole struggle to get my Mac to get online. When I finally did, I immediately realized, I just remember the moment so viscerally, that this is the next mass medium, this is going to be something absolutely huge. And I didn’t know what it would be or how but the experience I’d had was so difficult to get there. I thought, “What if I could help make it easier in some way?” Thus began a journey that led to EarthLink.

Aaron Dinin:

This is what we might call Sky’s entrepreneurial aha moment. It was the moment that first revealed the insight which would ultimately become his company. I enjoy examining these kinds of moments when entrepreneurs share them, because they reveal the inquisitive and somewhat serendipitous nature of entrepreneurial innovation. Specifically, notice what Sky didn’t say, he never talked about wanting to be an entrepreneur. In fact, the idea of entrepreneurship never factored into his decision at all. And he would even tell you that this lack of intentionality was a critical part of what ultimately allowed him to become an entrepreneur.

Sky Dayton:

Being an entrepreneur is a purist avocation, you start with nothing and you start with a problem and you figure out a way to solve it. That to me is being an entrepreneur. I think you can be an entrepreneur, whether you’re starting a company that’s just too narrow of you, though, you can be an entrepreneur inside your company, your organization and your family, it just means you take full responsibility for finding the solution to a problem and carrying it all the way and making it viable.

You don’t set out to say, “I’m going to be a business person,” right? You say, “What’s the impact you want to have on the world by solving what problem?” And it turns out that being an entrepreneur a lot of times is the right hat to wear to go do that, but it might be something else, right? And you’re going to get a lot more fulfillment out of helping to solve a problem than you are about sort of groping around for identity because it seems cool to be an entrepreneur. Actually, it didn’t used to be cool to be an… It used to be a little bit shady, like who was the guy getting out of the private jet into his Ferrari with his giant brick cell phone and it says like, “Entrepreneur Magazine.” That was what it meant to be an entrepreneur. Now it’s super cool. Whatever. Anyway, maybe what I just described is cool to people, I think it’s cheesy.

Aaron Dinin:

Sky didn’t set out to be an entrepreneur. Instead, he saw a problem and wanted to solve it. True, that eventually led him down the path of becoming an entrepreneur, but entrepreneurship was a byproduct, not a goal. In my experience, this is an important distinction because it impacts the strategies budding entrepreneurs use when building their companies. When the goal is to be a successful entrepreneur, the person pursuing the goal tends to focus on building whatever he or she thinks needs to be built, regardless of whether it’s something people actually want. In contrast, when the goal is to solve a problem, the thing that gets built is more likely to end up being something other people actually need. This is what happened to Sky. His first inclination was to build a piece of software. But as he explored the problem, he realized he needed to create something else. And because he was more focused on solving the problem than achieving some fanciful vision of becoming a successful entrepreneur, whatever that might mean, he was able to ultimately build something people wanted.

Sky Dayton:

My initial idea was actually not to create an internet provider, I thought, “Well, I’m going to solve this problem through software.” I think if I build a software program that allowed a normal person to load a disk into their computer… And again, a lot of things we take for granted today, but we’d have things like email in a web browser, and a way to download files, very simple. And so I started doing a exploration beginning with the UX and UI, and I designed all the screens for this application I wanted to build. And then I had that and I thought, “Okay, well, the next thing I need is to partner with an internet provider that will actually provide people the connection.”

So again, there was no Comcast Internet, there was no AT&T internet, there was no… Certainly it wasn’t wireless, you had to connect with a modem somewhere, and somebody needed to provide the phone number that your modem would connect to. That’s what the internet provider would do. When I called the internet provider I had, the one in San Diego, I reached the head of the little internet provider, and I was, again, connected to a defense contractor that ran this node of the internet. And I said what I wanted to do, and he said, “That sounds interesting, but just being completely honest here, I don’t want you to spin your wheels and waste your time. Everybody that’s ever going to be connected to the internet is already connected to the internet. I don’t think there’s really any more growth to be had.” I just sat there on the phone, speechless, I didn’t know what to say.

Sky Dayton:

Then I started calling around to other internet providers, I couldn’t get anyone to give me the time of day. And they were all really bad, the ones that were emerging had horrible customer service. So I just remember, I was driving back from my coffee house late one night after a late meeting, going over the numbers of the coffee house and everything, and I still couldn’t stop thinking about this. I remember the song that was playing, it was by the band New Order on the radio, and I remember the point I was in the freeway, and I just thought, “Well, I’m going to have to start an internet provider myself, and no one’s doing it, I’m going to do it.” And that was the moment EarthLink was born.

Aaron Dinin:

So that’s interesting. As you noted, at the time, most ISPs were small and local, and people weren’t expecting the internet to scale the way it ultimately has. So were you also focused on being small and local? Or did you launch with the goal of building something national?

Sky Dayton:

I knew I needed to start small, you got to get going and sort of prove the model. There was also this physical problem, which is you needed to be able to make a local phone call with your computer. So if I had a bank of modems in, let’s say Los Angeles, and you were in New York, it was going to cost a lot of money. Even to call from the other side of La was a toll charge where the phone company would charge you by the minute to make that call. So it had to be intensely local. I started in LA, because that’s where I was and it was a gigantic market. I picked a location that had the largest dialing radius, meaning the largest population could call my modem bank and have it be a local call.

But I very much had national ambitions and when I named the company… I still have the sheet of paper somewhere, I had all these different names I’d written down. Some of them are pretty lame, like Weblink and Websoft and stuff, but I love this idea of Earth and connecting the earth through a network. So I wrote down EarthLink on the list, I called like seven friends. I said, “Hey, I’m going to do a quick survey on you.” EarthLink got the most checkmarks and so that was the name of the company.

Aaron Dinin:

That’s great. I like a rigorous that process was.

Sky Dayton:

We hired a big consulting firm, we did focus groups. Not only did I just name it, I didn’t bother to check if anyone else owned the trademark. So it was a couple years later, we got a letter from a large cable company actually back east, and they said, “Hey, we own this name for some satellites that we’re launching.” I looked into it and I realized that they weren’t actually going to use the name for a consumer service. So I just cold called the chief legal officer or something or general counsel, I’m like, “well, this person probably knows what’s going on here.”

So I called the main number, asked to be transferred, reached this guy, explained the situation and said, “Hey, I’ve got this small internet provider, I’m using this name, I’d love your permission to continue to use it. Will you be okay with that?” And he’s like, “I really appreciate you calling me, most people just file a lawsuit, I’m going to send you a letter right now that says you have complete right to use the name.” That was one of many near-death experiences that we had along the way.

Aaron Dinin:

Okay, so you launched this small local ISP with a goal of turning it into something much larger and clearly you succeeded. What was the first step on that journey?

Sky Dayton:

There was a few things that I did right away. First is I focused on customer service, right? I focused on making it a provider I wish that I’d had originally, right? I put an ad out in the local computer magazine, it was called Microtimes, it was where hobbyists could buy [inaudible 00:20:46] computers and do swap meets and different things like that. And it just said, “Internet,” and had a picture I drew that was sort of a riff on our logo and then had our phone number. And the phone started to ring and literally the first customer called to sign up and I said, “Okay, here, I’m going to send you the instructions and everything.” I hung up and I realized I had no billing system, so I had to figure that out.

So there was a lot of figuring basic things out and doing things I had never done before. But by really focusing on great customer service and helping people get connected, we soon in LA became the number one choice. I had this little problem which was I couldn’t expand outside of my zone of my little part of LA to serve people, let’s say in the San Fernando Valley or down in the South Bay, it was a toll charge to call our modems.

So I figured out this kind of interesting hack which is you could program a phone line to forward to another phone number, so if you could imagine this, I went to the very edge of the calling radius of my first set of modems and I found friends that lived around that area and I said, “Hey, I’m going to install a phone line in your house, I’m going to give you lifetime access to EarthLink for free, you’re not going to ask me any questions, I’m just going to install this phone line, just don’t worry about it.” And they’re like, “Okay, whatever, fine. Free EarthLink sounds great.” And I had the phone line installed and then… I didn’t have a phone installed, I just had the line brought to the edge of their house or right outside of their house.

And then I would connect to that using kind of a jerry rigged phone like… Have you ever seen the thing that they’re climbing a telephone pole and they have these red phones? I had a thing like that. I connected in to this phone line, got a dial tone and then I programmed the phone to forward to my modem bank. So now what I would do is I would give people, my customers, that phone number and it would go way out another 20 miles or whatever past where EarthLink was at the time, they could call in from out there to this phone number and it would forward to EarthLink. And then I did this multiple times, leapfrog forwarding and pretty soon I had the entire Southern California area covered with one giant bank of modems in my original office.

Aaron Dinin:

And out of curiosity, do those friends who helped you out still have their lifetime EarthLink access?

Sky Dayton:

As far as I know. It’s been a long time. I should actually check on that. Yeah, I mean, if they’re still living in that random house in Northridge or something, but yeah, I should probably check.

Aaron Dinin:

You’ll definitely have to let us know what you find out. In the meantime, tell us what happened next. Am I right to guess that hacking the phone system with call forwarding wasn’t a viable long term solution?

Sky Dayton:

About year later we got a call from the telephone company saying our telephone switches are malfunctioning because you appear to be doing something with this forwarding thing that was never designed. I was worried that they were going to shut us down but they didn’t they, to their credit, designed a whole feature for us to do exactly what I had hacked the system to do originally. That got us Southern California, but then how do we get out to the rest of the United States? And there was a backbone company called UUNET that had built a bunch of the core infrastructure of the internet at that time. They were setting up modems in a bunch of different markets starting with like the NFL markets and then expanding to sell a wholesale service to Microsoft network, MSN as a new kind of like an America Online competitor that Microsoft was starting. But these modems could be used to connect to the internet, so I went to them and convinced them to rent them to me.

Aaron Dinin:

How’d you pay for all this? What was your business model?

Sky Dayton:

Now at the time, we were selling internet access for $19.95 a month, and I had come up with this idea of flat rate. Used to be that you would pay by the hour, I thought, “Well, people don’t want to think about how long they’re connecting for, let’s just make it flat rate. And we’ll figure out how to make money, we’ll figure out to lower our costs and make money selling it for $20 a month. Even if somebody uses it for 100 hours or 200 hours, or just leaves their computer connected.” But UUNET wanted to charge me $2 an hour to use their modems. So I thought, “Well, I’ll probably get upside down here, if somebody uses 10 hours, I’m screwed, but I’m going to figure it out.”

So we did a wholesale deal with them to rent their network at this exorbitant rate, we have the $20 a month plan, and then we started advertising this, and they went completely crazy, our costs went through the roof, and there’s a whole other story of how we turned it into a profitable enterprise. But that’s how we went nationwide in those early days.

Aaron Dinin:

Wait, I’m pretty sure we need to hear that story, how’d you solve the pricing problem?

Sky Dayton:

Competition. So there was another internet provider like UUNET but smaller called PSINet, they were a backbone provider based also… Both these companies were based in the Washington DC area, but had these nationwide networks. Went to them, said, “Listen, I want to do a deal with you. And instead of paying you by the hour, I’m going to pay you a flat rate per user per month. And I’m going to guarantee you a lot of usage, so you can go build your network.” And they had just gone public, and they were struggling a bit. I knew this deal would help their business, and they were a pioneering company and run by some really great people. But they needed a customer like EarthLink to really make their business work. And I knew I could drive tons and tons of demand.

So I remember the meeting, actually, where we went out to the East Coast and we sat in a room with them, and we basically banged out a deal where somehow we convinced them to let us pay $8 a month flat rate, no matter how much the customer used. And so immediately, I went from a negative gross margin to a 60% margin, with no risk that I would go negative. Once that deal was in place with them, we went back to UUNET, we said, “Listen, this is the deal, you’re going to lose all of your business, because we can just reroute all these customers.” So they quickly acquiesced and did a similar deal. So we went from upside down to very profitable, at least on a per customer basis overnight.

Aaron Dinin:

And can you give us an idea of timing, this would have been, what, 1995, 1996?

Sky Dayton:

Yeah, ’95, ’96.

Aaron Dinin:

That means you would have been like 24, 25 years old at that point. What gave you the confidence to go out and build this national network and sign all these big partnership deals?

Sky Dayton:

I mean, nobody told me that you couldn’t do it, so why not? I mean, most of the things I did at the time, I didn’t know how to do at the time I started to try to do them. I mean, just to give an example, we took the company public in 1997. It was about six months later that I really understood how the stock market really worked, and how the banks really worked and we just did it. I mean, I’ll admit all this, because I think it’s important to be humble, and to know that you don’t know, but at the same time, to not let lack of knowledge be a limitation on ability, you can pull yourself through it. And even the internet, I mean, I freely admit now that in those early days, 1994, I didn’t really understand how the internet worked. I mean, I didn’t get it at its core, and there’s still a lot I wish I knew, but I understood it enough. And by constantly asked questions, I had a dictionary on my desk with computer terms I would constantly refer to and I just went and did stuff.

Aaron Dinin:

What other kinds of stuff did you do to get customers and grow the business?

Sky Dayton:

We sent these discs out and you would get them in the mail. I mean, we dropped these things from helicopters. I mean, we just printed like millions and millions of them and distributed them, and you put it in your computer and then it would sign you up to a free trial, get your credit card and connect to the internet. Another thing happened around that time, sort of in the ’98 timeframe, which is Steve Jobs came back to Apple and his now famous story, one of his first actions was to radically simplify what Apple was doing at the time, which is they’d sprawled into a zillion different form factors and things and they had no focus.

So I got invited to come and meet him shortly after he came back and they wanted to talk to EarthLink, about a partnership. So we got together in a conference room and first thing I did was I said, “Hey, Steve, can you explain what your strategy for Apple is?” And he got up on the whiteboard, and he drew four boxes. And he said, “There’s going to be a consumer product, and a business product for laptop and desktop.” Four products, that’s it. And the consumer desktop product was going to be called the iMac, and the I as we know, was for internet, and he wanted to have this computer be unique in that you would take it out of the box, you would plug in power, and then you would plug in a phone line, and you would turn it on, and the first thing it would do would be sign you up to the internet. Because again, very few people were on the internet at the time, right? So you could assume that most people that got one of these didn’t have an internet connection.

He wanted to make EarthLink the default internet provider. I mean, it was obviously incredibly flattering, we were recognized as sort of the Mac of ISPs, I think as a business headline around the time, super customer service oriented and great design and everything. And so we had this chance to align with Apple, they ended up investing in EarthLink, and EarthLink became the default internet provider. So there were a lot of things like that around that time that really propelled the company forward to becoming as big as it did.

Aaron Dinin:

So it sounds like partnerships were an important part of Earthlings growth strategy, or was it just that one deal with Apple?

Sky Dayton:

I’ll give you another example. Netscape had emerged ’94, ’95, that period, as the dominant web browser, first real commercial web browser. And I wanted to put a… Remember of the disk idea I talked about it, I wanted to be able to send disks out to people that they could just put in their computer and get connected, and I needed a web browser for that. So I went to Netscape, and I said, “Hey, I’m going to…” They were giving away for free at the time, I said, “I’m going to do a deal where I pay you when somebody signs up, I can distribute these as much as I want. I’ll pay you for every customer that signs up to EarthLink and then stays on for a month.” Okay? They said, “Wow, that sounds like a great idea. We can make some money from this thing. Let’s do it. Do you want to draw up the contract?” I said, “Sure.”

So I went to my family lawyer, and he drew up a three page contract, which just said very simply what our rights were and everything. They signed it, we started working, and a few months later, Jim Barksdale had come in as CEO, legendary of CEO, he had been CIO of FedEx, and just a really brilliant guy. And the first thing he did was, said, “Wait a minute, why we giving this away? We’ve got the best software in the world. Everybody wants this. Let’s charge for it.” And they had this little problem which they’d done a deal with this tiny company nobody had ever heard of called EarthLink that gave us the right to distribute Netscape unlimited for free, and only pay when the person actually connected to use it.

So as a result, I was out cutting all these deals all over the place with book publishers and magazine publishers to put these disks in their publications, and Netscape really couldn’t stop it. And I remember they tried to get out of the deal, they said, “What would it take?” I told them, “$100 million.” Anyway, they ended up being an amazing partner over the years. But there were little things like that, that ended up being the building blocks to making EarthLink the dominant independent internet provider. And it took many years, again, many near-death experiences to get there. But you’re kind of like a failure many, many times before you’re a success.

Aaron Dinin:

You mentioned having many near-death experiences, what other kinds of failures and setbacks did you have to deal with and how’d you overcome them?

Sky Dayton:

I think as an entrepreneur, what I’m most proud of with EarthLink is that I persevered through endless challenges. And a time we were in the office, we were bursting at the seams, we had employees in the hallways with desks, we couldn’t fit everyone. We were just taxing every piece of infrastructure we had to the point where our connection to the electrical grid blew up, like literally exploded, and the whole building lost power, we were completely dark. And we went and rented a generator that was used on movie sets to power a small town, and we hooked it up to the building diesel generator within a few hours, and we were back up and running. And we were running on that generator for like a month because the power company had to massively upgrade our service which was a huge deal.

Or the time when the file that contained all of our customer data, usernames, passwords, and everything just became corrupted and literally locked, and we couldn’t log anyone in. Or we had a hard stop at 64,000 users, once we got to 64,000 users, the table that we were using to store all of our customer data was going to blow up, and we were approaching this and we had to completely re engineer the system. There were just moments like that trying to take the company public in 1996, originally, in the summer. Starting the roadshow in New York, [inaudible 00:35:31] there to brief the bankers, the sales team to sell our stock on the roadshow and the Nasdaq tanked, and we had to pull the IPO, go back to California empty handed, we were running out of money and we had to raise an emergency round of funding, which we did, thankfully, to hold the company over.

And then finally in late ’96, and then January ’97, taking the company public, I think the only other company to go public in that quarter of ’97 was Amazon. So I think being an entrepreneur is really summed up in that one word, perseverance.

Aaron Dinin:

And along those lines, EarthLink definitely wasn’t the only company trying to grow the reach of the internet, right? What was it like battling other companies during the early ISP wars? I’m specifically thinking AOL, they had to be trying to slow you down, right?

Sky Dayton:

Look, I mean, there was just a ton of innovation happening at the time, but scale internet providers, there weren’t a lot. There were online services like AOL, Prodigy and CompuServe, that were really walled gardens of their own, right? Their own little internet. And I was really interested in providing people access to the open, uncensored, just kind of free Wild West of the internet and everything, all the possibilities that it had. So with great customer service, we just grew and grew, and then we started to acquire a lot of the early competitors. And to the point where even the one… Not the original one I have, but the largest commercial internet provider, which was the second call that I had made try to find a partner in those early days, we acquired them and then there was AOL and Prodigy and CompuServe still, but it was like Disneyland versus downtown Manhattan. The open laissez-faire world of the internet versus a closed, sort of vertically integrated society and the former won.

Aaron Dinin:

For better and for worse, Sky’s laissez-faire version of the internet definitely won. It’s the internet we know and use today, thanks in no small part to the infrastructure he helped create for EarthLink’s millions of subscribers. In fact, it’s a pretty impressive feat when you consider that right before Sky decided to launch EarthLink, he had been told by his first ISP that everyone who was going to use the internet already had an account. Clearly that didn’t turn out to be true. And EarthLink still exists today, though, it appears to be as much a holding company as anything else, with a lot of its growth in the early 2000s. And since coming from acquisitions, most of that happened after Sky moved on to other things.

Sky Dayton:

That was more after my time, I was there through 1999 on a day-to-day basis, and then I went and started an incubator with a friend who was running all of Disney’s internet businesses at the time. And I stayed on the board and as chairman for many years. But just as EarthLink was sort of a jumping off point for the internet, for me, it was the front door of everything else that I wanted to do in technology and a great early experience. I in 2000 got this thing called 802.11b, which was a wireless protocol now known as Wi-Fi. And I had a home and I had this network that I put in so that I could have my laptop connected to the internet as I moved around. And I quickly realized… I had another aha moment. Wow, we’re going to put the internet into the air. It’s not going to be a thing that you need to be chained to a wire in order to use, which is again, something we totally take for granted, but was a radical idea at the time.

That led to starting Boingo and the incubator we started, we also founded a company called Jamdat, which was the first big mobile games company, which we later to public and sold to Electronic Arts and a bunch of other private companies. And it’s fascinating to me to see back to the kind of electricity analogy, everything that we’re doing with technology and information technology specifically now, it all started with getting people to connect and I think EarthLink helped put probably on the order of 10% of the United States population online or something like that. I mean, it’s very cool. I run into people all the time, they still have their EarthLink email address. It’s kind of retro cool now, it’s like driving a classic Porsche or like a Willy Jeep or something like that, which is neat.

Aaron Dinin:

I’m not sure I’m convinced that having an old EarthLink email address is actually as cool as driving a classic Porsche. But in general, I can respect this guy’s overall feeling of accomplishment in helping solve the problem he first struggled with while trying to connect his computer to the internet in the early 1990s. After all, whether you were an early EarthLink subscriber in Southern California back in 1995, or if you have no idea what an ISP is, I’m guessing you didn’t spend a second thinking about how you were going to connect to the internet before you started listening to this podcast. And for that, you owe at least a little bit of thanks to Sky Dayton and EarthLink.

I hope you enjoyed hearing his story. If you did, please take a moment to let us know by leaving a review for Web Masters in your podcasting app of choice. And while you’re there, make sure you subscribe, so you always get the newest episodes as soon as they’re released. I want to thank Sky Dayton for spending the time with me to share his story. You can keep up with all the cool things he is doing now by following him on Twitter, he’s @skydayton. This podcast is on Twitter too. If you’ve got something you’d like to share, we’re at @WebMastersPod, and I’m on Twitter @AaronDinin, that’s A-A-R-O-N D-I-N-I-N. You can also find lots of articles I create about startups and entrepreneurship on medium.com just by searching my name over there.

Thank you to our audio engineer, Ryan Higgs, for his help pulling together this episode. Thank you to our sponsor Latona’s for all their amazing support. Remember, if you’re interested in buying or selling an internet business, be sure to visit latonas.com. And if you’re interested in listening to another episode of Web Masters, check out our back catalog, we’ve got lots of great shows that you can find inside your podcast app. Or if you’re all caught up, don’t worry, because we’ve got a new episode coming soon. But for now, well, I guess, it’s time for me to sign off.

[OUTRO]

Aaron Dinin:

So Sky, I got to say, I was looking over all the things you’ve done and built and it seems like everything you touch turns to gold. Is there anything you’ve screwed up, maybe give the rest of us mere mortals some hope?

Sky Dayton:

I remember at the incubator, we started a company called [Business.com 00:42:39] that my partner Jake was running. Now if we get this Business.com domain name, that’s really the shit, if we could own that. So we call up the guy that owned it, and he wanted some exorbitant price. We thought about it, and we thought about, “Yeah, you know what? Let’s do it.” So we paid him seven and a half million dollars for this domain name. And we kind of became like a poster child for internet access when the .com bubble burst. In 2001 2002 lots of articles about these idiots who paid seven and a half million for this domain name, yada yada yada. And we’re just like, “Wow, man, did we screw up here? I mean, we’re actually building a real business.” I mean, that was the interesting thing, had nothing to do with the domain, but we ended selling that business for, I don’t know, almost $400 million.

Aaron Dinin:

So it sounds like the answer is no. Apparently you even managed to sell your screw ups for $400 million. I mean, that’s impressive.