By RICK HENDERSON
Staff Reporter
A pillar of L.A.’s new-media community says it’s moving its headquarters across the country. So how do the locals respond?
They generally think it’s good for L.A.
Many in the local tech community were remarkably sanguine about the merger between Pasadena-based EarthLink Network Inc. and Atlanta’s MindSpring Enterprises Inc. even though the company will be headquartered in Dixie.
Rohit Shukla, who as head of the Los Angeles Regional Technology Alliance is charged with supporting and maintaining high-tech companies in L.A., believes the overall effects of the deal will be positive. Being part of MindSpring will allow EarthLink to grow faster, and company executives promise that there will be no local layoffs.
“We should stop tying civic success to the number of corporate headquarters,” Shukla said. “This is not a zero-sum game.”
The new company will keep the EarthLink name and become the nation’s second-biggest Internet service provider, with about 3.5 million subscribers.
“It’s a big day for the Tech Coast,” said EarthLink founder and Chairman Sky Dayton soon after the deal was announced last Thursday.
Company officials say that not only will no one be laid off, but local hiring may actually ramp up. And Dayton said no one in the current Pasadena headquarters will be expected to relocate. “We’ve built a strong group of people on the Tech Coast, and we’ll be sure that the company stays in touch with its base,” he said.
Does all this sound too good to be true?
Brad Nye, executive director of Venice Interactive Community, a networking organization for new-media companies, points out that even if EarthLink maintains its local presence, the mere fact that its official headquarters is somewhere else damages L.A. in terms of image and self-esteem. “Another huge success story, like GeoCities, is leaving L.A.,” Nye said. “It seems like every time we generate a great new Internet company, it moves.
“What’s next?” he asked. “Will eToys be bought by Toys’R’ Us and leave?”
It isn’t unusual for top executives at companies that have just been acquired to claim, in the euphoria of the moment, that there will be no impact on the old headquarters town. Just last year, Yahoo Inc. was making similar promises when it snapped up GeoCities, only to later move most of the operations up north.
But Shukla and others believe this time is different.
“MindSpring’s base is in the Southeast. EarthLink’s is in the West. EarthLink has made a major investment in infrastructure (locally) that will be impossible to pick up, demolish, and move,” Shukla said.
In addition, he says, “EarthLink’s creative people, management, and talent are here.” The more EarthLink “distributes” its talent, Shukla says, letting employees work where they’re most comfortable, the stronger the company can become.
He cites this year’s merger between AOL and Netscape Communications Corp. AOL expected Netscape’s top people to move to its headquarters in Vienna, Va., which he says led to major disenchantment among Netscape employees.
Jon Goodman, executive director of EC2, a new-media incubator at USC, says the EarthLink-MindSpring merger is merely a sign that the new-media industry in L.A. is maturing the best companies are combining, as they do in other lines of business.
The ISP business “is all about head count,” she said. By joining forces, EarthLink and MindSpring have more leverage to gain subscribers in the emerging broadband market and in Europe, where AOL has aggressively tried to establish a beachhead.
Far from being distressed about EarthLink’s corporate departure, she sees the move as a sign of L.A.’s strength.
“When we’re growing companies capable of becoming international behemoths, that’s good for the local economy,” Goodman said. “We are becoming the largest market for knowledge workers in a knowledge-based industry.”
Both EarthLink and MindSpring have developed loyal subscriber bases, in part because they pride themselves on providing top-flight customer service, said Mark Winther, an analyst for International Data Corp.
In J.D. Power & Co.’s 1999 survey of ISPs released earlier this month, MindSpring and EarthLink earned the top two spots in customer satisfaction. And while EarthLink and MindSpring initially provided only dial-up access to subscribers, they’re moving into broadband as well.
EarthLink has made deals with GTE for a national digital subscriber line service and a cable-modem agreement with Charter Communications that could reach nearly 2 million customers in 19 states. MindSpring has linked with BellSouth for DSL service and has cable-modem deals in four Southeastern cities.
EarthLink projects it will have 5 million subscribers by the end of 2000 and 8 million by the end of 2001. Winther believes it will grow much faster. “I think they’ll hit the 5 million mark by next spring, soon after the merger is complete,” he said, “and I see them hitting 8 million by the end of 2000.”
The companies have become more than mere portals to the Internet; they also provide useful content to subscribers, Shukla said.
Ultimately, EarthLink’s move may be a test of how well “virtual” companies can operate. Will the new company become a leader in the industry with its management scattered across the continent? Or will it be tempted to consolidate its brain trust in Atlanta?
