Surfing The Virtual Wave
EarthLink founder Sky Dayton helped connect our PCs to the Net. Now he wants to put Korea's version of wireless broadband on our cell phones.
(Business 2.0) – For more than a decade, no matter how you've wanted to connect, Sky Dayton has been there with the hookup. The coffee shop owner turned Net entrepreneur started EarthLink and built the Internet service provider into a billion-dollar business. Then he wove a patchwork of Wi-Fi hotspots into a nationwide network, Boingo. Now he wants to reboot the cell-phone business.
All along he's been guided by two ideas: You don't have to own infrastructure to sell service, and customers care about applications, not technology. That's why EarthLink and Boingo thrived while rivals spent hundreds of millions of dollars on Internet backbones and Wi-Fi routers, only to go out of business.
For his latest venture, true to form, he's renting out space on cell-phone networks to give American customers something that South Korea has had for years: high-speed Internet access over a 3G (third-generation) wireless network and sophisticated handsets packed with the latest technologies. While DSL is fast and Wi-Fi is fun, both tether you to a limited area. 3G truly puts the Internet "in the air," as Dayton likes to say. EarthLink, where he is still a board member, and Korea's SK Telecom are putting $440 million into the new venture, SK-EarthLink, for which Dayton will serve as CEO while it prepares for a launch of service this year. Business 2.0 sat down with Dayton in his Santa Monica, Calif., office to get a preview of the wireless future.
How did South Korea get so far ahead of us in wireless?
Part of it is technical. They bet on Qualcomm technology, which is now the basis of all 3G networks. Lately they've even overtaken Japan as the hothouse of wireless development. Sprint and Verizon and Cingular are just now rolling out the high-speed technology that SK Telecom deployed more than three years ago. We've been living in the past. The other part is cultural. Koreans study and work a lot harder. It's no wonder they got so far ahead.
So what do they have that we don't?
The applications that SK has built are a glimpse into the future--live video on a handset, multiplayer games, and location-based services. To provide those kinds of services, it created a huge infrastructure: billing, video streaming systems, gaming, mapping systems, all that stuff. We're bringing that over lock, stock, and barrel and plugging it into the U.S. cellular infrastructure.
Why aren't you building your own network?
I have a lot of respect for the capital and focus it takes to be successful at building infrastructure. It's just not my core competency. EarthLink already had mobile virtual network operator agreements with Verizon and Sprint, and we contributed them to the joint venture. We have a foundation to build a house on now.
Which applications will draw users to the service first?
There are many I'm not ready to talk about yet. But there's music and video and location-based services. On my first trip to Korea last summer, I was at a restaurant, and one of the guys was late. I asked his colleague, "Can you call him and see if he's close so we can get on with lunch?" He said, "Just hold on a second." So he flips open his phone, pokes around a bit, shows me a little dot moving on a map on his screen, and says, "He's almost here."
So you can share your location with your instant-messenger buddy list?
Exactly. You decide who can see you. Let's say you go to a conference. People in your network will just show up on your phone.
What about the phones themselves?
How will they be different? Most phones here have a VGA camera. That would be a doorstop in Korea. They're up to 5 megapixels, which is a high-end camera. Processing power, screens, storage--the whole thing is on a completely different level. Press the fast-forward button on innovation in the United States--that's what you have in Korea.
You're targeting customers who spend an average of $600 to $700 a year. That's the BlackBerry-toting crowd, right?
We are not going mass-market. Look at EarthLink's customers--they're younger, more sophisticated, and the Internet is with them all the time. Talking about the wireless market as one market is a mistake. We buy brands we identify with our lifestyles. Virgin showed that you could target a specific customer with a differentiated product, without a network, and succeed.
Considering the struggle EarthLink has had to get carriage on DSL and cable broadband, aren't you worried the wireless carriers will upgrade their own services first?
With DSL, there's typically a monopoly in a particular area. Wireless is more like dial-up, where there are multiple, overlapping nationwide infrastructure providers. And a builder of infrastructure has a fixed cost where profit is determined by utilization. If you help someone who has built that infrastructure to be more profitable, you create a symbiotic ecosystem. I think it was brilliant on the part of Sprint, Virgin's partner, to recognize this opportunity.
If you're just reselling a network, how different can you be?
We're not doing that. We will have everything a carrier has except cell towers. U.S. consumers are underserved by voice-centric operators today. We're going to make the experience better.
Was 3G a disaster, given the billions spent on licenses?
It just took a lot of time for carriers to roll out 3G. They had to spend the money up front. Then Wi-Fi came out and kind of embarrassed 3G. Suddenly there was this broadband network in most of the places you wanted to use it. And so a lot of people took that and wrote, "3G is dead."
Is Wi-Fi better than 3G?
The networks are good for different things. Wi-Fi is kind of an inside technology--it's in Starbucks, airports, hotels, cafes, bookstores, McDonald's. Wi-Fi is always cheaper and faster than 3G, but you have to be in a hotspot to use it. Outside, 3G provides DSL speeds today, but it's expensive. You have better Wi-Fi coverage in your house than you have cellular coverage, right?
Of course. But why is that?
Giving people great cellular coverage at home would cost tens of billions of dollars. That's a huge problem for the cellular industry. Half of the broadband households in the United States today have Wi-Fi. So when you get home, you have all this free bandwidth. You get a better signal, and you can download much faster. I don't want to trivialize the quality-of-service problems, but all the pieces are there to integrate Wi-Fi and 3G.
How important is this deal to EarthLink?
The capitalization of this joint venture is nearly half a billion dollars, half of which is coming from EarthLink. It's a big bet.
And how's EarthLink doing?
EarthLink's doing well. Three years ago, dial-up started to decline. Fortunately, we started investing in broadband five years ago, and EarthLink today has the biggest broadband coverage of any company in the United States. A lot of people thought EarthLink couldn't make money because we didn't own the pipes, but broadband's profitable now. And dial-up is incredibly profitable. Dial-up's got a much longer tail than people think.
Does this all feel familiar--figuring out a better way to connect to the Internet, just like you were doing 10 years ago?
It does feel that way. You hope that we've all learned something along the way.