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JULY 13, 2005
VeriSign's New Target: Consumers The Internet's behind-the-scenes powerhouse is moving into everything from RFID to ringtones. CEO Stratton Sclavos explains his strategy VeriSign has made an art out of being in the right place at the right time. Ten years ago, the Silicon Valley company, which provides much of the backbone for the Internet and telecommunications networks, was just a fledgling startup spun out of computer-security company RSA Security (RSAS ). With just four people and $2 million in venture capital, its initial business was issuing so-called digital IDs -- software files that could tell browsers whether the eBay- or Amazon-labeled site someone was trying to access was indeed the real eBay (EBAY ) or Amazon (AMZN ) and not a clone set up by hackers. A then-newborn Netscape asked to include the technology in its browser, and Microsoft (MSFT ) followed suit. "We got lucky," says VeriSign (VRSN ) Chief Executive Stratton Sclavos. RFID MASTERMIND. As it turned out, that whole Internet thing took off, and VeriSign scored big-time by winning a government contract to manage the dot-com and dot-net directories. Today, it has built a formidable telecommunications business that represents 60% of its revenues. As with the behind-the-scenes role it plays with the Internet, someone making a call likely never realizes VeriSign's role in connecting it. But now Verisign is starting to make forays into the consumer world, with the recent acquisition of Jamba, a company that sells and promotes ringtones and other mobile-phone content. Up next? VeriSign is building a business in the growing radio-frequency identification (RFID) tag business for tracking products -- retailers like Wal-Mart Stores (WMT ) and Target (TGT ) expect it to be the next barcode. In January, 2004, VeriSign won an industry contract to build and operate the master database containing the information stored on RFID tags used in retail stores around the world. ON THE RISE. RFID, the Internet, and telecom may sound like disconnected businesses, but they share two things in common. They all need huge, central repositories of information for phones, computers, and other Web-enabled devices to connect with one another. And they're all growing businesses. VeriSign's revenues fell by 13% in 2003, but rose 6% last year, to almost $1.2 billion. The company expects that to jump to $1.75 billion in 2005 -- its 10-year anniversary. Investors have noticed the turnaround: The stock closed at $30.59 on July 12, a long way from its 52-week low of $16.21. BusinessWeek Online Silicon Valley reporter Sarah Lacy sat down with Sclavos recently to talk about the good times and the bad times acting as the Internet's invisible hand. Following are edited excerpts of their conversation: Q: Your company has enabled so much of what happens online, but even during the boom you weren't a headline grabber. Was it a decision not to be flashy during that time, or were you just overshadowed? A: Well, I think you always have short-term envy, right? I can remember Ariba (ARBA ) growing 60% in a quarter, or eBay and Yahoo! (YHOO ) getting all this press. At the same time, we really liked our business model better than anybody else's. We were going to grow at the rate that the network and e-commerce were growing, and we had very few natural competitors. We understand that the best our customers will ever do is take us for granted. It's only when we screw up that they'll really notice us. Q: Growing at the same pace as the Internet wasn't so good after the bubble burst. From 2000 to 2002, what was going through your head with this business? A: Let's see, the things you can print? You know, I think we really believed we had a great business and a great franchise, and yet everybody was feeling this economic crunch, whether it was the telecom providers or it was these new Internet companies. For some period of time, you try to talk yourself into believing that it's all just short time. And then you realize this is really a macroeconomic effect, and you have to learn some discipline. I think that's a very hard thing for a company that for its first five years had been nothing but successful. So I would say those two years [were] certainly the hardest period of my working career. We really had to refocus and get back kind of our core values and our core purpose in the company. We had to get our employees completely motivated and energized around this mission, and we had to forget about the stock market and investors for some period of time. And I will tell you from the day we all looked in the mirror and said that's what we were going to do, things around here started turning up.
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