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Tucows Inc.

Tucows Inc.

96 Mowat Avenue
Toronto, Ontario M6K 3M1
Canada
Telephone: (416) 535-0123
Fax: (416) 531-5584
Web site: http://www.tucowsinc.com

Public Company
Incorporated:
1993
Employees: 170
Sales: $44.7 million (2004)
Stock Exchanges: American Toronto
Ticker Symbol: TCX TC
NAIC: 518210 Data Processing, Hosting, and Related Services

Headquartered in Toronto, Ontario, and with offices in Flint, Michigan, and Starkville, Mississippi, Tucows Inc. is a leading provider of Internet services and download libraries. The company serves a worldwide distribution network of approximately 6,000 Internet service providers (ISPs), Web hosting companies, and related firms. Tucows' customers use its services to develop solutions for an estimated 40 million end users around the world, including individual consumers, small and medium-sized enterprises (SMEs), and large organizations. Tucows is an accredited registrar with the Internet Corporation for Assigned Names and Numbers (ICANN), the nonprofit organization that manages the Internet's domain name (unique names that identify Web sites) system. As the world's largest domain registration wholesaler, with some 4.7 million names under management, the majority of Tucows' earnings comes from domain name registration services, as well as the provision of digital certificates (electronic documents that authenticate individuals and Web sites), blogging software, spam and virus protection, hosted e-mail services, tools for creating Web sites, and a billing system called Platypus. In keeping with its reputation as the "original software download site," Tucows.com hosts more than 40,000 software titles that its experts have tested, rated, and reviewed. Through 1,000 partner sites worldwide, individuals are able to download these software titles quickly.

INTERNET PIONEER: 199398

The Ultimate Collection of Winsock Software (TUCOWS) was established in 1993 by Scott Swedorski, a library worker in Flint, Michigan. Inspired by the public's growing interest in the World Wide Web, Swedorski began offering software downloads for the Windows 3.1, Windows 95, and Macintosh operating systems on his personal Web site. He quickly gained pioneer status as a provider of "shareware" and "freeware"applications that users can use at little or no charge. Having a little fun with the name TUCOWS, Swedorski began evaluating software according to a "five-cow" rating system. His software collection swiftly evolved from an acronym into a fledgling enterprise. The company's first office was about the size of a bedroom, filled with consumer-grade computer hardware.

As an article in the December 2000 issue of Boardwatch Magazine explained, "Swedorski originally developed the Tucows site to teach local teachers and librarians how to use the Internet. The initial site had tutorials and software about getting on and using the Net. As more software became available and use of the Internet grew, word of mouth and thousands of personal e-mails helped the site become more well-known outside its home in Flint."

In what seemed to be the blink of an eye, Tucows became so popular that a worldwide network of ISPs began "mirroring" (maintaining copies of ) its software collection in order to minimize bandwidth costs and allow local users to download large files more easily and quickly. The first mirror site, a South African ISP called LIA, went online in 1996, and by 1997 some 100 mirror sites offered Tucows' content.

In 1995 Tucows was acquired by Toronto-based Internet Direct, a Canadian ISP and the second Tucows mirror site. The acquisition gave Internet Direct access to Tucows' vast content library and customer base and provided much-needed resources for Tucows' initial growth and expansion.

A NEW DOMAIN: 19992003

In 1999 Steinmetz Technology Holding Inter-national acquired Tucows from Internet Direct, although the latter firm retained a majority ownership stake. At this time Elliot Noss was named president and CEO, and the company's name changed to Tucows Inc. In April of that year, an agreement between the U.S. Department of Commerce and ICANN ended the monopoly on domain name registration, which had been held by Network Solutions Inc. of Herndon, Virginia. Tucows received accreditation from ICANN to serve as a domain name registrar and began registering domains for $13 each, well below the initial industry price point of about $70.

In addition to consumer-direct domain name sales through its Domain Direct Service, Tucows began wholesaling domain name registrations in January 2000 when it launched the Open Shared Registration System (OpenSRS). According to Tucows, OpenSRS is the technical infrastructure through which ISPs can "offer, brand and manage the delivery of domain names, digital certificates, web publishing, email and other services to their customers." After starting with .com, .net, and .org domains, others followed including .uk, .ca, .info, .biz, .name, .us, .cn, and .de.

The OpenSRS system became Tucows' cash cow; in 2000 it produced ten times the revenue generated by the entire enterprise in 1999. This prosperity furthered the company's growth. By late 2000 Tucows' employees worked from a converted warehouse that offered all the amenities young tech workers could want, including basketball, foosball, massages, and free lunch on Friday.

Tucows ended 2000 with 220 employees and sales of $28 million, up from $4 million the previous year. In the December 2000 issue of Boardwatch Magazine, Swedorski commented on the role his company had played to date in forming the Internet: "It is so exciting to see what the Internet has become," he said. "It is just awesome that, by creating the first mirroring system and one of the first software archives, I have actually played a part in its development."

On the service front, in April 2001 Tucows announced that it would begin registering multilingual domain names, allowing customers throughout the world to obtain domains in their native alphabets. With some 70 languages available, Tucows offered about three times as many languages as other registrars. In May 2001 Tucows launched Liberty Registry Management Services (LibertyRMS), which offered so-called "generic toplevel" Web site domains like .info. Tucows later sold LibertyRMS to a company named Afilias.

A major development occurred on August 28 when Tucows merged with Philadelphia-based Infonautics Inc., a financially struggling, publicly traded Internet information services provider that operated a subscription-based article database called Electric Library, a free online encyclopedia called Encyclopedia.com, and other services. The all-stock deal allowed Tucows to become a publicly traded company without an initial public offering. Tucows' shareholders gained an 80 percent ownership stake in Infonautics, and the merged companieswith an estimated market value of $41 millionadopted the name Tucows Inc.

COMPANY PERSPECTIVES

Tucows' objective is to be the leading provider of Internet services to Internet service providers (ISPs), web hosting companies and other service providers worldwide. Because Tucows was once an ISP itself, our company prides itself on understanding the needsand championing the rightsof our channel partners. We do not compete with them: we work behind the scenes, allowing them to build their brands and position themselves as sole providers to their customers.

Despite a difficult economic climate that wreaked havoc on the technology sector, Tucows ended 2001 on a high note when SnapNames rated the company as the fastest-growing domain name registrar of the year, netting 620,012 new domain names in the .com, .net, and .org categories.

By mid-2002 Tucows had some 3.7 million domain names under management. In terms of market share, the company was second only to VeriSign, Inc. Tucows also offered customers the ability to download approximately 30,000 different software titles. The company's offerings expanded when it began selling digital certificates, as well as an array of other digital security products and services, from GeoTrust Inc. to its base of 5,000 resellers. In the July 15, 2002 issue of Market News Publishing, GeoTrust CEO Neal Creighton said, "GeoTrust's partnership with Tucows and the subsequent exposure of our services to its broad reseller network will offer many small and medium-sized businesses powerful, fast and cost-effective security without the burden of additional infrastructure expenses, administration, and management."

In August of 2002 Tucows sold its Encyclopedia.com and eLibrary reference sites to Alacritude LLC, a Chicago-based firm established by Hoovers.com cofounder Patrick Spain, for $1.5 million. Subscriptions to these offerings, which were not core services for Tucows, had been declining. Alacritude planned to use the sites as the nucleus of an affordable online information retrieval service for individual consumers.

It also was in August of 2002 that Tucows introduced OpenHRS, a platform similar to its Open-SRS that domain name resellers and registrars could use for registering domains. By offering an outsourced solution, resellers could avoid the cost of building their own registration systems.

Tucows' lineup of wholesale services continued to grow in 2003. Early in the year, the company began offering e-mail services to its customer base. The company ended the year by unveiling Managed DNS, a service that resellers could use to offer more reliable domain name services.

MOO-VING FORWARD: 2004 AND BEYOND

The mid-2000s were marked by a flurry of activity at Tucows. In 2004 the company celebrated ten years of operations. In addition to reaching that milestone, Tucows also registered its fourth millionth domain name. The company's base of resellers had grown to 6,000, and it offered some 40,000 downloadable software titles. Commenting on his company's accomplishments in a March 10, 2004 PR Newswire release, Tucows President and CEO Elliot Noss said, "From the beginning, our focus has been to develop a strong, sustainable relation ship with webhosting companies and ISPs that service small and medium-sized businesses. In an industry known for its high customer churn, and, given the particularly challenging environment the Internet industry faced over the last three years, it is notable that Tucows has achieved both longevity and continued growth."

By the mid-2000s "blogging" had become a popular activity among Web users. Short for Web log, blogs are one-to-many, Web-based journals on virtually every conceivable topic. In order to support the growth of this technology, Tucows acquired BlogRolling.coma Web log tracking service that tracked more than 500,000 Web log linksin February of 2004. Three months later the company unveiled Blogware, a wholesale blogging service for Web hosting providers and ISPs. According to Tucows, this wholesale servicewhich its customers had been beta testing since 2003was the first of its kind.

Tucows acquired Boardtown Corporation in April 2004, which resulted in the introduction of the Platypus Billing System for ISPs two months later. The company also released its wholesale Email Defense Service, which allowed resellers to provide protection against "spam," or unwanted e-mail messages, as well as Tucows Website Builder.

KEY DATES

1993:
The Ultimate Collection of Winsock Software (TUCOWS) is established in 1993 by Scott Swedorski.
1999:
Tucows receives accreditation from the Internet Corporation for Assigned Names and Numbers (ICANN) to serve as a domain name registrar.
2004:
The company celebrates ten years of operations, registers its fourth millionth domain name, and has a customer base of 6,000 resellers.

Tucows was originally conceived as a software download service. Ten years later many of the services that consumers used were Web-based, including sites devoted to travel services, coupons, mortgage loans, photo hosting, and more. In tandem with this, Tucows launched its online services library in mid-2004, giving customers access to service listings, complete with familiar "five-cow" ratings prepared by Tucows' editors. Tucows ended 2004 by adding a mobile phone content library in conjunction with Mediaplazza. The service offered users access to games, wallpaper, and ring tones for mobile devices.

Tucows finished 2004 on solid footing. Net revenues reached $44.7 million, up 20 percent from the previous year. This strong performance continued in 2005. The company's fiscal third quarter, which ended September 30, marked its sixteenth consecutive quarter of positive cash flow from operations, and its thirteenth consecutive quarter of profitability. Another milestone that quarter was the firm's listing on both the American Stock Exchange and the Toronto Stock Exchange. "As we move forward, we are firmly focused on growing the contribution from services like blogware and messaging to both revenue and gross margin," Noss explained in a November 8, 2005 news release. "At the same time, we are continuing to pursue growth in our core domain business."

Following this strategy, in December 2005 Tucows announced an $8 million deal with San Francisco-based Critical Path Inc.a provider of messaging solutions for mobile, broadband, and fixed-line service providers. The agreement resulted in Tucows' acquisition of Critical Path's customer base, as well as its hosted messaging communications infrastructure, and gave Tucows a leadership position in the area of hosted e-mail services for ISPs and Web hosting companies.

Heading into the second half of the 2000s, many small and medium-sized businesses still had yet to develop Web sites. For this reason, the market for selling Internet services to this target group remained strong. Based on its track record of serving firms of this size, Tucows appeared to be poised for continued growth.

PRINCIPAL COMPETITORS

Network Solutions; Register.com; Verio; VeriSign, Inc.

FURTHER READING

"American Stock Exchange Lists Common Stock of Tucows Incorporated," PR Newswire, August 19, 2005.

Dillich, Sandra, "Tucows Undercuts Competition," Computer Dealer News, December 3, 1999.

Erickson, Todd Judd, Charmaine D'Silva, and Scott Swedorski, "A Barnyard Success Story," Boardwatch Magazine, December 2000.

Hane, Paula J., "Tucows Sells Two Former Infonautics Services," Information Today, October 2002.

"Hoover's Co-Founder Launches New Venture," The Simba Report on Directory Publishing, October 2002.

"Infonautics Merges," Philadelphia Business Journal, March 30, 2001.

Kanaley, Reid, "Tucows to Buy Troubled Pennsylvania Dot-Com Infonautics," The Philadelphia Inquirer, March 29, 2001.

Sands, Kathleen, "Bovine Bliss," NetGuide, January 1997.

"Tucows Acquires BlogRolling.com; Tucows Extends Capabilities of New Blogware Service; Acquires Popular BlogRolling.com Weblog Tracking Service," PR Newswire, Feb 27, 2004.

"Tucows Announces World's Largest Global Channel to Offer Multilingual Domain Name Registration in 70 Languages," 123 Jump, April 27, 2001.

"Tucows Breaks through 4 Million Domain Names under Management Mark; Leading Wholesaler of Internet Services Also Celebrating 10 Year Anniversary," PR Newswire, March 10, 2004.

"Tucows Gains Market Share: Named Fastest-Growing Registrar in Net New Domain Name Registrations; Industry Report Names Tucows Top Net Gainer in .com, .net and .org in 2001," PR Newswire, January 23, 2002.

"TUCOWS INC.Partners with GeoTrust to Provide Enhanced Internet Security Solutions," Market News Publishing, July 15, 2002.

"TUCOWS INC.Sees Strengthened Domain Name Market," Market News Publishing, May 1, 2002.

"Tucows Introduces Hosted Registrar Service," WHIR News, August 14, 2002.

"Tucows Launches New Mobile Phone Content Library," PR Newswire, December 15, 2004.

"Tucows Launches Online Services Library," Worldwide Videotex Update, May 2004.

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