Flashcom Inc

views updated

FLASHCOM INC.

Founded in 1998, Huntington Beach, California-based Flashcom Inc. was one of the first companies to offer digital subscriber line (DSL) service to small businesses and individuals. DSL technology makes use of the copper telephone lines already running from telephone companies into most homes and businesses, allowing recipients continual Internet access at speeds 50 times faster than traditional dial-up modems. DSL also facilitates connections to local area networks (LANs) such as corporate intranets. Unlike dial-up connections, DSL does not interfere with telephone activity. Rather, via the same dedicated line, users can make and receive phone calls and faxes despite the fact that they are always online.

The growth of bandwidth intensive applications, such as Web hosting, video conferencing, and online selling, sparked a demand for faster connections like DSL in the late 1990s. In fact, some analysts predicted that roughly 1.5 million companies would move to DSL connections by 2002. Ironically, the promise of this technology—what prompted Flashcom's founders to create the business—ultimately led to the upstart's demise. Like many other DSL service providers, Flashcom found itself unable to keep pace with the crush of orders it received. In December of 2000, the two-year-old firm filed bankruptcy.

When Flashcom was first established, it began offering DSL services to medium and small businesses in Southern California. The firm's SoloSurfer software was designed for a single workstation, while its MultiSurfer application used a single phone line to offer DSL services to all of those who were connected to a LAN. Touting itself as a full-scale digital solutions provider, Flashcom also sold long-distance services, firewall and other security applications, virtual private networks, and Web site development and hosting. One of the company's first major moves was to allow Internet Service Providers (ISPs) to resell Flashcom's DSL services to their customers. Many smaller ISPs had been unable to offer DSL services, mainly because the equipment to put the technology in place was so costly. Flashcom sought to make its DSL services attractive to the smaller players by having the technology already in place for an ISP to connect directly to its network.

Within months of its founding, Flashcom had expanded its services to major markets in Massachusetts and New York. Its monthly service fee—which included all equipment, e-mail, and round-the-clock Internet access—ranged from $59.95 to $375, depending on connection speed. In December of 1998, Crosspoint Venture Partners agreed to fund a portion of Flashcom's expansion. By then, service also was offered in New Jersey; Connecticut; Illinois; Washington, D.C.; and the Carolinas. A June 1999 agreement with Bell Atlantic allowed the firm to expand further into the Northeast, including major metropolitan markets in Pennsylvania and Maryland. Basic monthly fees were dropped to $49.95, and eventually to $39.95 in some areas. By the end of 1999 Flashcom was servicing more than 25,000 clients in 21 states.

ISP Sonicport.com, operator of the Seeyaonline.com Web portal, began offering Flashcom's DSL services to its clients in January of 2000. Despite difficulties fulfilling customer requests for DSL, Flashcom continued to expand into new markets, where it advertised its services heavily. In February of 2000, a BusinessWeek Online article stated, "underneath the marketing push lie serious customer service problems. . . .very few of those pushing lots of ads come out well—especially Flashcom, which has become something of a flash point of subscriber anger." In fact, although Flashcom was providing DSL service to roughly 15,000 clients, another 15,000 orders had been backlogged. Some pundits likened the dilemma faced by Flashcom and other DSL service providers to the problems American Online encountered in 1997 when demand outstripped the online service provider's technology and customer support capabilities. To counter the negative publicity about its inability to provide service quickly, Flashcom brought in new management and spent millions of dollars overhauling its support infrastructure by increasing customer service staff and improving technical support.

Flashcom raised an additional $84 million from investors such as BancBoston Ventures, Behrman Capital, Capital Research and Management, the Carlyle Group, and Kohlberg Kravis Roberts & Co. in April of 2000. According to Flashcom President and CEO Richard Rasmus, as quoted in Business Wire, the fresh capital would be used for "enhancing our back-office system, upgrading and expanding our network and operating facilities, and recruiting the talent needed to deliver a superior and constantly improving customer experience." In spite of its troubles, Flashcom expanded into Wisconsin and inked a technology sharing agreement with Texas Instruments Inc. in June. A month later, the firm acquired managed network services provider Worldwide Axcelerant Group. In October, Flashcom began using Norton Internet Security products to enhance its security capabilities, and Viasource Communications Inc. agreed to handle installation services for a portion of Flashcom's waiting customers. A major layoff took place in November. However, despite these efforts to improve bottom line performance, the firm continued to struggle. Not only had Flashcom's inability to fulfill requests for service quickly alienated a growing base of potential clients, it also had prevented Flashcom from securing potential revenue. In December, Flashcom sold its DSL lines to NorthPoint Communications and filed for bankruptcy.