'Pete's Personal Service'
When the telecommunications giants first began offering Internet access in Florida more than a year ago, Pete Giarrusso says he saw a dip in the number of customers using his Orlando-based service. But soon after, he adds, his customer count began rising again. "They draw people's interest, they disappoint people and we do a better job, so they come to us," he says. And they come and they come. Since opening shop in 1994, Giarrusso's firm, MagicNet, has grown to become one of the 10 largest Internet service providers in Florida and the largest independent ISP in the central part of the state. The firm has been courted by larger Internet providers and recently has had discussions with a group of venture capitalists who are considering buying a group of local ISPs across the state to create a larger, regional player. MagicNet has six points-of-presence (POPs) throughout Central Florida. Those connection points enable MagicNet to service about 6,500 dialup accounts and play host to 500 Web sites and about 100 corporate accounts with direct connections. The 15-employee company also manages upward of 1,000 domain names and does everything from getting novice computer owners online for the first time to building wide-area networks for large customers such as Orlando's Planet Hollywood. "I'm all customer service in my business, and Pete's the same way," says Jim Flynn, president of Business Archives, a Longwood records-retrieval firm. "One Sunday night, he sat up right with me until 2 a.m., putting Windows NT on my machines and setting up my network." Scott Levitt, whose firm, Web Workz, an Internet design, marketing and advertising shop, gets its Internet access from MagicNet, says Giarrusso "unconditionally offers the best Internet service" in Orlando and its environs. "People always say that Internet access is becoming a commodity service," Levitt says. "Pete has decommoditized it, in the sense that he's taken a product - 100 hours of service for about $20.00 a month - and made it Pete's personal service." Largely because of its reputation for fast, reliable service and non-stop technical support in an industry where quality service is often hard to come by, MagicNet has posted healthy revenue growth since it began offering dialup service in November 1994. In 1994, the company logged $50,000 in revenue. In 1995, revenue climbed to $350,000; in 1996, MagicNet generated $1.3 million. This year, the company is on track to reach at least $2 million in revenue, although $2.5 million is a very real possibility, Giarrusso says. MagicNet's revenue stream is the envy of its rivals, which include roughly 30 ISPs in the Orlando area. One competitor, Internet Access Group, went into the dialup business a few months after MagicNet. Although the company is the second-largest ISP in Orlando, IAG rapidly shifted its strategy from dialup service to high-end corporate work, such as networking consulting. "We recognized, as others did, that the Internet was a profit opportunity," says Neil Peiman, the company's president. "Of course, that's changing. Dialup is not a profit-making business any more because the telcos got involved." Giarrusso begs to differ: MagicNet has been profitable since February 1995. Last year, net profits totaled about $464,000. This year, depending on how sales shake out, profits could range from $420,000 to $550,000. Thanks to that profit stream, MagicNet could afford to spend $200,000 last September, beginning the lengthy and costly process of installing high-speed T3 lines with 45 megabits of capacity to replace the T1 lines, which could only handle 3 megabits. The digital lines were a necessary prerequisite to provide service to dialup customers at speeds of 56 kps or higher, which Giarrusso says is needed to separate MagicNet from the rest of the pack, even though digital service is not nearly as reliable as analog service. "A little guy wouldn't have been able to survive that expense," he says. In fact, at least six Orlando ISPs have gone out of business in the last four months. Since Giarrusso's investment last fall, the price of T3 service has tripled and his telephone bill shot up from under $3,000 a month to about $30,000 a month. "To our customers, [the upgrade] means we're delivering information as fast as we possibly can. But to MagicNet, it means we won't even have to think about adding capacity for the next two years." In fact, he's even leasing extra capacity to other ISPs. When the big telcos entered the business a year ago, MagicNet's subscriber base dipped slightly, only to surge later, after consumers discovered they liked being online, but grew tired of busy signals and delays from the likes of America Online and the Microsoft Network. Giarrusso, who only recently took out his first radio, newspaper and Yellow Page advertisements, says the telcos "have been a legitimizing force in the business." MagicNet has been courted by larger suitors for some time now, including Atlanta's MindSpring Enterprises, the region's largest ISP. In fact, Giarrusso says he is "very close" to striking a deal to be acquired by a venture capital group, whom he declined to name. The VCs are looking to aggregate several ISPs in Florida - or even the Southeast - in order to create a larger regional player worthy of attention from an AT&T or an MCI. He won't discuss possible deals further so as not to upset his customers. Should an acquisition occur, Giarrusso says he expects the MagicNet name to remain because of the company's reputation and the "cool name." Business operations would remain largely untouched, he believes. He also would expect to stay on board for at least two more years. Selling for a nice profit would be a relief for Giarrusso. "I gave up a lot of time with my kids in the hopes that, if I do it right, I will offset that with more time and a ridiculous amount of money," he says. "My goal was to retire at 40, and I'm late." |
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