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March 13, 2000

Views Mixed On VeriSign's Purchase Of Domain Registrar
Acquisition will let security vendor offer easy access to its e-commerce services

By George V. Hulme with Matthew G. Nelson and Elisabeth Goodridge

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as VeriSign Inc.'s $21 billion acquisition of Internet domain registrar Network Solutions Inc. a masterstroke or a mistake? Industry observers are divided, but the parties involved have no doubt that the deal is good for them-and for customers, too.

Last week's agreement will let VeriSign offer companies registering domain names a one-stop shop for security and E-commerce services, says Anil Pereira, VP of VeriSign's Internet services group. VeriSign, one of the leading digital-certificate vendors, broadened its portfolio of services last month with the acquisition of online payment services company Signio Inc.

"We now have the unique opportunity to serve businesses from the moment they establish their identity on the Internet all the way through the entire E-commerce life cycle," Pereira says. "Our services include authorization, payment, and validation." The potential to market these offerings is huge-Network Solutions is the world's largest domain registrar, managing about 8.1 million domains, and the rate at which sites are coming online is increasing. The company says about 25% of all its domain-name registrations took place late last year.

New E-businesses without large IT staffs may welcome the convenient access to E-commerce services that VeriSign plans to provide, says John Pescatore, research director at Gartner Group, but bigger businesses can benefit, too. "Larger companies have found it difficult to deal with the online security of their smaller suppliers," he says, because these companies often don't understand digital certificates and haven't implemented them. They now can find out about the technology when they register their domain names.

Todd Raker, director of equity research at Credit Suisse First Boston, also has a positive view of the deal. He points out that the companies have similar subscription-based business models. "This is going to be the smoothest integration of two companies that you've ever seen," he says.

But others say VeriSign could have accomplished its goals simply by entering into a marketing agreement with Network Solutions. Says Forrester Research senior analyst Frank Prince, "It's a dumb idea. They paid too much."

Pereira says that position ignores an important aspect of the deal: Network Solutions has sole authority to manage the Internet root directory. That means VeriSign will collect not only the annual $35 domain name renewal fee from Network Solutions' customers, but also a $6 registration and annual subscription fee for each new domain registration sold by Network Solutions' competitors.

Network Solutions will operate as a VeriSign subsidiary and will retain its CEO, Jim Rutt. He will report to Stratton Sclavos, VeriSign's president and CEO. The acquisition is expected to be completed by early summer.

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