MCI, the Microwave Communications Inc., stands as a renowned long-distance telephone service provider in the United States.
Founded in 1963, MCI prospered, breaking AT&T's monopoly within the sector. The U.S. telecommunications landscape transitioned into a competitive arena. The full name of AT&T harks back to the inventor of the telephone—an incredibly influential figure in the industry!
MCI succeeded in decentralizing this monopoly thanks to its unique advantages!
Throughout the 1980s and 1990s, MCI symbolized continuous technological innovation in telecommunications. During this era, MCI's banner represented advanced communication technology. Even the National Science Foundation Network was constructed and operated by them!
Thus, when Cisco reported its intentions to acquire MCI, it sent shockwaves through the entire industry and across the United States!
MCI's scale is enormous, boasting a market value that runs into the tens of billions of dollars!
Cisco's ambition to annex MCI right after going public seemed like a snake attempting to swallow an elephant!
Nonetheless, full-scale acquisition wasn't entirely out of reach.
Over a dozen banks, including Citibank and Morgan Bank, expressed their willingness to support Cisco in executing this deal!
Inside Cisco's headquarters, in the CEO's office.
Henry and John Chambers were engaged in serious discussions about strategy.
Henry's announcement about the potential MCI acquisition served as a decoy; the real target was another entity!
That company had been established in 1987 and stands as one of the early Tier-1 internet service providers (ISPs) in the United States!
Tier-1 ISPs have their own fiber optic or satellite links throughout the country and world, possess global routing capabilities, and don't incur "tolls" from other providers to connect. By interlinking freely with one another, Tier-1 ISPs collectively access the entirety of the internet!
This specific Tier-1 ISP has emerged as the fastest-growing provider in the U.S., soon eclipsing titans like MCI and Sprint!
Acquiring a company with such tremendous potential for relatively little capital would be an opportunity not to be missed!
The National Science Foundation Network is advancing rapidly, but the commercial Tier-1 network expansion has been equally significant! The telecommunications framework in the U.S. is not monopolized by a single entity—many telecommunications firms abound. Hence, these Tier-1 ISP companies expand and thrive across the country, ultimately creating an expansive interconnected network.
Eventually, where sheer scale and user base converge will see Tier-1 networks replace existing frameworks, becoming a definitive part of the industry!
The company's emergence amidst numerous ISPs is no mere coincidence; it possesses exceptional capabilities!
MCI may look appealing on the outside, but the sheer scale of their total assets renders them difficult to digest—as if Cisco were trying to swallow a boulder!
Henry's strategy involving MCI was a calculated smokescreen. In truth, that company was new and cost-effective to acquire. However, Henry remained wary of interference from AOL and Sequoia Capital. The company was profitable this year, and Henry aimed to seize the moment before MCI's value inflated. If AOL or Sequoia Capital entered the fray, delays could inflate costs.
Henry advised John Chambers to negotiate discreetly, ostensibly discussing MCI while placing focus on the genuine target.
For the time, the telecommunications sector buzzed with activity!
A constant stream of media reports tightened around Cisco's negotiations with MCI, revealing various developments.
"Cisco CEO John Chambers met with MCI CEO Michael Priestley in a hotel!"
"A Cisco executive commented that MCI's asking price is exorbitant, creating a stalemate in negotiations."
"Citibank executives indicate that Cisco intends to borrow $5 billion from Citibank, Morgan Bank, and Goldman Sachs!"
It appeared that discussions with MCI were advancing, yet in reality, Cisco's dialogue amounted to speculative conjecture designed to stall negotiations! The focus remained on courting the intended party!
The intended company's leadership found Cisco's overture to be puzzling. Were they truly pursuing MCI? Why visit here?
The company's CEO, Lauren Marks, while skeptical, apprehended Cisco's motives.
"Mr. Marks," a Cisco representative stated outright, "We seek to acquire your company and enhance it into the preeminent ISP in the U.S. and globally! Although you've been established for only two years, we firmly believe your company is promising, exceptional, and filled with potential. Cisco is eager to partner with you! Would you consider joining the Cisco family?"
Lauren Marks, shaken by Cisco's overtures, felt a mix of hope and trepidation. The company had been struggling financially, losing money as it labored to build its infrastructure while acquiring a user base—all while relying on loans to stay afloat. If Cisco exhibited sincerity, however, there was no reason for arrogance; a response was due.
"I'm willing to discuss this matter further!" he agreed.
A board meeting ensued to deliberate the offer.
As the meeting wrapped, consensus emerged—joining the Cisco ecosystem offered substantial benefits for both the company's future and its shareholders.
That evening, Cisco and the company engaged in serious negotiations behind closed doors!
Speed was crucial; time would erode negotiation efficacy!
The discussions between Cisco and the company moved rapidly. After discussions on the first night, they reconvened the next day before exchanging contracts!
Cisco made a generous offer—$100 million for a 100% acquisition—exceeding the market value by leaps and bounds!
Cisco's terms included maintaining existing management for one year, ensuring no staff dismissal, along with promises for an employee equity incentive plan after three years!
These terms deftly addressed key concerns for both the shareholders and the existing management teams, garnering their approval.
Soon after signing the contract, Cisco withdrew from negotiations with MCI!
Announcing proudly, "On January 25, 1989, Cisco acquired the company for $100 million! We sincerely believe it holds immense potential as an ISP. Given Cisco's resources and distributions, it will flourish at an accelerated pace!"
On the day of Cisco's announcement, its share price jumped by two dollars!
Once Cisco finalized the acquisition, the company rebranded and established strategic partnerships with Nicholas Group and Isearch. They began offering users Internet access services in conjunction with information services, tapping into Henry's vast resources to provide enhanced and customizable value-added solutions.
However, the immediate priority lay in creating effective dial-up software.
Through the dial-up application, numerous services could be delivered seamlessly to users!
Henry emphasized simplicity; thus, the dial-up software's interface remained minimalist. The upper middle portion featured an artfully rendered logo, complemented by an uncomplicated sign-in panel for entering account credentials. Upon a successful connection, a new interface materialized, displaying the call status integrated with prominent buttons linking to the Global Online Portal and the Nicholas Shopping Network.
Beneath lay a 'More Services' button!
While user-friendly in design, this straightforward interface importantly highlighted the two major websites, intentionally drawing users' attention!
For both Internet novices and veterans, the Global Online Portal and Nicholas Shopping Network catered adequately!
The simplicity of the dial-up software made development quick; in united cooperation among Henry's various companies, the software emerged within a week! The 'More Services' tab featured an array of email, news, financial reports, and more, with future enhancements foreshadowed down the line.
In the ISP business, users hold the greatest value.
Effective marketing paired with high-quality service constitutes the winning formula for success in the ISP sector!
Henry understood that through extensive collaboration with his various companies, quality service could be assured. However, marketing presented a more challenging landscape.
As ISPs scrambled to attract users, their marketing antics bordered on dizzying—often even bewildering. The competition between various ISPs reached overwhelming heights. Henry knew he'd soon be preparing another company for future market interventions…but suddenly, he recognized that by cultivating the entire Internet application service industry chain—encompassing "equipment suppliers, basic network operators, content collectors and producers, service providers, and end users"—he left limited opportunity for competitors!
Paving their exclusive path while rendering others insignificant?