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Web.com Group Earns 'Net' Income

David L. Brown
CEO David Brown staffs Web.com with liberal arts grads, not techies. "We hire people for character, and for whether they can write well, and then it's very easy to train them on the technology side." [Photo: Jon M. Fletcher]

Web.com (Nasdaq-WWWW)
Headquarters: Jacksonville

Services rendered: Creates and operates websites, from initial design to e-commerce, for small businesses, which pay monthly subscription fees.

Subscribers: 954,000 (year end 2010)
Revenue: $120 million

Employees: 1,150 in 14 offices in the U.S., Canada and the U.K., including 350 in Jacksonville

David L. Brown
Chairman/CEO/President

Grew up and lives in: Ponte Vedra Beach

Family: Brown's wife and daughter co-own a small business in Ponte Vedra, and his son is a professional golfer there.
Former positions: More than two decades in banking and finance, including senior leadership stints at Barnett Banks and Florida National Bank; founding partner of Carlyle International, a private equity firm affiliated with the Carlyle Group.

Favorite websites: Fox News and CNBC

In 1999, David L. Brown decided to retire young. A former banker and partner in an equity firm, he sold a Jacksonville technology-services company he'd founded, Atlantic Teleservices, to venture capitalist Norwest Venture Partners. Brown got cash, a note and stock in the promising company called Website Pros that acquired Atlantic.

Website Pros' business plan was based on the assumption that a website would become as essential to a small business as a telephone number. The firm assembled a heavy-hitting management team, well-funded with $65 million from the likes of Dell, Office Depot and Bell Atlantic/Verizon. The strategy: Capitalize on firms' growing awareness of the need for their own websites and build Website Pros into the top website-service firm in the nation for small businesses. Then, take the company public within a year.

Brown figured he would spend time with his family and travel, while watching his stake in Website Pros boom along with the dot-com economy. He was enjoying a break from the Florida heat with his family in Cashiers, N.C., the following summer when a ringing telephone shattered that delusion. Norwest's senior partner called to say the investors were giving up on Website Pros. The dot-com bust had drained their cash and confidence. No more money was forthcoming.

"The investors needed someone to come in and shut it down orderly," says Brown, now 57. "They believed closure was inevitable."

Returning to Jacksonville to shut down Website Pros, Brown found a company on life support. Revenue had plunged from about $1 million a month to $50,000. Senior managers had bailed. About 200 of 300 employees remained.

Brown's first order of business was to let go of about half of them. But he was not so sure the company needed to close. Despite the dot-com collapse, he reasoned, businesses would still need websites. The investors had already recouped their initial investment, and since they had nothing to lose, it didn't take much to convince them to keep a leaner version of the company going and let him try to turn it around as CEO. Brown began by contacting each of Atlantic Teleservices' former clients to let them know he was back — and wanted their business.

As he grew customers and revenue organically, Brown began to make acquisitions, often in exchange for stock; the company has averaged an acquisition a year for 10 years. The biggest included NetObjects, a cash-generating software company whose primary product, Fusion, was one of the most commonly used site-builder platforms.

In 2002, Brown partnered with his most serious competitor, Spokane-based Innuity. That acquisition turned out to be critical because it changed Website Pros' business model from upfront web-design fees to monthly subscriptions. Small businesses couldn't afford high upfront costs, but they were responsive to low monthly subscription fees, particularly when it meant they could get help with their website any time. "We exist to serve small businesses on the internet," says Brown, "so we had to become what small businesses needed."

By 2003, the company was growing by 40% annually. The following year, Brown tapped new venture capital partners and old supporters, including Norwest, to dress up the balance sheet and ready the company for an IPO. Website Pros went public in 2005.

Two years later, in June 2007, Brown led another merger, this time with Atlanta-based Web.com, more than tripling paid subscriptions and creating the market leader in an otherwise fragmented field.

The combined company retaineda Jacksonville headquarters and kept Brown as chairman and CEO but took the name Web.com.

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David Brown
Acquisitions have left Web.com with nearly $100 million in debt, but analysts say David Brown and his team are generating plenty of cash flow and are managing the growth effectively. [Photo: Jon M. Fletcher]

Since the merger, Brown has continued to drive growth through acquisitions, most significantly with last year's purchase of Register.com for $135 million. Register, one of the earliest domain-name companies, bumped Web.com's revenue up about 80% and quadrupled the customer count, pushing the firm near its million-subscriber milestone.

The acquisition also left Web.com carrying close to $100 million in debt; the company posted a loss in 2010. Sameet Sinha, a senior analyst specializing in internet companies at the San Francisco offices of B. Riley & Co., says that doesn't worry him because Web.com generates such significant cash flow. In Silicon Valley, David Brown and his team are viewed as "the conservative, button-down guys in an industry full of young guys who tend to blow hard," Sinha says. "They have managed growth, and they are paying off debt at an accelerated pace."

Sinha thinks Web.com is among the firms in its field best positioned to grab the internet's next gold ring — local advertising sales for small and medium-sized companies.

Trends bode well for Web.com, as America's 29 million small businesses watch their customers turn to the internet to decide where to eat dinner or which plumber to call. An American Express survey of small businesses this spring found 86% have a website and 36% plan to create or add to their site this year. Forty-four percent already use social media such as Facebook and Twitter; a third plan to add social media marketing in 2011.

Web.com is now focused on such networking and mobile apps. Its fastest-growing service is Facebook-site building to help companies with highly local social marketing. Keys to cash flow are monthly web-service subscription fees — the basic service runs $95 — and add-ons such as the Facebook product, which costs another $40 a month.
The past 12 years have taught Brown and Web.com's leaders that the internet is highly unpredictable — that today's platform may not be tomorrow's. With market share established, the challenge now is to make Web.com the go-to company for restaurateurs, plumbers and others who want to keep up with their customers' internet habits — even when those habits change.

The company's strategy is reflected in its hires; Web.com's sprawling, four-story office building on the south side of Jacksonville is filled not with techies, but liberal arts grads. "This is an art rather than a science," says Brown. "We hire people for character and for whether they can write well, and then it's very easy to train them on the technology side."

The company's offices are reminiscent of a newsroom. Former English majors and philosophy grads interview business owners by phone about what's most important on their website, then tap their keyboards to create snappy internet copy.
Sinha says that level of service helps give Web.com a particularly low churn rate — the percentage of customers who drop subscriptions is just 2%. "Our company is not about one brilliant idea — we didn't invent Facebook," says Brown, who majored in Persian studies, then ended up in a banking and technology career.

"Everything we do has to be built on the back of hard work and customer service."