Net Profit

With his wispy blond hair and round glasses, Tom Simonds looks every bit the techie you'd expect to find running InterAccess, a company that sells Internet service to consumers. But Simonds had no technical experience prior to cofounding the company with Hoyt Hudson and Steve Norton in April 1993. In fact, the only experience Simonds had with the Internet was playing with electronic mail at Yale. He's only 24 years old. See, InterAccess is not only Simonds's first company, it's his first real job.

On a spring day Simonds goes to work at InterAccess's three-room office in a squat building near Chicago's O'Hare Airport. He huddles behind a short partition near the front door. His brother, sitting at a desk facing the door, taps out bills on a computer and answers phones. Behind Simonds is the door to the small room crammed with a computer router, two terminal servers, and 60 modems. Bundles of gray computer wire snake around the room. Two fans blast away on the equipment as little green lights flicker off and on. Simonds points to a small wire hanging from a hole partway up a wall: "This is the most expensive thing in the office." It's his connection to the Internet. He paid $51,000 for it, and he'll pay thousands more for it each year.

Hudson, Norton, and an intern trade tech-support shifts in the larger back room they share with marketing director Stafford Huyler. Hardware guts and thick wires lie scattered between monitor-laden desks. A bookshelf is crammed with Internet directories and manuals, which Simonds hawks at Saturday training classes. InterAccess posters and mailers decorate the walls, promoting the company as the on-ramp of choice to the Infobahn.

When cyberveep Al Gore mentioned the Internet during the 1992 presidential campaign, almost overnight everyone wanted to migrate to the electronic frontier. The problem: hardly anyone knew where or what it was. The Internet is not an on-line service, like Prodigy or CompuServe, though both are connected to it. It's more like a huge spiderweb of about 30,000 interconnected computer networks, stretching across the globe. Accessing that spiderweb is a $200-million market in the United States alone. By March 1995, analysts predict, that market will top $400 million, and it's still completely unregulated. The land grab is in full swing as anxious entrepreneurs rush on-line to stake their claims.

The main lines of the Internet spiderweb are digital phone lines along which computers route information such as E-mail or data files. The computers are stored at sites, or "nodes," where the phone lines intersect. A collection of nodes forms a "backbone" network, which is usually maintained by one organization that charges for access. With a personal computer and a modem, anyone who connects to a backbone can send E-mail along the spiderweb to anyone else who's connected -- or search for material like newspaper stories from the Associated Press wire or software demos from Microsoft.

The Internet isn't new. It was born in the late 1960s with ARPAnet, a simple military network stretched across the United States. The National Science Foundation later set up the NSFnet backbone, running lines to major universities and supercomputer centers. Other government agencies plugged in, as did large corporate research departments. The growing mass of interconnected networks became known as the Internet.

For years, access and maintenance were subsidized by federal tax dollars, but when the government opened its networks to commercial traffic, in 1991, consumers began paying for the privilege. This year the government is withdrawing all direct funding for its old backbones, and that's creating an electronic boomtown. At the outskirts of town the requisite consultants, authors, investors, and software writers hustle a buck. But they're peripheral to the real action. There are two primary ways to make money blazing trails for the masses to the Internet frontier.

The first is to be a "dedicated access provider." The five big Internet backbone companies all sell dedicated access via high-speed, leased-line connections (permanent phone lines running directly from the customers' computers to the backbone). But the phone lines, massive network computers, and skilled computer programmers required to form a backbone demand millions in start-up capital.

The second way to turn a buck is to buy a leased line from a dedicated provider and parcel it out either by subleasing lines to corporations or by providing "dial-up service" to individual consumers. Traditionally, dial-up services have been modest basement operations. Internet old-timers would stow a few modems, phone lines, and a high-end computer downstairs, and then sell just enough low-cost dial-up accounts to pay for the leased line to the dedicated provider. Thus, the old-timers would finance their own Internet habit.

But the dial-up industry is expanding frantically. Service providers ride into town, slap down their computers, and with a few local ads pan for customers. Word of mouth spreads quickly, and Net-crazed consumers rush on-line faster than tech help can issue passwords. Most of the basement crowd sells on price, but more and more are creating niches (for example, catering to female users). It's the fastest-growing area of the Internet industry, increasing by 35% a month.

Chicago-based InterAccess decided to mine the relatively new dial-up market, preferring consumer clients to corporations. The company started offering connections in July 1993, gathering 900 customers in the first nine months of operation. Revenue growth is holding steady at 20% to 30% a month.

Three of the four company principals went to New Trier, the Winnetka, Ill., high school that inspired John Hughes's films Pretty in Pink and Sixteen Candles. The classmates broke up to go to different colleges, but after college Simonds joined Hudson on the West Coast. There, they had a disappointing string of business ideas (like a comic-book fax service) that fizzled. "It was a black year in my life," says Simonds. Frustrated, the pair looked east and saw opportunity, money, and Norton, who had quit his dull engineering job in Chicago. Simonds moved back home, tapped family and friends for loans, and started reading about the Internet.