Profile: Bill Schrader-What's in a Name?
Rosendale, Don, Chief Executive (U.S.)
Chairman and Chief Executive PSINet
Birthplace: Utica, NY.
Family: Wife Kathleen Duffy; children Andrew, Matthew, and Patrick
Education: B.S. from Cornell, graduate work in business and finance.
Cars: Porsche Boxster roadster (silver).
Favorite author: Tom Clancy. "I've read them all."
Last book read: Grisham's The Street Lawyer.
Leisure activity: Cruising on his HarleyDavidson motorcycle.
PSINet's Bill Schrader has a lesson for CEOs building a new company: Don't worry about the consumer realizing he or she is using your product. Let somebody else "private label" it while you rake in the profits.
There are more than 500,000 Internet users who never heard of PSINet, logging on to the information turnpike via tollgates marked Rocky Mountain Internet, Earthlink, WebTV, or 150 other Internet Service Providers (ISPs) actually using PSINet's fiber optic network.
PSINet's "private label" business accounts for annual revenues of some $30 million, or about 20 percent of its total domestic revenues (1998 worldwide revenues are estimated at $250 million, or double the 1997 figures). A profitable business, "private labeling" is. In an industry in which success all too often is measured by the amount of money you lose, and most Internet stock market stars have never made a penny in profits, Schrader expects PSINet to return a cash flow profit by mid-1999, a decade after it opened its doors.
The private labeling makes sense for both wholesaler PSINet and retailers like Rocky Mountain Internet who deliver the service to the customer. On the PSINet end of the equation, there is minimal selling cost, few administrative headaches, and no collection problems. "Our private label wholesalers know that if they don't pay on time, we'll just turn off the switch," says Schrader. "We get paid like clockwork." As far as private labeling goes, he says, "We're in the check depositing business."
Contrast this with the other 80 percent of PSINet's domestic business, typically small to medium-sized firms too sophisticated for AOL or Prodigy, but too small to afford their own servers and networks. PSINet provides them with whatever they need-net access, Web pages, an intranet. The typical account generates $470 a month in revenues, and requires lots of service. Almost 20 percent of the customers don't renew for a second year. While PSINet won't give out numbers-and while the company provides its network to "wholesalers" at discount rates because there are no administrative expenses-private labeling clearly has higher margins than direct selling and servicing. …