The Untold Story of SAIC, Network Solutions, and the Rise of the Web—Part 2

7/30/09Follow @bvbigelow

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the Internet, and they probably still do. Congressional hearings took a lot of our time.

X: Complaints and criticism that Network Solutions was a monopoly began to build after 1997. What was SAIC’s reaction to that?

JRB: No one could deny that it was a monopoly and that something should be done about it. The question was what. Extensive negotiations took place with the government over six months, with the decision that NSI would be broken into two pieces. We gave up the registrar part of the business, and anyone could become a registrar if they could demonstrate their ability to our satisfaction. The part that NSI and SAIC kept was the registry—managing the gigantic database of all the domain names in the world. To have a new domain name entered into the domain registry cost the registrars $6 a year, which I think is still in effect.

MD: We spent significant amounts of time and money at NSI educating the public, Congress, and senior government officials about aspects of the business that were really important: the Internet, domain names, Internet security, major policy questions involved with domain names, and keeping the “A” server and the other domain names servers running and secure. From 1995 until 2000, we brought at least one-half of the entire United States Senate and House members as well as senior White House and cabinet-level officials to tour our facilities in Herndon, VA.

People in Washington and elsewhere knew little or nothing about the Internet, or details of how it functioned. As we were being criticized from many quarters, we educated senior officials in the U.S. and overseas as to the vital role that NSI was playing. I credit this five-year campaign with helping Network Solutions overcome much of the criticism about being a monopoly, and also with laying a significant part of the policy framework for the global Internet. Many of these same questions and issues are still being debated today.

After senior government officials and members of the United States Senate and House visited Network Solutions, they understood that unless NSI kept the global domain name system running 7 days a week, 24 hours a day, 365 days per year, no one on Earth could access and use the Internet. As the commercial and governmental uses of the Internet grew beyond anyone’s wildest imagination in those five years—billions and billions of dollars of commercial transactions ran daily over the Internet—people understood the vital role NSI played in this growth.

X: The greed question: SAIC raised $765 million when it sold a 38 percent stake of Network Solutions in a secondary stock offering in February 1999. At the end of that same year, SAIC sold another 21 percent for $1.8 billion. At that time, I started hearing increasingly from some SAIC employees who were growing restless about SAIC’s status as a private, employee-owned company. They wanted SAIC itself to go public. Dr. Beyster, what were your thoughts on that at the time, and do you have a different perspective on that today? Would you have handled it differently?

JRB: My feeling about SAIC going public is that while I was running it, I could never see a reason for doing it. We had plenty of money and there was no reason to encumber our organization with all the new rules that we would suddenly have to obey if we went public. We took NSI public because we were unable to use a simple formula to price the stock. For legal protection of the shareholders, the best solution was to let the public determine the price of the stock.

X: In 2000, VeriSign acquired Network Solutions from SAIC and other shareholders in a deal valued at $21 billion. As part of the transaction, SAIC swapped its remaining stake in Network Solutions, which was then valued at more than $4 billion, for a 9 percent stake in VeriSign. Much of that value was lost, however, after the dot-com bubble popped and the markets plunged. So is it accurate to say that SAIC acquired Network Solutions for almost $5 million, and over the next five years realized roughly $3.5 billion in increased valuation?

JRB: On selling it—yes.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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  • Joe

    Ugh…..VeriSign! Overpriced SSL certs.

  • Pingback: Your Thoughts on Cybersecurity at Dr. Beyster’s Blog

  • Lee

    Great article!

    What was Mr McHenry thinking! He had the oyster in his hands. I know he did well in the sale of NSI but if he just could have hung on for a few more years. Was he forced to sell? As soon as SAIC took control of the domain industry it became an ever growing monopolistic mountain of hundred dollar bills. I have to think that Mr. McHenry knew what was going to happen but was not allowed to put prices on each registration. Anyone know?