How African Americans Lost Control of the Internet

Written by George C. Fraser
Published in Financial

I’ll remember what I was doing on March 8th 2000; just as vividly as I remember the aftermath of December 1, 1955, when Rosa Parks refused to give up her seat on a Montgomery bus; the feeling and the impact on me was almost the same.
I had a few days off from what is usually a hectic speaking schedule; parked in my office chair I started my daily routine of reading at least three newspapers. USA Today was first. Beginning with the front page, then flipping quickly to the business section I instantly noticed the headline; “VeriSign acquiring Network Solutions for $21 billion.” I blinked . . . twice, in disbelief I read the article again and again. First I jumped for joy, then sank into a funk and depression. Joy, because I knew the two, techno savvy brothers who created the Internet domain name registration system for the entire world, a technical coup worthy of bragging rights and the billions Bill Gates earned for his “borrowed” Windows operating system which runs 80% of the world’s computers.
I was depressed because they sold their company: Network Solutions only 60 short months ago to Scientific Applications International Corporation for a bargain basement price of $4.5 million, a deal that reminded me of Garrett Morgan’s sale of his 1923 traffic light patent to GE for $40,000. Why is it that white folks always end up with all the money, and Black folks get the bragging rights? Did race matter?, absolutely, so much so I classify this transaction as the most vivid example of white skin privilege and Black apathy in the history of Black business. How did a story like this slip by most African Americans, a story that needs to be told if for no other reason then to extract the business lessons God wants us to learn one more time.
“The Best Investment Ever Made in the Internet Era”
In the second-largest technology deal ever, trailing only Lucent’s $21.1 billion acquisition of Ascend Communications in 1999, and what has been called by many as “the best investment ever made in the Internet era”, Scientific Applications International Corp (SAIC) sold Network Solutions Inc. (NSI) for $21 billion to VeriSigns, the No. 1 maker of encryption software. Considering what SAIC paid for it, no one can refute that claim. SAIC a deep pocketed defense contractor based in San Diego is one of the largest closely held firms in the country with about $4 billion in annual revenues. Dependent on federal contracts for about 80% of its revenue, the firm is politically savvy with numerous top government officials on its payroll, such as retired Admiral Bobby Ray Imman and former Defense Secretary William Perry. The Wall Street Journal reports the firm and its executives typically make more than $100,000 in political contributions in every congressional election cycle. Michael A. Daniels, sector vice president of SAIC, said he looked at 40 Internet infrastructure companies before buying Network Solutions for $4.5 million (plus the assumption of all debt) in March 1995. Emmit McHenry former CEO, and one of the four founding partners said he reluctantly sold the company to SAIC with the agreement of his other Black partner Tyrone Grigsby and two white partners, Gary Desler and Ed Peters after several years of red ink from product development costs, lost contracts and fruitless efforts trying to raise money in the Black community and on Wall Street to keep the company afloat.
Living His Dream
Network Solutions was the dream of Emmit McHenry; a visionary with business savvy, a Mensa IQ and , among other things, conversant in nutrition and eastern philosophy. Meticulous, and intense, Emmit smiled and laughed easily. He was as comfortable talking about the future of technology as he was talking about what was happening in ”the hood”. Born in Forest City, Arkansas but raised in Tulsa, Oklahoma by entrepreneurial parents who thrived in the construction business not long after Tulsa’s “Black Wall Street” period. Emmit attended the University of Denver where he met Al White, a native of Brooklyn, NY who was to become his vice president of corporate marketing some twelve years after Emmit and Tyrone Grigsby bootstrapped the start of their business in 1979. Emmit went to work in the insurance industry and slowly climbed his way up the corporate ladder to become AllState’s first black Regional Vice President. His income and credit helped to keep the company going. In 1987, he left Allstate to become Network Solutions Inc. full-time CEO, based in the Washington, D.C. area. 
Bitten by the technology bug, Emmit read and studied every thing he could find, and astutely predicted that networks of computers were going to be the wave of the future. NSI began as a telecommunications consultancy and a IBM systems developer for government agencies. They thrived for a short while on Federal 8(a) contracts for minority businesses, then soon landed a substantial multi-year, multi-million dollar deal with AT&T; the largest ever awarded to a minority business. Within 12 years, they grew their company to 250 employees, several offices and more than $30 million annually. Their vision, and technical expertise was unsurpassed, their reputation grew among Washington’s beltway insiders.
I visited Emmit and Al in their beautifully appointed Herndon, Virginia offices in the Spring of 1993. Our discussion centered around their new Internet asset of which I didn’t have the vaguest idea of its potential but got caught up in their vision and enthusiasm. At the time I was publishing SuccessGuide, The Networking Guide to Black Resources for eight cities, I wanted to feature Emmit and seek his advice on managing the 250,000 name database of Black professionals and business owners I had collected as part of a national networking databank vision I had. Emmit was helpful, we shared the same vision. The problem I had was keeping track of all the changes and finding a more cost-effective way to connect people and provide network members quick and easy access to each other. They assured me the Internet would soon make that process easier and suggested I register Frasernet.com. It was free in those days so I did; I was first on my block to have a dot com address. My site has since gone through six versions and most recently was launched as Frasernet.com; Black America’s Resource for Building Contacts, Careers and Community.
Emmit and Al dragged me into the 21st century before any of my friends knew what a dot com was. I just wish I had a few thousand dollars to invest in their company, I’d be a multii-millionaire today. Oh well, at least I can say to my grandchildren “I was there when it all started” . . . . on second thought, maybe I won’t, they might ask why I’m not a billionaire.
Winning the Contract of the Century
In 1992, after competing with the likes of Stanford University; the epicenter of the technology explosion, NSI landed a five-year contract with the National Science Foundation to develop domain-name registration for the Internet. The contract gave NSI the sole authority to develop the system and issue Web addresses ending with “.com”, “.net”, “.org”, “.edu” and “.gov”, domain names such as BET.com or CNN.com had to register to enter the Internet through NSI. So before there was Amazon.com, eBay.com or Yahoo.com there was Network Solutions. It was the first real Internet business, the on-ramp and worldwide traffic cop for the web . . . it was also an exclusive franchise and a legal monopoly with incredible potential. Very few people knew it was Black owned. It was a joyous time; “ahh rights” and high fives peppered the NSI office. Everybody was happy, Emmit and his partners saw great potential and cash flow and the federal government felt they unloaded a sticky little task that probably would have cost five times as much if they tried to do it.
At the time NSI won the contract few thought much of the Internet, it was largely the province of academics and technicians, the World Wide Web didn’t exist and the number of Internet domain names stood at only 7500. The government agreed to pay NSI $1 million a year to develop the system and register the names. But much to everybody’s surprise in the first year Network Solutions registered 13,000 addresses and posted a net loss of $386,000. Electronic communications was beginning to take off. In Geneva, Switzerland software engineer Tim Berners – Lee created the Internet graphical display method that gave birth to the World Wide Web. At the University of Illinois, undergraduate Marc Andressen -- later to be co-founder of Netscape Communications Corp – helped create “Mosaic” one of the first pieces of software that helped users navigate the Web.
Over the next two years, the Internet was invaded by hoards of non-technical users, and corporations began to stake their claims in cyberspace. Network Solutions had to hire more workers and buy new equipment while constrained by a fixed - $1 million/year contract. Their good fortune began to turn bad. That same year, inspite of technical excellence and low price the company lost two large government contracts to TRW and EDS . . . the politics of federal contracts was beginning to take its toll. In 1994, the firm posted a loss of $930,000. NSI filed a suit against the government for awarding a contract and not using the selection criteria, legal fees mounted and things began to get sticky. The company was deep in red ink. Additionally, the four partners all of whom had lived on modest salaries, reinvesting everything they had into growing the business, now had personal debt that was mounting. The pressure was on to get fresh capital for personal use as well as to keep ahead of the heated growth of their new Internet business. Something had to be done, access to capital became the key focus of Emmit and Al White; who had been hired in 1991 as vice president of corporate marketing. Al was the perfect choice for the newly formed position. He was a long-time and loyal friend of Emmit; plus he came armed with a MBA from Columbia University, and a strong background in finance. Al cut his financial teeth with Bankers Trust and JP Morgan, two of Wall Streets bastions of capital formation and management. Al was instrumental in landing the multi-million dollar contract with AT&T for the company, his next job was to help Emmit find fresh money and debt financing for the firm.
The Hunt for Capital Begins
To raise the much-needed capital Emmit and Al began setting up formal and informal meetings with several high profile Blacks in business (who shall remain nameless), the response was one of mild curiosity but mostly disinterest. Al said “The attitude implied but not said was; if this Internet asset is so great and full of potential, why would white folks give it to Black folks?” Emmit experienced similar responses when for example while holding a meeting at a popular DC watering hole to discuss the opportunity, the supposedly interested party casually listened and simultaneously engage in an unrelated side conversation with someone who impolitely interrupted the discussion. Emmit said his ego was bruised, he told me “George, the apathy and loathing was palpable and I wasn’t going to beg these Negroes for money. If they can’t see it, I’m moving on to Wall Street”. When I asked him recently what he would have done differently given the chance, he said two things, “first, I should have been more aggressive in my pursuit of money from our people . . . but my ego got in the way, I regret that. Second, I spent so much time working on my business that I didn’t spend enough time working on my network of relationships outside my sphere of expertise, that was a mistake, I planned to change that”.
After the poor reception Emmit and the partners moved on to Wall Street, the reception was in effect, (excuse my Ebonics on this) the white folk’s version of “nigga please”! Emmit said “the image of a Black man doing serious business in the world of technology, let alone having a monopoly on an asset that was pivotal to the growth of the new e-economy was so foreign and incongruent with the image of Black men in America, that most of the serious financiers politely listened to my presentation, dismissed me with a smile and handshake and probably fell on the floor laughing when we left the room”. The Wall Street reception was insulting, racist and a waste of valuable time. Emmit said the environment on Wall Street hasn’t change much since then, referring to his most recent experience several months ago when he sent the white CFO of his new $300 million/year company; Netcom Solutions International to Wall Street to raise $200 million in debt financing. The CFO came back very disturbed that his efforts although successful, were fraught with racist remarks and obvious bias related to skin color. Emmit felt compelled to call a senior executive meeting to fully discuss the issue and future remedies.
Things were getting progressively worse at the company, a couple of the partners were close to personal bankruptcy, and Emmit was on the hook for $7 million personally in technology development costs. Al had negotiated a deal with AT&T for $5 million but it was restricted to reinvestment in the company only, none of it could be used personally, thus only part of their problem could be solved. Anybody that’s ever been in business can relate to that dilemma.
Earlier they had begun negotiating with the National Science Foundation to allow them to charge for domain addressing and share the profits with NSF. This would have released them from their money losing multi-year contract and lay the foundation for profitability within 12-24 months. The bureaucrats at NSF entertained the idea but needed political muscle to stray from their contract. No one in Network Solutions had the political clout or muscle to pull it off. Time was now running out and a decision had to be made. SAIC was shopping and really liked what they saw at NSI and wanted the company badly. They made them an offer of $4.5 million of SAIC, ESOP (non-tradable) stock, the assumption of all debt (around $15 million) plus other long-term incentives amounting to approximately $5.0 million.
The partners were tired, financially distressed and frustrated. These are the times in small businesses when people start pointing fingers and placing blame, so before everybody started throwing bricks at each other, they accepted the offer. While there was no big celebration, everyone was relieved except Al White. Al felt the Internet asset was undervalued by SAIC and sold off prematurely. He was disappointed that Emmit did not think to find a way for them to partner and buy it. Emmit said “he just didn’t think of it” and it was now time to move on. It was a bitter pill for Al to swallow, but he too has moved on to start his own consultancy group called Promark International LLC whose goal is to raise a $100 million technology fund for minorities. Emmit stayed with SAIC for several months during the transition, then started Netcom Solutions International, a highly successful company which specializes in selling information technology to emerging nations. Emmit has offices in Johannesburg, S. Africa and Washington, D.C., Tyrone Grigsby is doing prison ministry work and working with young entrepreneurs in the Washington D.C. area, Gary Desler, lives in Las Vegas and Ed Peters is working for SAIC. But I’m sure when they read the March 8th headline, they blinked twice.
From $4.5 Million to $21 Billion in 60 months
The Wall Street Journal reported that SAIC moved in quickly to exploit its monopoly in cyberspace. Network Solutions was whittled down to a pure Internet company, with most of its employees transferred to SAIC, and a torrent of fresh capital went into its new core operation, domain names. In addition, SAIC recruited as Network Solutions new chief executive officer Gabriel Battista, the politically active former head of U.S. operations for United Kingdom based Cable & Wireless PLC.
Then a great bit of good fortune struck. The cash strapped National Science Foundation decided it could no longer justify spending taxpayer dollars to fund domain-name registration, an increasingly commercial enterprise that had lost much of its academic character. So the foundation allowed Network Solutions to start charging for registration and maintenance. Something Emmit and Tyrone could not do, nor had the political contacts to help the NSF reach their new decision.
Within 18 months (fourth qtr. of 1996) NSI was profitable. By early 1997, they had registered their millionth “fee-based” domain, revenue skyrocketed to $61 million and by September (with the help of investment bankers, JP Morgan) they had taken the company public at $18.00 a share, raising $68 million on 3.5 million shares of stock, accounting for 25% of the company. This increased the market value of Network Solutions to $272 million. Some twenty-four months later (assuming it takes 3-6 months to complete a deal this size) they began the process to sell the company for $21 billion dollars to VeriSign. SAIC had played by the rules, they found and purchased a undervalued and underleverage asset. There was no visible gun pointed at the heads of the partners to sign the deal, no one could predict the good fortune that lie ahead, but everyone knew the potential was enormous, and two unspoken forces were at work.
White Skin Privilege
Senator Bill Bradley used this term as one of the themes for his Presidential campaign run. He was referring to the fact that many whites in America have failed to realize that the very fact of their skin color has conferred certain privileges and status that have enabled them to benefit from a permanent and systemic affirmative action program. Most whites today are in denial about this and would prefer to believe Blacks are paranoid about racism and ought to get on with bootstrapping and effectively competing for the myriad of opportunities awaiting all Americans. Many have, but in the lily-white world of high finance the unwritten rules still favor the upward mobility of white males. This privilege is partly responsible for Marc Andressen, the kid who co-founded Netscape and Steve Case the founder of AOL for being able to access the resources needed to grow and keep a significant portion of their company and fortune. Each company started about the same time Network Solutions was struggling to survive, in spite of the fact they had one of the most important and pivotal Internet assets ever.
The SAIC leadership clearly was no smarter than NSI’s leadership, there was little that they did to turn the company around that Emmit, Tyrone and Al had not also planned to do given access to capital. The difference was not in SAIC's business track record, but in SAIC'’ ability to access capital and the good old boy network.
Case in point; SAIC’s track record was a bit checkered, but not unusual for a company its size and complexity run by high powered white males. Jesse Hirsch, Director of the New Media Institute at the McLuhan Program at the University of Toronto reported in Media, Mind and Society that in 1990, SAIC was indicted by the Justice Department on 10 felony counts for fraud in its management of a Superfund toxic cleanup site. They pleaded guilty. In 1993, the Justice Department sued SAIC again, accusing it of civil fraud on an F15 fighter contract. In May 1995, the same period which they purchased Network Solutions, the company settled a suit that charged it had lied about security system tests it conducted for a Treasury Department currency plant in Fort Worth, Texas. The company paid the government $125,000 to cover the cost of the investigation as part of the settlement. My point is, at that level, white males will continue to do business with each other in spite of legal and/or credit infractions. Conversely Black males wouldn’t even be considered for a serious business deal with only a minor infraction. Often times even when we demonstrate technical excellence and low price Blacks are denied significant public and private sector opportunities.
For Blacks, access to top executive talent, which the financiers and banks require for major financing is as difficult as accessing capital. For the most part whites will not work for Blacks and until recently have we been able to grow our own talent and when we do, most of them prefer to work for the big corporations. Banks and venture firms still have higher standards for Blacks than anyone else. According to Al White, of the $45 billion invested by venture capital firms in 1999, less than 3% went to minority and women owned businesses and even a smaller percent of that was technology based. Certainly it is not because we lack good ideas, I’ve seen as many good and bad ideas from Blacks as I’ve seen from whites, who by the way, get their financing, make their millions and move on to the next idea. Certainly no one in Black America is surprised by any of this, our parents told us two things years ago; “you’re going to have to be twice as good to get half as much” and “when you know its going to rain, take an umbrella”. Yes, I’ve seen some progress recently but it’s slow and painful. African Americans must now step up to the plate in a more effective way to break this cycle.
Black Apathy Hurts Us
On March 8th Black America suffered a big loss to include; prestige, jobs, scholarships, possibly a large Black controlled technology fund and a few new buildings named after Emmit and Tyrone. Any portion of a $21 billion asset is substantial, in fact just 23% of the deal (the portion SAIC managed to keep) is worth $3-4 billion depending when you check the stock prices. Clearly Network Solutions deserved our support, the talent and the opportunity was there, but this mistake has demonstrated once again, that even smart people can miss the consequences of their actions. The ultimate question for us today is; if we did not have the technology consciousness to support NSI in 1994, what don’t we have the consciousness to support today? What is going on right now, under our noses in the e-economy that others see and will make the next billion dollar fortune? How many $100,000 and million dollar opportunities are we missing every day?
The lessons for us are biblical in nature; the Israelites were made to wander in the desert for 40 years before reaching the promise land, why?, because they were found to be worshiping false Gods. In some respect we are too; the Gods of self-hatred, pettiness, jealousy, selfishness and mediocrity. For many, not all, the Willie Lynch psychology still subconsciously holds a firm grip on our behavior toward each other. Over time I believe this will change. Why?, because we have achieved a critical mass consciousness about it; from consciousness comes action then change, this is evolutionary not revolutionary. Here are some things Blacks can do right now to help create a new “critical mass consciousness” so we may take full advantage of this “once in a lifetime” economic opportunity.
Putting It All Together

1. Increase the Dialog: Just as Rev. Jesse Jackson’s Wall Street Project heightened the awareness of the untapped investment potential of African Americans, it is now time to do the same in Silicon Valley and Silicon Alley. If our top academics and leaders can effectively make a case to secure $1 billion from Microsoft for minority scholarships and $50 million for computers and software, our top technical and business experts ought to be able to make the case for a $1 billion minority controlled venture fund. Considering what’s going on in e-commerce today, the return on an investment of that nature would be immediate and potentially profitable.
2. Build Your Network. Passing out business cards indiscriminately is not networking, it’s only the first step in a long, time honored process of connecting; finding common ground and bonds. Make sure you spend as much time building your relationships as you spend building your business or career. The Internet will make this task much easier in the future.
3. Become Politically Connected. You’re either in or you’re out. Political contacts for those in business or providing management and/or leadership are critical. For those of us involved in e-business lets put our money where our mouth is and start a e-business PAC (see box on page___ for 7 additional strategies)
4. Share Information. We must increase the number of e-economy focused special events, conferences, seminars and/or plenary sessions we have and/or attend. There are a few excellent ones produced by Blacks each year (i.e. MOBE) but they are not as well attended, sponsored or supported, as they should be. Whites are conferencing on this subject in multiple places everyday.
5. Increase Our Financial Engineering Knowledge. We must learn how to structure big deals. Often time our language and lack of understanding quickly eliminates us from even being considered for financing. Read up on it and find a good Black CPA, lawyer or investment banker who understands the structuring of deals.
6. Develop a Black Controlled Technology Superfund. One billion dollars within 24 months should be the goal. There are several small black controlled/managed funds today; they specialize in the development of niche areas of e-commerce. They are doing a good job, but a superfund is needed. There are numerous banks, tech corporations and venture capitalists waiting for us to make the case.
7. Be More Entrepreneurial. We must transcend our “poverty mentality” not only in how conservatively we invest our money, but also this aversion we have to business risk. It is said “you must first be willing to do something badly before you will ever be able to do it well”. Manage your risks, but take some in the new e-economy.
8. Engage the Internet. All the good ideas and big money is not gone. Steve Case, CEO of AOL likes to say “its’ the 2nd inning of a 9 inning game”. We are in the “Model T” phase of Internet development, get involved now. (see box on page___)
9. Think Joint Ventures, Strategic Alliances, Partnerships. Wherever we are going we won’t get there by ourselves, on our own, in a vacuum. E-businesses that were throwing bricks at each other 12 months ago are either doing deals, merging, or figuring out how to work together. We must too. The best Black business models we have are all doing it, successfully.
10. Close the Digital Divide. Every Black person with an annual household income over $30,000 should have a home-based computer that is linked to the Internet. Our ability to communicate and link to each other instantly will have a profound impact on demonstrating the power of “our voice” to effect change in the public and private sector.
11. Hype Technology Up. It will be up to Black media to create interest and excitement about this new e-economy. As the success stories are told and the excitement grows more young people will want careers in computer-related fields and the “geek” image will change. They will bring the same zeal, creativity and financial savvy they brought to Hip-Hop culture. Perhaps some of our HBCUs will create majors and minors in e-commerce; e-marketing, Internet and web-site development.
12. Annually Convene to Recognize and Track Results “Inspect what you expect”, is what I was always told. Recognition and awards in the category of business and technology should be added to annual recognitions such as NAACP Image Awards. Local award events must also do the same.
13. Stay The Course, Stay The Course, Stay The Course. It took 250 years for emancipation and 100 years to obtain civil rights, voting rights and public access. Closing the “technology opportunity” gap must get done in one generation. Stay The Course!

These are but a few things we can do right now to insure another Network Solutions does not slip through our fingers. And by the way, don’t feel badly for Emmit, Tyrone and Al, they are doing just fine thank you. In fact in my mind they are our newest pioneer type heroes; in the spirit of Garrett Morgan and Matthew Henson. They were there for us . . . representing Black America when the e-economy all started. They saw it, recognized its potential, seized it and did the best they could with what they had. The sad part is that we were not there for them. The racial advantages that lead to the unpleasant result was predictable, we all know the script.
So once again God has a lesson for people of African descent; could it be he’s saying; we have everything we need to succeed, we have the education, money and training, the only thing we need now is each other!
George Fraser is a best-selling author and founder of Frasernet.com; Black America’s Best Resource for Building Contacts, Careers and Community.