UOL Publishing Is Still Recovering From a Disastrous Decision to Raise Rates By Shannon Henry Washington Post Staff Writer
The Dec.1 announcement smacked of immediacy: "[Michael]Anderson, formerly UOL's Senior Vice President of Publishing, will replace Carl Tyson, who has resigned his operating and board positions, effective today, to pursue other interests." But the management upheaval at UOL Publishing Inc. of McLean had been months in the making, tracing back to what chief executive Nat Kannan says was a bad pricing decision in 1997 by Tyson that sent the company's stock plummeting and forced the cancellation of a secondary offering. The shake-up offers insight into how precarious the world of Internet business still is.
"In high-tech you only get one strike," said Kannan, adding that the average life cycle of a tech company president is 18 to 24 months. That's because experimentation is vital in the super-time-compressed Internet market, but measures of success are still very clear.
"You see how easily they're considered a hero or not," Kannan said. Kannan and Tyson, who was president, both said the departure was amicable and the decision mutual, best for the company and the
individual. "I thought the investors might be happier with new leadership," said Tyson, 49, who had been with the company for three years.
UOL, which sells educational software, went public in 1996 and was enjoying encouraging revenue figures and stock prices. So, in 1997 Tyson decided that if UOL's corporate and university customers were happily paying $50,000 upfront for use of UOL's World Wide Web-based educational software, plus an extra fee of $50 to $200 for each course actually used, future customers would pony up $100,000 to create their own "virtual campus."
Not exactly. The company's decision to double the price was disastrous. New customers didn't bite, analysts downgraded the stock and UOL's market valuation plunged by about 65 percent.
"The demand came to a screeching halt," Kannan said.
Since then, UOL has been trying to pull itself out of a slump, with some success: Revenue will finish up $5 million to an estimated $15 million this year and Kannan said he expects UOL to be profitable in 1999. Under the newer pricing system, more of a subscription model, a corporate or university customer pays by the month only for the number of courses used, with a minimum monthly price of $5,000
Kannan said the company has grown 30 percent each of the last two quarters. UOL now sells courses that are used by 60,000 students each month, up from 12,000 students a year ago. Clients include Johnson & Johnson, Lucent Technologies Inc. and George Mason University.
Being a public company, beholden to investors and watched by analysts, made the company's difficulties all the more obvious. UOL executives learned much from the experience. "If you set expectations, people will punish you if you don't meet those expectations," Tyson said.
Ulric Weil, an analyst with Friedman, Billings, Ramsey Group Inc., which took UOL public in 1996, said Tyson clearly made mistakes. "[Tyson] had no prior Web publishing experience. That turned out to be a major weakness," Weil said.
However, Weil thinks UOL still has a shot at success, and that the right leadership can turn the company around. "They're operating in a very fertile space," he said.
Wait a second, I thought they said they would be cash positive last September? Now the Post article says 1999? What is their excuse going to be in 1999 when they aren't profitable? The Y2K problem? Cut loose another exec then blame it all on him?