MindSpring Announcements, August 23, 1997

Dear MindSpringers,

It is announcement time again! Here is the list of topics for today.

* Capacity Issues - the Saga Continues
* Upcoming Software Release
* New MindSpring-Business Products
* The Financial Side of MindSpring
* Odds and Ends

As always, please read what you are interested in, and feel free to skip any or all of the rest.


CAPACITY ISSUES - THE SAGA CONTINUES

As it has been for many months, our top customer affecting problem continues to be capacity problems in PSINet POPs. First, a quick refresher. "POP" stands for Point of Presence, which for us means modems and telephone lines which allow our customers in a particular area to connect to us with a local phone call. MindSpring owns and operates its own "POPs" in 41 cities in the southeast. Outside of the southeast, we have up until recently relied exclusively on POPs owned and operated by PSINet, Inc. We have done a very good job of managing the MindSpring POPs in a way that provides reliable, high performance connectivity for our customers, with very few or no busy signals. The PSI POPs, unfortunately, have not performed as well. There are serious capacity problems in some of them. This has been a sharp thorn in our side for many months now, and was the main subject of my last announcements (June 6, 1997). For a more thorough refresher, you can refer back to that announcement at

http://www.mindspring.com/community/letters/97/97.06.06.html

We keep our own statistics on POP performance, of course, but we also subscribe to a measurement service from Inverse Network Technology, Inc. Inverse puts out a report that measures, among other things, the call failure rates of thirteen major ISPs and online service providers. This call failure rate is meant to measure how often one fails to get connected when dialing an ISP, and includes busy signals, ring no answers, telephone company "all circuit busy" messages, and any other log-in failures.

The most recent Inverse report, which covers July, certainly confirms our problem. In the report, MindSpring's overall call failure rate was 11.5%. This was substantially worse than the industry average, and in fact was tied for eleventh out of thirteen providers tested. Digging deeper, we see that the results were compiled from test calls to POPs in 40 different cities. As it happens, 34 of those cities were PSI POPs, and 6 were MindSpring POPs. The average call failure rate for the MindSpring POPs was approximately 4.3%. This number would rank number one, substantially better than any other provider tested. However, 9 of the PSI POPs got call failure rates of 10% or higher - some much higher - and that is what made our overall average pretty poor.

We hate this. Abhor it. We continue to work urgently with PSI to get their capacity problems cured. But that is clearly not enough, and in addition:

* We do not accept new customers in any city where we are experiencing serious capacity problems. Currently that list has 23 cities on it.

* We are moving a substantial number of our customers formerly served by PSI POPs with capacity problems to POPs owned and operated by GridNet. We had just signed our agreement with GridNet back on June 6 when I sent the last announcement. Now in ten cities formerly served by PSI we have already asked our customers to switch and use the GridNet POPs. There are 15 more cities where we had no service before, where we are now taking new customers on GridNet POPs. And, there are 16 more cities where we will move our customers to GridNet as soon as they complete the capacity additions we have requested. We are still early in our relationship with GridNet, but so far we are very pleased with their performance!

* We are building our own POPs to cover New York City and nearly all of California. These POPs should be ready for our customers use by October 1, and we will notify our customers in those areas to use the new POPs just as soon as they are ready. This will have a dramatic impact. For example, of those nine POPs in the Inverse report with over 10% call failure rates, we have already replaced three with GridNet POPs. One more is scheduled for replacement by GridNet in September. Three more are scheduled to be replaced by new MindSpring owned and operated POPs by October 1. That leaves only two of the nine worst problem POPs in this report where we are relying on PSINet for improvements.

Fortunately, these capacity problems only affect a fairly small percentage of our customers. If you are one of those who is affected, we want you to know how horrible we think it is, and how abnormal this is for us. We want you to know that we aspire to provide you with the very best service in the Internet world. We won't let up until that is the case for our subscribers everywhere. Please accept our apologies, and hang in there!

UPCOMING SOFTWARE RELEASE

We are working on the new 3.0 version of our software, which should be ready this Fall. We're very excited about the new release - it will make it easy for you to get news, local weather, and custom stock information, and will include a web Chat software package. It will also have a "Buddy list" capability so you can see whether your friends are online when you log in. It also has an automatic software updating capability, so it will be easy for you to stay current with the latest software. We have a small group of users ready to begin a limited Beta test in the next two weeks. Watch http://www.mindspring.com for more information!

NEW MINDSPRING-BUSINESS PRODUCTS

MindSpring-Business, our division focusing on the needs of our business customers, has two major initiatives underway to better serve its customers. In September, we will be unveiling a state-of-the-art co-location facility in Atlanta. This facility will provide space for customers to connect their own servers directly to the Internet backbone through very fast redundant connections, and be stored in a secure, climate controlled facility with back-up power supply. We will monitor our co-location customers' equipment around the clock. If your company's web server has become critical to your business, we think you will find this new service very appealing and cost effective.

We are also in the process of significantly enhancing our Web Hosting service. Enhancements include easy to use administrative functions as well as new tools that will increase the functionality of our customers' sites, such as a full-featured electronic commerce package. We want to make the process of getting a Web site up and running as simple as we can. And, for the month of September, we are offering a significantly reduced start up fee. Check out http://web.mindspring.com/offer.html to find outmore about our revamed MindSpring Web Hosting and how to take advantage of this special offer.

If you'd like to contact our MindSpring-Business team, write
websales@mindspring.net or call 404-815-9845 or 888-932-1997.


THE FINANCIAL SIDE OF MINDSPRING

In these letters I have talked a lot about our desire to build a different and better kind of company around our Core Values and Beliefs:

http://www.mindspring.com/aboutms/core.html

I have not talked much about the financial side of our business. But, there is lots of discussion, and sometimes misinformation, about ISP economics in the press these days, so perhaps this is important to cover. If we were not a solid company financially, it would be only a matter of time until our customers would suffer from that.

Our primary financial goals for 1997 concern profitability. This is different from the goals of many other public Internet companies, who are currently more focused on maximizing growth and market share and are postponing the push for profitability.

Our first goal was to attain a positive cash flow by the second quarter - which we did! For the second quarter we reported $639,000 of Earnings Before Interest, Taxes, Depreciation and Amortization, which is what the financial world calls EBITDA, or just "cash flow". This is very significant because it is an indication that a company is able to carry on its business and pay its bills without burning up cash. And indeed, our cash balance actually increased by $200,000 during the second quarter, moving from $6.2 to $6.4 million.

Our second financial goal for this year is to become Net Income positive by the fourth quarter. That, of course, we have yet to achieve. Getting there will require lots of hard work. But, it is the primary financial goal that we are managing towards, and we are confident that we will achieve it..

In the meantime, our customer base and revenue have been growing very rapidly. For the second quarter we had $11.6 million of revenue we ended the quarter with 183,000 subscribers. Those numbers a year ago were $2.5 million and 34,000.

So, we are not exactly minting money yet. But, we believe we have built a solid base that will enable us to continue to grow, prosper, and keep our service state of the art.

ODDS AND ENDS

* Unlimited Plan users can now add 5Mb web/ftp space to their account for
$4.95 per month.

* Our homepage will soon get a facelift. The new page will incorporate some of the suggestions our customers have provided: it will be more compact, so you don't have to scroll as much, and will be more intuitive to navigate. We hope you'll like it.



That's it for now, and thanks again to all of you for being our customers.


Best regards,

Charles Brewer
MindSpring Founder and CEO