ISP Profile: Iserv

The company is growing fast through acquisition, adding customers and also adding new services to its portfolio.

by Alex Goldman ISP-Planet Managing Editor [January 19, 2006]

In 2005 alone, Grand Rapids, Mich.-based Iserv acquired the customers of six ISPs: Scottville, Mich.-based 1010internet; Bad Axe, Mich.-based Top Dog; Chicago-based Caliber; of Illinois-based Cooke Technologies; Dearborn Heights, Mich.-based TodayLink; and Dayton, Ohio-based Springnet.cc.

A recent article in the Grand Rapids Press, Iserv changes focus, posts best year for profit, estimates the company's subscriber count at under 60,000, its annual revenues at well over $10 million, and employees at over 50.

The company is growing fast and doing well, so we spoke with its CEO, Victor Shepherd (see image at right).

Shepherd says that about half the business is residential service and about half is business service.

We mention that we've been urging ISPs to build their business services, and he agrees, to a certain extent. "Having business customers gives you the ability to have a more stable business. Also, when you have both kinds of customers, you find you better utilize your infrastructure."

Business users tend to use bandwidth during the daytime, and residential users tend to use bandwidth in the early evening and to some extent in the early morning.

Iserv also acquired a non-ISP company, Grand Rapids, Mich.-based Pinika, which provides document, search, and project management services in the legal and real estate industries. Pinika's technology, explains Shepherd, allows professionals to store scanned documents on high availability servers and share them with other professionals. It specializes in jobs that require a great deal of paperwork and which have specific deadlines, making it great for both court cases and mortgage processing.

Shepherd says Iserv's strategy is this: "our goal and vision for the business is to be as creative as possible to implement technologies, reduce costs, and provide a high standard of service."

The company is acquiring customers in the midwest, he says, six states: Minnesota, Wisconsin, Michigan, Illinois, Indiana, and Ohio. "That's about a quarter of Congress," we reply. It's a big area containing a large population. Shepherd adds that if he saw something interesting in Kentucky or Tennessee, he'd do business in those states too.

The merger and acquisitions team
We ask which broker he's using, and learn the company isn't using a broker. Instead, it has its own merger, acquisitions, and transition team called the Iserv Technology Group (ITG).

ITG's website explains:

ITG is not a venture capital firm, technology incubator or funding source for start-ups. It is a true merger, acquisition, and operations company established to help generate new value from existing companies.

"ITG goes out and finds opportunities for us," explains Shepherd. The group does something else, too. "They market who we are to potential sellers, both in the ISP world and outside it."

The ITG website touts Shepherd's "everybody wins from an acquisition" philosophy, which it calls his "three-way-profit" philosophy. The site says that sellers get a timely, fair payment (unusually in the dialup world, Iserv pays all the money within 90 days of the transaction, Shepherd says). The customers get access to more and better products than they had before. And, of course, Iserv wins by making money from businesses that now generate more revenue and are more efficient than under previous ownership.

Shepherd says the company does everything it can to make the transition easy for customers. "When customers join us, the numbers they're using today are the numbers they'll use tomorrow. It's a seamless change, but there's more stuff for them. We add anti-virus and anti-spam, and if they already have those products, they find that we spend more resources on providing these products than their previous provider did. We provide anti-spyware as well."

Integrating new residential customers is relatively simple. "It is easy for us to implement the network and transport the traffic back to Grand Rapids," says Shepherd.

Keeping employees, keeping customers
If you're a customer-focused company, customer service is key. Iserv runs its own call center, and benefits from the many colleges and universities in Grand Rapids. We never thought of Grand Rapids as a college town, but Yahoo's school directory lists the following eight schools in Grand Rapids alone (not counting nearby towns such as Hope College and Grand Valley State University): Aquinas College, Calvin College, Cornerstone University, Davenport University, Grace Bible College, Grand Rapids Community College, a branch of the ITT Technical Institute, and Reformed Bible College.

Shepherd says that employees who work at the call center "understand who we are and what we are." Many of those working at the call center, he says, are earning a degree in Computer Science. Once they get their degree, the company promotes some into business management or engineering.

The call center is busy although the issues have changed. "Four years ago, most calls were about connectivity issues," says Shepherd. "Now it's spyware and Microsoft issues."

We ask him if he really supports software. "We're willing to take these calls," he replies. "We'll tell a customer how to hook up a printer."

The business of business customers
Iserv is offering ever more services to customers, a fundamental pillar of the company's strategy.

It has had a data center (see image below) since 1999, supplied with redundant fiber, FM200 fire suppression, backup power, and everything else you'd expect from a top tier data center. Shepherd says the generators are powered up weekly and are required once or twice a year, when lightning strikes or brownouts occur.

We mention that we heard at ISPCON from data center owners who are spending significant amounts of money on Ethernet. Shepherd says that Iserv is increasing bandwidth and also spending money on basic gear. "Here's a simple example: the amount of spam has quadrupled, so we had to add front end servers, and we had to add people to manage them. With the new Ethernet technology, you still have to run the old technology as you migrate to the new technology, and you have to buy multiples of things so that you have redundancy in your network."

The company already makes money by turning dialup customers into DSL customers, in addition to selling more services to existing customers. On the business side, it has rolle out e-commerce services and also added disaster recovery. Shepherd says the company's in a good location to offer disaster recovery to large markets. "We're three hours' drive from Chicago, five hours from Indianapolis, and three hours from Detroit. It's easy to drive here from those locations."

The company invested in V.92 technology, and in other technologies that reduce the number of dropped calls.

Iserv is looking at VoIP, but Shepherd is hesitant about an acquisition. "VoIP technology is still settling out," he says. "We would entertain a business that has rolled out VoIP and has a big footprint. The key is not the technology. The key is that they be an ongoing business with customers and with good employees."

We ask whether he retains employees in dialup acquisitions. "I wouldn't want to mislead you. We do not keep them in residential acquisitions, but we do keep employees when we move into a new business area."

A bright future
Asked whether Ameritech is a problem, Shepherd is careful in his reply. "We do business with telcos and CLECs, and although the CLECs are easier to deal with, Ameritech has worked favorably for us when presented with a business opportunity, though not always."

The company did not borrow to make its many acquisitions. "We fund everything we do on internal cash flow. We haven't needed to borrow because we run a very very good business. It's not a difficult business, but you have to pay a lot of attention to the details, and you have to invest in systems. You cannot just add a bunch of people to solve your problems. Just as an example, customers used to get much less e-mail. So even you had the same amount of customers now as you had several years ago, you'd have more work."

In terms of incremental profit, Shepherd says that colocation is the best, but of course, that doesn't count the cost of the data center. Once you've built the data center, you have to fill it.

—End