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After the Glamour, A Modest Return
Schrader, Like Tech Industry, Is Focused on Profits

By Ellen McCarthy
Washington Post Staff Writer
Monday, July 18, 2005

There are no giant corporate logos or opulent executive suites at Map ROI, the 30-person start-up in Sterling that Internet pioneer William L. Schrader has joined as chief executive. There is no army of marketing and public relations agents clamoring for time on the schedule as they used to do at his high-flying PSINet Inc. There is no secretary.

Instead there's a half-eaten bucket of pretzels and a window that overlooks a narrow parking lot across a maze of low, warehouse-like buildings. There's a desk and a computer loaded with links to upcoming government contracts, and a business plan that aims to help other companies manage the process of bidding on them. It's the technological equivalent, perhaps, of becoming a plumber or dentist, something safe and steady that people will always need -- far from the globe-spanning vision Schrader hatched at PSINet, only to have it crash around him.

After years spent fighting more than 50 investor lawsuits, tinkering with computers in his Loudoun County home and largely avoiding publicity, "I wanted to find something I could do, that somebody wanted me to do," said Schrader. "It had to be important to customers and it had to be profitable."

Schrader, whose Ashburn Internet service provider PSINet rose and fell as thunderously as any technology company in the region, is still a hero to many of his loyalists. But to others -- particularly investors -- he will forever be seen as a foolish cowboy who embodied the folly of the dot-com era.

His story mirrors the evolution of the local tech industry. Washington was put on the technology map during the 1990s as a communications epicenter, attracting some of the best scientific minds in the world and promising to indelibly alter the way people work and live. The crash brought a measure of heartbreak and economic turmoil; when the rebound began, it was catalyzed not by paradigm-setting ideas but by the stable and unflashy flow of money from government agencies.

The leaders of the tech boom have since dispersed, most of them after cashing in enough stock options to do what they want for the rest of their lives. Some, like Mario Marino, founder of the firm that became Legent Corp., and James V. Kimsey, former chief executive of America Online, have devoted themselves largely to philanthropic causes. Others like Douglas E. Humphrey, founder of Digex Inc., are enjoying early retirements. Alex J. Mandl, former chief executive of Teligent Corp., and Craig O. McCaw, founder of XO Communications, have gone on to lead other telecom ventures. America Online co-founder Steve Case is still trying to change the world, this time through a health care and hospitality company called Revolution.

Schrader, 53, still believes his vision for PSINet was a good one, but concedes he got caught up in a dangerous race with competitors. The company was focused on getting bigger fast, not on making a profit or ensuring that the amount of fiber-optic cable it strung had some connection to consumer demand.

"We moved a little too fast. We didn't need to enter three countries at once," he said. "We could've just entered one. We would've been behind but we would still be in business now."

Schrader began building computer networks for universities in his native New York state in the early 1980s, but soon became convinced that there would be an enormous market for them in the commercial world. He founded Performance Systems International in 1989 with $80,000 in credit card debt, funds from an early partner and loans from friends and family.

He predicted the company, eventually renamed PSINet, would be a $1 billion firm in 10 years. He was wrong. It took 11.

Schrader's mission was to create the biggest, best-performing network in the world. The company went public in 1995, raised $4 billion on the capital markets, gobbled up dozens of Internet companies around the world, and grew to a 9,000-person firm with legions of employees who regularly worked six- and seven-day weeks.

"I know it sounds cliche, but this was the mid-1990s -- people really did drink the Kool-Aid," said Brian K. Muys, who worked in PSINet's public affairs division. "There was lots of excitement, and lots of stress to go with it."

Schrader became an icon known for outlandish statements and high-wire promotion. He once called traditional phone carriers "carcasses," and the company rose to national prominence with a $105 million deal to put its name on the Baltimore Ravens stadium.

"One of my favorite sayings was 'I'm going to change the way the world does business,' " he recalled.

But demand for Internet services never came anywhere close to the capacity that had been built. Even today it's not uncommon for service providers to use only 2 percent of the fiber they have available.

By the fall of 2000, PSINet's stock, which once traded at $60 dollars a share, fell below $2. Bank of America seized and began selling Schrader's stake in the company.

On April 29, 2001, Schrader was fired by PSINet's board of directors. The company, which had amassed $4.3 billion in debt, filed for Chapter 11 bankruptcy protection a month later, on May 31.

"It was a bit like watching a bubble burst in slow motion. The foundation [of the industry] went through an earthquake," Schrader said.

During the fallout, as the company was broken apart and sold at fire-sale prices, Schrader canceled his subscriptions to the Wall Street Journal and The Washington Post, saying he found it too painful to follow PSINet's slow dismantling.

Despite the promise of the time, he says today that he wishes he had never started the company. Criticism for PSINet's fall became personal, Schrader says, as disgruntled investors posted threats and diatribes on the Internet, and analysts blamed the company's implosion on "mismanagement."

His anger is still palpable.

"They threatened the lives of me and my children because they bought stock on the Internet, traded it on the Internet . . . all of the tools we gave them were being used to attack the people who gave them the tools," he said.

PSINet's U.S. assets were sold to District-based Cogent Communications Group Inc. for $10 million. After the sale, Schrader called the head of that company, David Schaeffer, and asked to meet him for coffee. Schrader relayed the story of PSINet like a parent describing his child, Schaeffer recalled.

Cogent is now the second-largest carrier of Internet traffic in the world. Because the second wave of Internet providers bought the networks of companies like PSINet so cheaply, they've been able to create profitable businesses.

"I think Bill, like all of the first-generation guys, deserves credit for the proliferation of the Internet," said Schaeffer. "Many times it's not the first pioneer who gets the credit and economic accolades."

Schrader says he still is obsessed with the potential of the Internet but disillusioned with society's application of it.

"People don't deserve what we built for them," he said, throwing his hands into the air. "It's like we're handing people all the knowledge in the world and having them go to pornography sites."

Once the investor lawsuits were wrapped up, Schrader began offering himself as a consultant to dozens of Internet businesses. He said that unlike many of his tech boom colleagues, he still needs to work for a living.

Map ROI, founded in 2003, had raised $2.6 million in venture funding and was looking to boost sales of its contract management software when the company hired Schrader in February. Schrader, who wears jeans to work now that he doesn't have to court the media and Wall Street, says he accepted the job because Map ROI has a viable product that is important to customers.

It is a mission, Schrader acknowledges, that is drastically diminished compared to that of his last company. The government contracting industry has become a refuge for more than a few out-of-work technologists. And while Schrader agrees that it feels a bit anticlimactic, he also says it also feels more profitable.

"What we're doing here is a narrow focused use of the Internet for a niche marketplace," he said. "There is no less vision now than there was back then. It's just more focused."

Schrader says he is happy, having unwound from the years of whirlwind investor road shows and establishing a life largely outside the public eye.

He doesn't play golf and he doesn't watch television. He works and talks to his three adult sons (he divorced in 2002). What he mostly likes to do is think, about the future and the technologies that will define it.

"Probably in the next 100 years we're going to see more change than we'd imagine," he said. "What I'd like to do is watch it and be a part of it for as long as I can."

© 2005 The Washington Post Company