Digex

» see digex.net as it lived, on the wayback machine

~ the goodbye ~

Digex is a company I almost certainly used without ever once seeing the name. That is the whole nature of managed hosting. Somebody else's machines answer when you type a domain, and the only people who know whose machines they are work in procurement.

It began in 1991 in Greenbelt, Maryland, in the basement of Doug Humphrey's townhouse, with Mike Doughney alongside him. It was an internet service provider first and an early one. By 1995 it was doing $10.7 million in sales, which for an ISP in 1995 made it a real business rather than a hobby with an invoice book attached.

The IPO came in October 1996 at $10.13 a share, valuing the company at $125.4 million with 260 people on the payroll. Christopher McCleary came in as chief executive and Humphrey moved across to chief technology officer, which is the standard arrangement when a founder's company gets handed to somebody who has run one before.

The years Digex mattered most, 1999 through 2001, are the years I was on a 56k modem in Turkey pulling pages down one at a time. Every one of those pages came off a machine in a room somewhere. Digex ran two of those rooms, in Beltsville and in Cupertino, with more than 1,300 servers between them by the middle of 1999. I had no idea any of it existed. Nobody outside the business was supposed to.

~ the chronicle ~

~ the run up ~

Intermedia Communications, a competitive local exchange carrier, bought Digex in June 1997 for around $150 million. Digex had over 2,000 customers and 450 employees at the time. Intermedia then split the company in half: the access business became Business Internet Inc, and the managed hosting business kept the Digex name. That split is the entire story, because hosting turned out to be the half worth something.

The client list was the pitch. Martha Stewart Living and Nike were both on it, along with Kraft and Mercedes-Benz. Intermedia spun Digex back out as a public company in mid-1999, keeping control and selling 49 percent to investors. In January 2000 Microsoft and Compaq put $100 million in between them. By March the stock was trading around $160.

~ the day the number stopped ~

The revenue was real and so were the losses. Digex went from $59.8 million in 1999 to $168.1 million in 2000, while the loss widened from $65 million to $143 million across the same two years. That was a normal shape in 2000 and a fatal one in 2001, when the stock spent most of the year between two and four dollars.

WorldCom agreed to buy Intermedia in September 2000, which meant taking control of Digex without paying Digex shareholders a premium for it. The minority sued in Delaware and won enough to have $165 million of the deal redirected to them. Then WorldCom's own accounting came apart, it filed the largest bankruptcy in American history to that point, and Digex was sitting inside the estate.

~ the long tail ~

MCI, which is what WorldCom called itself on the way out of bankruptcy, opened a tender for the Digex shares it did not own on 27 August 2003 at eighty cents. It raised the offer to a dollar and the bankruptcy court approved the increase on 29 October. The tender closed on 17 November with roughly 76 percent of the shares in. On 19 November MCI announced the acquisition was complete and folded Digex in through a short-form merger. The remaining stake it had been chasing was worth about $18 million.

The name outlasted the company by a couple of years. Verizon closed its purchase of MCI in January 2006 and Digex went into Verizon Business with everything else. In 1996 it had been worth $125 million on its first day as a public company. Seven years later it changed hands at a dollar a share, and the buyer was a firm that had just walked out of the biggest bankruptcy anyone had filed.

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