We offered unlimited Internet access in the hope that people would buy it, and buy it they did. Soon we were selling so many unlimited $15 dial-up accounts in New York that we could barely order the phone lines and the modems fast enough. My own enthusiasm made matters both better and worse. Sensing that we could repeat our New York area success on a nationwide basis, we installed Internet sites in Los Angeles, Washington, D.C., Philadelphia, and Phoenix, and started advertising in these areas as well. Business started to pour in from all over. But by now our finances were really being strained by all this expansion, and though we were growing unbelievably, we just couldn’t afford to put up additional sites in any more cities.

This was a tremendous problem, because I could see we were riding the crest of a tidal wave of a whole new industry. If we didn’t manage to stay out front, we would be washed away as one of the market leaders and others would take our place. Being number one was not just a question of ego. You see, the Internet business has unusual economics of scale. It costs so much to set up a network and put in switches all over the country that you need a huge volume to make it pay. That’s why so many little Internet providers have been swallowed by the big guys. Even CompuServe, the second-biggest provider, was eventually gobbled up by America Online. Now was the time we had to expand nationally, but we just didn’t have the financial or, for that matter, the engineering resources. At moments like this all you can do is pray for a good idea.

For some reason, this reminds me of a story I like to tell people. In the play How to Succeed in Business Without Really Trying, Morty the window washer rises from the mailroom to become vice president of advertising of the enormous World Wide Wicket Company, just by following the careful brown-nosing instructions laid out in a paperback success manual that he studies. The manual congratulates him on doing such a fine job and rising so high. The book says, “Now you’re a Vice President, and you can just rest on your laurels. You can enjoy the executive washroom and country club and relax. Unless,” it cautions, “you’re the Vice President of Advertising. In this case, you’re in big trouble. You need to come up with a new great idea every day.” This, I tell people, is what it’s like to run a large Internet company. You may seem to be on top, but you’re in big trouble if you don’t have a new idea every day.

Fortunately, at just this moment, I did have a great idea: Why not go to all the small local Internet providers around the country and offer to make them our local partners? We’d form a kind of alliance with them. We’d do the sales, advertising, customer support, and collections. They’d support the all-important local dial-in modem access and Internet processing resources. As far as any of the accounts would know, they were signing on with IDT, the large, powerful national Internet provider that advertised on network TV, radio, and print media. Behind the scenes, though, dozens of local businesses would actually be doing a large share of the work. In exchange we’d give the local provider $10 per month per account, or about 40 percent of what we actually took in from our average client. Our policy of always pushing premium service enabled us to actually take in much more than the industry average per account, and had given us much bigger margins to work with than our competitors. I was sure if we explained to the local provider that much larger competitors like AT&T, AOL, and their local phone companies would soon be coming into the market, slashing prices, and promoting like crazy, the small providers would see the benefit of coming under our protective marketing umbrella in order to withstand the coming onslaught.

Many people, both within and especially outside IDT, questioned the merits of this idea. On the one hand, they argued, the little companies would never go along with it, and if they did, it would only be for a while so that they could steal all the accounts. On the other hand, they argued, the little guys were incompetent. They’d never be able to handle the volumes I was planning on generating. We’d never be able to coordinate the orders. Within weeks of starting this process, they argued, we’d be finished.