"Keith Teare's public crybabying is really quite unprofessional, albeit fun to read,"
- Joel Spolsky
Defeat is difficult for most people to accept, particularly an out-and-out thrashing of the sort administered to RealNames. Defeat is especially difficult, however, for megalomaniacs. It should therefore surprise no one that Keith Teare did not simply fade into the afterglow of the great dot com bonfire after Microsoft graciously euthanized the company. As fellow UK islander Dylan Thomas once advised, "Do not go gently into that good night. Old age should burn and rage at the close of day. Rage, rage against the dying of the light."
Not content to sit on the sidelines and face the horrible prospect of actually becoming irrelevant, Keith is now lashing out. Embracing all of the familiar trappings of martyrdom, Keith has wrapped himself in the American flag and styled himself as the victim. It is a made-for-primetime, David vs. Goliath story -- complete with First Amendment and other civil libertarian overtones. And the blame game is still in full swing, as evidenced here by Keith's feeble attempt to have us believe that Microsoft alone was responsible for shutting off a vital service to countless thousands of customers:
"RealNames will not be the only victim - there's a whole ecosystem that stretches all around the world that Microsoft is turning off. CNNIC in China, Forval in Japan and other companies in Belgium, Holland, France, Finland, Sweden, Denmark and Norway. There are more than 100 registrars of Keywords and they in turn have thousands of resellers. . . . The terrible consequences - primarily the closure of Multi-lingual naming for all non-english languages and the withdrawal of service to those who used Keywords 500 million times during Q1, and withdrawal of service from more than 100,000 RealNames customers - are Microsoft's responsibility alone. Good luck in trying to persuade anybody otherwise".
Well, heck, let me take a stab.
Let's start first with some undisputed facts, quoted from Keith's own online tabloid. He acknowledges that "the current contract comes to an end on 28 June 2002", and that "Microsoft has every right not to renew any agreement." He also discloses that prior to the fateful May 7th meeting in Redmond, RealNames had received repeated "messages since March 2002 that [non-renewal] was likely." So if these statements are true, then how is it that Keith can truthfully say it is "Microsoft's responsibility alone" that RealNames' customers are left holding an empty bag? Pardon me for being dense here, but isn't it RealNames -- not Microsoft -- that hoodwinked its customers by selling them a pre-paid service that they knew or should have known would no longer function after June 2002? Isn't it RealNames -- not Microsoft -- that took their money and didn't set aside an adequate reserve for the inevitable demands of customer refunds? Isn't it RealNames -- not Microsoft -- to whom those customers should be complaining for not disclosing the truth about the continued viability of the service (while at the same time taking their money for a long term contract)? And finally, isn't it against RealNames -- not Microsoft -- that a plausible legal case for misrepresentation can be made for selling companies like Tropic Telecom exclusive franchise rights costing hundreds of thousands of dollars on the very eve of (and with full knowledge of) the impending train wreck? Check out this letter from a company that was duped into paying $200,000 for an initial franchise payment barely a month before RealNames knew that the Microsoft contract would blow up. If you don't want to read the entire thing, read this excerpt:
"Preceding the termination of collaboration initiated by your company, my client has paid an amount of 200.000US$, and it did not receive any counterpart for this amount. The imminence between the negotiations my client entered into with your Company and the termination of the Agreement between your Company and Microsoft suggests that your Company and its managers acted through willful misrepresentation. They voluntary hided any information concerning those issues and choose to incite my clients to pay the amount above before the termination of their agreement with Microsoft."
Are we really to believe that these registry franchise customers never did any due diligence, that they never inquired about the status of RealNames' crown jewel -- the distribution contract with Microsoft -- before agreeing to pay a usurious fee for a registry license? I, for one, find it difficult to believe that RealNames was being faithful to its written agreements with Microsoft in both October 2001 and again in March 2002 wherein RealNames:
"acknowledge[d] the possibility that th[e] Agreement [would] not be renewed by Microsoft, and agree[d] that it ha[d] not and [would] not expressly represent anything to the contrary to the press or to third parties, including to other business vendors, associates or partners".
Are you telling me that this obvious topic never came up with customers, registries and reseller partners? Well, if you believe that, I'm sure Keith's got some Series F Preferred Stock to sell you too.
So who's really to blame for the unfortunate predicament of RealNames' customers and partners? Well, we've seen what RealNames was doing while Rome was burning; according to Keith, RealNames was signing up customers, resellers and registries at a record pace in Q4 2001 and Q1 2002. In fact, it fleeced enough money off of these customers that Keith claims the company was "cash flow positive" in Q1 of this year.
So, let's look at what Microsoft was doing for RealNames' customers during the same timeframe. Well, first of all, Microsoft was giving RealNames repeated and ample warnings (nearly a year in advance) that the contract probably wasn't going to get renewed and that RealNames should plan accordingly with its "business vendors, associates and partners". Had these warnings been heeded, perhaps the train wreck wouldn't have been as catastrophic. Microsoft also agreed, without any obligation, to convert RealNames' $25 million payment guarantee into a promissory note that they knew would never be repaid. Microsoft certainly could have insisted on multi-million dollar payments from RealNames as early as February 2001, per the contract. Instead, they graciously allowed RealNames to keep use of the cash, which was promptly spent on silver scooters and other useless marketing schwag, loads of pointless international travel and other extravagances. And now Keith has the moxie to paint Microsoft as the bad guy, saying that even the small fraction of $25 million that Microsoft hopes to see from the company's dissolution "could be put to much better use with customers and partners."
That's a good segue to another topic: where exactly did all that money go? Well, much of it -- around $11 million or so -- is still in RealNames' bank accounts (though not for long, but I'll get to that later). The rest of the $130 million that was pumped into RealNames since 1998 is gone. Much of it went to typical dot com "what in the hell were we thinking" expenses (e.g., two pool tables, two foosball tables, three $10,000+ espresso machines, state of the art furnishings, dinners ordered in, and even free snapples and cokes right down to the bitter end). A lot of money was also spent on high-priced consultants who were faced with the Sisyphusian task of improving Keith's management style and having him get along with other members of the team.
Much of the money also disappeared overseas. RealNames spent nearly $10 million building out an international organization under Ted West before it had done any real overseas market research and, for that matter, before it had demonstrated any real market acceptance in the U.S. Trips to Asia and Europe in first and business class were the rule rather than the exception. Technology and Policy conferences were another massive drain on capital. "A wireless conference in Cannes? I'm there!" "A policy conference in Santiago? But of course!" "An ICANN shindig on the west coast of Africa? Why the hell not!" (Lest my sarcasm be interpreted as fiction, these are all actual "business trips" indulged in by RealNames' employees).
Untold millions were also urinated away on extravagant facilities projects. From its modest beginnings in the CPI office in Palo Alto, RealNames ultimately found a home in the brand-spanking new Circle Star complex. You know the spot -- the twin four story glass towers that loom above the Bayshore Freeway in San Carlos with the huge Silicon View sign, and which now house the headquarters of Liberate Technologies. (As you may know, the old Circle Star Theater was demolished to pave the way for construction of these new dot com towers. Ironically, the Circle Star Theater hosted a 1976 concert by Gordon Lightfoot, whose biggest hit -- "Sundown" -- could be the anthem for the now defrocked dot com generation). Clearly, other dot coms were guilty of overspending on facilities, so it would be difficult to single RealNames out. However, RealNames took it to another level. Not content with just any space buildout, RealNames hired Bernhard Blauel, the high priced London architect that had previously designed Keith's Cyberia internet cafe in Paris. Blauel put together a beautiful, if not utterly impractical, monument to please Keith's ego. (Photos are available here). Despite this extravagant buildout, RealNames occupied the facility for only about 12 months, when it outgrew the building during its pre-IPO boom phase. I'll give you one guess what RealNames did next. That's right, it bugged out of Circle Star and then retained Mr. Blauel yet again, this time to convert a huge space in Redwood Shores -- one that was perfectly suitable as is -- into the second RealNames monument. It was as though King Ludwig the mad castle builder was reincarnated and dropped into 1999 Silicon Valley. (a funny sidenote: if you drive by the Circle Star complex on the 101, you can still see the neon lights of RealNames' old offices on the second floor of the Liberate building. The floor is still unoccupied and the lights, despite the great California power crisis of 2001, were never turned off. The glow of the neon is another fitting tribute to the hubris of the dot com era).
There are other egregious money trails from RealNames. One of these trails leads right to Keith's house. In 1998, he borrowed more than a quarter million dollars in cash from RealNames in order to buy a house in the exclusive Northern California community of Woodside. If you don't believe it, you can read it for yourself in RealNames' own SEC filing:
"In May 1998, Keith Teare borrowed $270,000 from us pursuant to a promissory note bearing 8% annual interest, due and payable in full on December 31, 1998. In October 1999, we extended the maturity date of this note until December 31, 2001."
RealNames Corporation, S-1 Registration Statement filed 10/18/99, page 73.
With a little internet research, one discovers that Keith closed on his house in early June of 1998, using the borrowed funds to make a down payment on the $1 million property. Since December of last year, the principal of the loan, as well as four years worth of accrued interest, is in default. Not one penny has been repaid. Keith's house, however, is back on the market, this time for nearly $2 million -- almost twice what he paid for it. The rumor on the street is that Keith is packing up and moving to South Africa. Does anyone believe that Keith will repay the loan out of the nearly $1 million in gains he can expect from the sale of the house before he disappears to South Africa? I'll let you decide. But if he doesn't, I would hope that the company's creditors, including a now seriously pissed off and highly motivated Microsoft, will chase him to the ends of the earth to collect.
Sadly, the evaporation of money isn't over yet. According to the RealNames cash flow statement found in this document on Keith's website, RealNames had $11.9 million in cash at March 31, 2002. Yet instead of preserving this cash for partners, and other creditors, RealNames has seen fit to pay ludicrous amounts in severance to employees and management, and to retain a "wind down team" of nearly 20 people who are now under contract at two times their already inflated salaries. From what I hear, some of these people are working very hard, but most are sitting on their thumbs, pinching themselves at their good fortune to still be riding the RealNames gravy train. Do we really have to incent these people with 2x salaries to stick around in a job where they don't have to do anything? Has anyone noticed the Silicon Valley unemployment index lately? It is very disturbing. In fact, Keith alone will take home the following:
severance pay of $80,769
vacation pay of $21,350
going forward, compensation at double his already outrageous $300,000 annual salary
Now Keith is correct when he asserts that his $81K severance package was consistent with prior severance arrangements. However, those prior severance arrangements were made at a time when RealNames was a continuing business with a lot more cash in the bank. Now that RealNames is insolvent and cannot pay its debts, it has a legal obligation to creditors to preserve the corporation's assets. While payment of reasonable severance amounts is a legitimate use of these assets, paying "golden parachute"-style payments is clearly excessive in light of the company's insolvency. Regarding the "vacation pay", I am sure that any ex-RealNames employee will be shocked to learn that Keith has any accrued vacation time, given all of his time in Cabo, South Africa, Europe, etc. Regarding the $600,000 annualized "combat pay", well, we should all be appalled by that revelation. The same man who drove the RealNames car right off the cliff is now being retained as a "consultant" by the company at a rate that would make even Michael Eisner blush. Why is this man getting paid $600,000 per year just to maintain a fucking weblog? Why is this man getting paid almost twice the salary of the President of the United States simply to criticize Microsoft? Keith should realize that Microsoft is still the company's largest shareholder and creditor. Someone should also tell Keith, using his own rhetoric, that all the money he is pulling out of RealNames "could be put to much better use with customers and partners."
Well, believe it or not, I'm finished. There's a lot more to say, of course, but I've really got to go get some coffee, sit on the couch, and do some other odd-todd activities with all my spare time. I hope you've enjoyed this little dot com tale. I hope it clarifies matters and explains a few things. I'm sure it will explain why VeriSign just took a $18.8 million write-off for its failed investment in RealNames. And I'm sure it will explain to some of RealNames' creditors why they'll be getting only pennies on the dollar, if they're lucky. During its splashy four year existence, RealNames pissed away over $130 million, all the while pursuing a "'boil the ocean" business plan' that could never succeed (thanks to Joel for that one). Unfortunately for shareholders and creditors, the financial hemorrhaging continues to this very day. I encourage your views on this. Don't be shy. Post them to this discussion board.
Back to Part II: RealNames drives off the cliff