Malone scores net return with 40under40 win

His role as an WA tech leader was well-known when Michael Malone was last night crowned 40under40 1st Amongst Equals, but when he graduated from university in the early 1990s few knew anything about the internet...

The domain of academia and big government, these institutions’ reluctance to surrender their hold on this growing technology spurred Mr Malone and friend Michael O’Reilly to establish their own Internet service company, from the less-than-salubrious surrounds of the Malone family’s garage.

The result was iiNet, Western Australia’s first Internet service provider (ISP) offering services to the public.

Launched in 1993, iiNet is now Australia and New Zealand’s third largest ISP and one of WA’s largest IT employers. More than half the company’s 800 employees are in WA.

And Mr Malone’s personal wealth has also grown substantially, with his interest in the company put at $30 million.

iiNet has had a voracious appetite for acquisitions to fuel its growth, buying major players such as Ozemail and iHug on its journey to becoming a key industry player in Internet and communications services such as dialup, broadband and telephony.

iiNet is now seen as a serious competitor to some of the larger telcos.

Mr Malone has accomplished much during this period of immense growth in the company, and the industry as a whole.

Among his many achievements was the 1999 listing of iiNet on the Australian Stock Exchange. The company has grown from an initial market capitalisation of $38 million to more than $200 million.

Far from a smooth ride, however, iiNet had to survive the turbulent bursting of the dot.com bubble, which sent the company’s shares plummeting from $1.70 to just 20 cents.

In the days following the dot.com crash, investors steered clear of tech-linked businesses, even though the underlying Internet business continued to grow at breakneck speed.

Mr Malone’s survival instincts were evident as he navigated his company through this difficult time, as was a strong belief that the market had it wrong.

Many iiNet staff bought shares in the company, as did members of Mr Malone’s family.

This confidence in the iiNet business model was rewarded a year later, by which time the share price had recovered.

The reason for the company’s rapid growth in just 12 years has undoubtedly been the successful acquisition of 40 companies into the iiNet fold, the latest of which has been OzEmail at $105 million, underwritten by Euroz and advised by Ernst and Young.

The deal has delivered more than 250,000 subscribers to the iiNet family and delivered even more challenges.

Mr Malone says iiNet is currently going through one of its toughest periods, following the integration of OzEmail. This has put a lot of pressure on all parts of the business, but especially on the front line customer service staff.

Taking calculated risks are part and parcel of growing a business, and Mr Malone has embraced this side of his role. He successfully acquired New Zealand ISP iHug in 2003 despite complications inherent in its overseas location, private network and individual account standards.

Unperturbed, iiNet bought the bigger company out, thereby establishing its ‘third largest ISP’ in New Zealand tag.

While all integration projects have their own unique issues, Mr Malone is aware that a business stands to lose more than just money if a deal proves problematic.

And while all acquisitions are tricky to integrate, he says, this is especially the case when a business is in administration.

On one deal in particular, Mr Malone assumed iiNet could lose up to 50 per cent of the newly acquired customer base, but decided it was still a good deal at the right price and went ahead.

The customer churn, while high, was within expectations, and financially it was a good deal, he says.

But the fallout was that the company’s reputation in Sydney was damaged for some time after. This made it an expensive deal, Mr Malone says.

In 1999, he took another risk, when broadband first arrived on the scene.

He says everyone in the industry was in the dark as to what broadband would be – wireless, cable or digital subscriber loop. iiNet chose to develop all three.

In this regard, Mr Malone says, the company hedged its bets and waited to see which was really going to take off as the broadband technology to be widely adopted. When it was clear that DSL was the way to go, iiNet sold off the wireless and cable portions and focused on DSL.

It was in the two-year period following this decision that Mr Malone entered a regulatory battle with Telstra while developing the iiNet dialup network.

iiNet was still a small WA firm at the time but Mr Malone had his eye on bigger things, such as building the company’s own infrastructure.

The battle was joined when iiNet opened its own dialup network but the war has yet to be won over issues relating to its DSL network and soon-to-be-established voice network.