PSINet's William Schrader (Illustration by Zachary Pullen)

• Techway Cover Story: The Fall of the House of Schrader • Washington Techway • Washtech.com • Washtech Archives: PSINet • Live Online Transcripts

Washington Techway: The Fall of PSINet
Tuesday, April 17, 1 p.m. EDT.

This discussion is related to Washington Techway's cover story on PSINet founder William Schrader.

Perhaps no other technology company embodies the dot-com tragedy better than Ashburn, Va.-based PSINet. The Internet service provider has gone from the heights of success to the verge of bankruptcy and default. Washington Techway's upcoming issue features an in-depth profile of the man behind the company, Web pioneer and technology visionary William Schrader.

Freelance reporter Keith Epstein, the author of the PSINet article, will join Techway reporter Brendan Barrett in a live online discussion Tuesday, April 17 at 1 p.m. ET. Epstein is a former investigative reporter for the Cleveland Plain Dealer. His work has appeared in The Washington Post, Washington Techway and other publications.

Submit your questions and comments before or during Tuesday's discussion.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Brendan Barrett: We will get started in just a few minutes. Thanks to everyone who has submitted questions so far.

Brendan Barrett: Hello, and welcome to today's live online featuring Keith Epstein, a freelance journalist who wrote a great article about PSINet's founder and CEO, Bill Schrader.

Keith, my first question for you is what was the most challenging aspect of writing this piece on Schrader?

Keith Epstein: The most challenging thing about writing about anybody is trying to find out what really motivates them -- the person behind the scenes, if you will.

In this case, it was extraordinarily difficult. Because as much as I would liked to have talked with Schrader myself, he apparently had other things to do just now. The more I learned about him, the more I wish I'd had that chance.

So I had to rely on people who knew him, many of whom also had other things to do just now, including seek new employment.

But there were also many people only too happy to tell me about him -- from the ideals that powered his push to expand the Internet to all Americans to how he'd sometimes down the highways on a Harley or, in a competitive pinch, tell associates he'd get out the old 9-millimeter.

Arlington, VA: In your article, you paint Schrader as someone who will never surrender. But his company is on the brink. He faces no other choice. Can he psychologically give up his baby?

Keith Epstein: I'm neither a trained financial analyst nor a psychoanalyst. But from my reporting, I'd say he's definitely the kind of person who doesn't give up -- even if the odds seem huge. From what I've heard, he doesn't strike me as being one to give up his baby...so much as finding another way for it to be born. As one who knows him well told me, his baby isn't PSINet so much as his ideas for the Internet.

Alexandria, VA: Why wouldn't Schrader talk to your for the article? Did you get any insight into why he won't talk to the press?

Keith Epstein: As a journalist, of course I NEVER understand why someone doesn't want to talk to the press!

From experience, my guess would be that the lawyers and the media relations controlers and perhaps even the restructuring experts may be giving him the traditional advice in hard spots -- watch your words, try not even to use them.

What's interesting, of course, is that historically he's been the kind of guy who's never held back on his words -- calling telephone companies "dinosaurs" and pigs and such.

But from PSINet's perspective, I'm sure this isn't the best time for such statements. And as I say, he's also probably very busy. But that's a shame, because I think there's a fascinating side to him, and one that is actually very compelling and positive.

Upstate, NY: Ironically, the telco dinosaurs that Schrader abhorred were allowed to infiltrate his management ranks and were in large part responsible for the company's failure. They created a communication buffer between Schrader and the loyal working employees that really knew the business. This, coupled with an internal technical ideology know as the "PSINet Religion" stymied PSINet's ability to innovate and adapt the network and products to dynamic market changes and demands.

- Former PSINet Employee

Keith Epstein: Well, you may know more about this than us! While it's true that many folks told us that the company grew too big too fast and that middle management was sometimes a problem, in our reporting we hadn't heard anything about the "PSINet Religion." But like other companies the empire may have grown too fast and virtually overwhelmed its capacity to efficiently network with itself.

So...tell us more.

Herndon, Virginia: I read in your article that Mr Schrader has not given up and that it was never about the money. Well, it was about the money for me as an investor who lost everything. Do you think that Mr Schrader has investors like me in mind as continues to fight for the survival of PSINet?

Keith Epstein: I don't think Bill Schrader intended to lose anybody's money, least of all his own. Not to say that he hasn't always been willing to take risks -- such as starting the company by selling the family car and maxing out on credit cards, and buying a million-dollar supercomputer without approval when he was at Cornell. But those who know him say that, as a person with a working class background he had a philosophy of wanting the Internet to even the playing field between all people. I would think that would include investors.

Washington, D.C.: Can PSI survive?

Keith Epstein: In their annual report (issued today) the company said it's likely to file for bankruptcy protection. Thus, it could be reorganized. For example, e-spire communications is currently being restructured.

It could be bought out by another company, perhaps even the telephone companies Schrader so despised. But would they be willing to assume $3.7 billion in debt?

I'm not a bankruptcy lawyer but -- so far as I know -- there's still a chance that the creditors won't approve any new plan. If that happened, PSINet's assets could be liquidated.

Baltimore, MD: In the event that PSI is unable to restructure it's debt or sell it's assets, how will the demise of The Internet Supercarrier affect The Internet as we know it? Will there be reprocussions affecting the longeivity of this relatively new media?

Keith Epstein: I don't think people -- anybody, in the region, in the investment public, or on Wall Street -- will be so quick to expand and burn investment capital. But just because some major players go down doesn't mean prospects for the Internet are dashed. This is a longer-term game, and there will be winners. Even Schrader has said so. He just thought he'd be one.

Alexandria, VA: In retrospect, how bad a decision was PSINet's aquisition of Metamor Worldwide? Also, any news on the Satdium in Baltimore?

Keith Epstein: Metamor seems to be the acquisition that broke the bank -- it was a $1.4 billion acquisition in March of 2000 that they largely wrote off a loss about seven or eight months later.

That doesn't make it a bad decision, though many believe it was -- because the company appears to have failed to integrate the consulting company (Metamor) into an Internet infrastructure company.

As for the Ravens, PSINet has a 20-year contract to name the stadium. I'd be surprised if the name's still up there when the Ravens win the Superbowl in 2020!

Ames, Iowa: You interweave a good deal of the "history" of the internet into your article about Schrader. Was he your source for this?

Keith Epstein: I wish he were. He was evidently one of the pioneers of the Internet as we know it, dating from his days at Cornell when he hooked supercomputers at various universities together. And he had a lot of ideas for where the Internet should go, which fueled his vision for PSINet. My sources were others involved in the Internet's history and prehistory.

Rockville,MD: I agree with Upstate, NY .... I worked for PSINet for a year. Once the stock started to plung .... I decided to leave.

There is no hope for PSINet. Who will be willing to purchase a company that is so much in the red.

Former PSINet Employee (2)

Keith Epstein: Thanks for your comments, Rockville. Competitors sometimes wait for companies to go down so they can buy them because they're then able to spend far less than they'd have to otherwise.

Over the past few months, they've been selling off pieces of the company the way I remember the owners of the old grand oceangoing vessel the SS United States were selling off everything on her, right down the furnishings and lifeboats.

But no, I wouldn't think many opportunists would be wanting to assume $3 billion in debt.

Columbia, MD: Has anyone considered the fact that what the shareholders of PSINet deserve is new management who will provide better stewardship of the billions of assets and investment dollars under PSINet's corporate control. It seems that you article has painted a picture of a technology maverick not a keen businessman

Keith Epstein: Well, in some respects Schrader was described to me as a technology maverick who may have been operating at too fast a baud speed for the necessary corporate/business protocols and procedures and controls. He'd act first, ask permission later, as one former partner put it.

He had his ideas, and he was perhaps ahead of his team with them, and in the past associates have had trouble slowing him down or redirecting him. But does that mean a maverick can't be successful?

Sometimes it takes a maverick to be successful. In the case of Mark Cuban, a real Maverick (he owns the Dallas Mavericks), he sold his tech company at the right time. Read about him in the current Newsweek.

If things had gone differently, perhaps he'd be a hero right now and you'd be asking me if he were more of a keen businessman. If Schrader had sold the company last year, he might even be considered a genius.

Washington: Are shareholders filing suit against Schrader and PSINet management?

Keith Epstein: Yes, they already have. The annual report lists many of them. And other lawsuits filed by other parties are popping up, so stay tuned.

Reston, VA: What should other tech entrepreneurs take away from the PSINet saga? What's the moral lesson here?

Keith Epstein: Moral lesson? Let's leave that for church. But business students may be studying this episode -- and era -- for years to come.

For shareholders and businesspeople alike, it's always a possibility that you'll lose rather than make money. It's often a matter of timing as well as brains. And as these times have told us, it's possible for a company operating with a lot of capital and debt and not enough of a revenue stream, relative to the debt, to grow too big too fast.

Then of course there's the moral of Shakespeare's King Lear. Sometimes it's your own folly, sometimes the turn of events just goes against you. As I said, Schrader might also have been a hero and Cisco and everybody else might not be laying off people and taking a dive on the Nasdaq right now. There's the element of tragedy here.

Alexandria, Va.: Is Wall Street partially to blame for PSINet's fall? Didn't the analysts see this coming long before the Nasdaq peak last March?

Keith Epstein: I haven't read every analysts report from last year, but clearly some analysts were concerned. There were some that were definitely concerned with the Metamor acquisition last spring even.

Some say Schrader himself didn't hit it off with Wall Street, and that contributed to his problems.

Ashburn, VA: I loved your article about Bill, he is a fascinating man and even though you didn't have a chance to talk to him directly, you did a really good job of portraying him. I'm "old timer" at PSI and still very much believe in Bill and his visions, if anyone can turn this around Bill can. My question is how long will it take the rest of the world to appreciate what he has done for the Internet and given the chance what he will continue to do?

Keith Epstein: We are not always appreciated in our time, I suppose. But there are some very real consequences of what is happening now -- great losses to shareholders, losses of jobs, etc.

Who knows? Schrader is young. And by many accounts brilliant. He's not the kind to disappear from view permanently, or give up on his vision. One of his associates told me that the Internet is like a religion to him.

Nobody gives up their religion, even -- or even especially -- when the ship is going down.

miami, florida: It baffles me how a person's ego could be that big as to let a company go down to absolute zero value before selling it or partnering up someone. Schrader claims to have seen this recession coming way before anyone else. Why then did he not take corrective actions when he could have?

Keith Epstein: It may not have been his ego. As I say, it may have been his religion. He didn't partner up or sell, I think, because he thought the sky was the limit, or much higher, anyway.

Back when he could, he said he wouldn't sell unless offered an "ungodly" sum. Of course godly now looks ungodly, and it's easy to say he missed his corrective opportunities. It's also easy -- and usually incorrect -- to assume you can turn any big company in a different direction faster than a supertanker.

It's also possible his beliefs blinded him.

Washington: So when you were camped outside Schrader/Mosby's house, did you get run off?

Keith Epstein: I wasn't surrounded. I walked to the front door. I left notes for him. No cavalry rushed me off the property.

I only wish the captain were home.

Reston, VA.: The articles portray you as driven, smart, and passionate. Isn't that really a nice way of describing someone who's ego is so big he believes he can and should do anything he dreams, at the risk and expense of the legions who follow him? Isn't responsibility to the troops part of the success equation you overlooked in your quest for individual genius?

Keith Epstein: This is a very Shakespearian question, or one for the Pentagon. Leaders, even effective ones, can have huge egos. Even kings have been undone by their own tendencies.

We'd all like to think the leaders think of the legions, and there's some bad blood out there among the legions who wonder about this leader.

But I think the best leaders also must have some genius and vision to them, don't you?

Fairfax, VA: As a former employee, I think you’ve painted an accurate picture about Bill Schrader and his vision. Several comments, though. First, I think it is misleading for people to walk away believing Bill was not focused on money or shareholder value. The reality is that he took a long-term view, not short-term, and always believed even at the height of the stock price that there was more value to be had for shareholders. Second, when it comes to problems with management, I believe the majority of the problems resulted from extremely poor leadership and micromanagement by the president, in whom Bill had delegated the detailed operational responsibility that he recognized was not his strength. Unfortunately, the actions taken to correct this issue came too late. And finally, when it came to his hatred for the telcos, this was due in large part to his passionate belief that keeping PSINet independent would lead to continued innovation of the Internet, whereas the telcos had a vested interest in keeping consumers focused on the telephone and the usage of minutes of long distance service. PSINet was an exciting place to work, thanks to Bill.

Keith Epstein: Thanks for your thoughts, Fairfax.

Rockville, MD: As another former PSINet employee I can tell you that the reason the company is in the its current state is because of Schrader and his (mostly departed) senior management staff. He may be good in a lot of things, but running a company the size of PSINet isn't something that he was capable of. He should have hired an experienced management staff, and let the operation of the company rest on their hands. But Schrader had to much pride to let go of his baby, and we all see what has happened. It is a shame that PSI will go away, and I wish the best of luck to all of my PSINet friends and hope they can make it through this unscathed.

Former PSINet Employee (3)

Keith Epstein: Thanks for your comment, too.

Anybody else?

London UK: Bill Schrader by force of personality built his company into the biggest independent in the world. He made one big deal too many, and relied too heavily on his bankers DLJ, who literally skinned him alive.

These were the same bankers encouraging numerous "new age telcos" to spend and expand, "dont worry about profit etc. we want growth" Then, when they had made enough in fees and stock trades, they moved the goal posts, and took a contrarian position.

This guy, didn't steal from his shareholders with dodgy deals, admittedly there is a level of incompetence attributed to someone in management, but not the cynical "sale before profit warning" made by many of his contemporaries.

His company and business life is in ruins. Would you agree that he's suffered enough, and doesn't deserve to be pilloried further?

Keith Epstein: I hope you're not suggesting I pilloried him. Because actually, as I say, I'd love to have talked with him. He sounds fascinating, and he has had a lot of ideas that undergird the Internet we know -- and use right now.

That's why I say this story is so Shakespearian. To what extent was Bill Schrader outdone by himself, and to what extent by circumstances?

I don't know. Maybe both.

Leesburg VA: Why is the media so happy that Mr Scharder's company is doing bad? Mr Scharder may have been out spoken but many of the things he spoke while standing on a soapbox happen and most of his thoughts fell on deaf ears. Why must the media attack PSI.net? This told you so sort reckless style or reporting is only really hurting one person the crediablity of the post for years to come. Why are we talking about Psi.net and not talking about bad reporting and close to slanderest remarks about a truly gifted person Mr. Scharder. I was given the great opptuinty to hear this man speak and once you get past the told passion for what he does he really serives up a great dish of (I know what Im talking about)Psinet may or maynot surive but Mr Scharder will be back in one form or another

Keith Epstein: Well, again, as I say, I hope I'm not a representative of "the media" you're talking about here. Because I tried to write about the way in which his visions became reality, before and during the birth and adolescence of PSINet.

Generally, the media -- and many people in their own lives -- like to follow the successful rise, then tragic fall, of people who are more successful than themselves. It's kind of a human foible that does tend to get played out in the press too much.

But I don't think anybody takes lightly the notion that human livelihoods are at stake in such situations, whether as investors, employees, or dreamers seeking to make their dreams come true for themselves and others.

Yes, I think Schrader will be back. Because he has a dream.

Brendan Barrett: Keith, it's about 2pm, and you've answered some great questions. Do you have a few minutes to answer a couple more?

Keith Epstein: Sure, I'll stay for a bit longer. As long as this pillorying stops!

New York, New York: Mr Epstein,

From the perspective of one of your shareholders, how can you differentiate an effective total loss in share value (due to failure to meet what now are manifestly false and ridiculous revenue expectations) when compared with the loss sustained at the hands of a con artist (due to failure to meet what are manifestly false and ridiculous expectations)?

Needless to say, the above question is not personal, rather I am curious as to how you morally or ethically differentiate the two.

Keith Epstein: Oh this feels much better! And I didn't even know I was incorporated or had a shareholder. See, it IS still possible in this day and age to get a startup company going -- during an online chat!

Seriously, I'm obviously not Bill Schrader, and I think he'd tell you that his expectations, in his view, were not manifestly false.

Was he reaching too far? Perhaps.

But what would you be saying today if he had reached his target?

Linthicum MD: What do you think is the media's and public fascination with the rags to riches to rags stories about has been dot com millionaire's? Was it the arrogance and materialism of people like Michael Saylor (PSI stadium and Versailles style mansions)? Or is there a perception that many of the entrepreneurs were somehow undeserving of their new found wealth?

As an engineer (not internet related) I myself resented the wet behind the ears freshly minted business graduates with their dot com swaggers. But the real fools were the venture capitialist who beleived in these people. I think the moral of the story is not only do you need good technical know how but also excellent business know how. Clearly Salyor and Schrader are missing the latter.

Keith Epstein: See my question earlier about rise-and-fall stories.

I just got back from a conference in New York involving technology companies involved in the e-travel business -- companies such as Travelocity and Expedia. There were a number of VCs there. And they all seemed much more sober than previously. Not a lot of swagger. A lot of talk about needing to see profits sooner. That kind of thing. And looking on were business school graduates astutely taking notes.

Montreal , Quebec:
I know a fellow here in Montreal who sold his ISP for around $8 million in late 1999. He got about half in cash, but I suspect many others got all stock (poor fools - they were taken!).

Never-the-less, observers here were astonished at the inflated values PSI was paying. It sounds like company managers adopted Schrader's own reckless values and were spending OPM (other people's money) like drunken sailors.

You say Schrader never though of selling his shares. But why on earth would a guy who, at the peak, could have sold a few points of his shares (without making a huge dent in his paper fortune) to make millions for boats and houses, go to great lengths to actually borrow millions againsat the value of his shares? You romanticize him, but this smacks of greed.

Do you think there was a greed factor? Or just a lot of bad judgment and bluesky thinking?

Keith Epstein: It's always hard to tell what a person's deepest motivations are, especially when he won't talk to you. But from my reporting it appears that, while Schrader had luxuries in his life he never spent that much time with them. People said he was always preoccupied with his work. If this is a true picture, we're talking here about a workaholic who was driven by something other than greed. He told friends he was born with a wooden spoon -- his father and grandfather were carpenters. The rest is speculative.

Brendan Barrett: All right, Keith, thanks for staying past 2pm. The next one will be your last question.

Arlington, VA: Congratulations on an interesting, unusual article about an unusual businessman. I first met Schrader at an Entrepreneurship forum at Cornell, hosted by Dr. Alan McAdams. At Cornell, someone pointed out that for someone who talked as much trash as Schrader, PSINet was still pretty small. Wasn't he afraid he'd get eaten by one of the telcos he scorned? Schrader replied, "I've been at the top and I've been at the bottom before. I don't know which way this will go."

Right or wrong, he's iconoclastic and he's consistent--two traits seldom combined in executives of his level. Do you think his style has changed change the flavor of the hi-tech discourse in our region?

Keith Epstein: Before the last question...Thanks, Brendan. And in case anybody wants to contact me after we go offline, my email address is keith@writewizard.com.

Now to the question on how the discourse has change. Clearly, people have been humbled and expectations are more realistic now, locally and on Wall Street.

This time last year, people were saying things couldn't keep up the way they were going. Now we've found out the hard way just how true that can be.

But a man like Schrader comes along with his unconventional approach and his vision for where things are headed eventually, starts a company by selling the family car and builds it into something Wall Street finds exciting and becomes a big player in the Internet infrastructure sector -- taking risks as he does it -- and that's pretty exciting, if risky.

The real question is what Schrader 2.0 will look like. And whether it will even be Schrader at all.

Brendan Barrett: Thanks, Keith. And thanks to everyone who sent in questions. Sorry we couldn't answer them all.

Keith Epstein: And thank you. Glad to be here. And -- Bill Schrader, if you're out there -- I'd STILL like to hear from you. Just contact me at keith@writewizard.com.

It was a good, lively discussion. Thanks to all.

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