Can this man revive CMGI?

That's the charge for newly appointed CEO George McMillan, who must figure out how to revive one of the biggest casualties of the dot-com bubble. He'll have his hands full.

9 min read
When he takes the reins as the new chief executive of CMGI this Friday, George McMillan faces a Herculean task: convincing Wall Street that CMGI will remain a true survivor.

McMillan, who replaces David Wetherell, is being moved into the top spot after just seven months with the company as chief financial officer. The role is nothing new to this avid book collector and fisherman. Before his latest stint, McMillan spent four years with BMG Direct, a unit of Bertelsmann, serving as president and chief executive officer.

Whatever lessons he learned, he'll need to apply them in a hurry.

In the late 1990s, CMGI sizzled. Plunking down sundry investments in a handful of Internet start-ups, including AltaVista, Engage, uBid and Equilibrium, the company became a Wall Street darling, and its stock hit $163 in January 2000. But the good old days are only a faint memory. Investors have long since bailed on the company, which continues to struggle to reach profitability. CMGI's shares closed Wednesday at $1.40.

CNET News.com recently spoke with McMillan, who talked about lessons learned from failed dot-coms, his vision for CMGI, and how he plans to win back Wall Street's lost affections.

Q: What convinced you to take the reins of the company as the new chief executive?
A: I came to CMGI in July of 2001 from being chief executive of a division of Bertelsmann AG. I came for three reasons. I had been commuting to New York from a suburb in Massachusetts for four and a half years, and my kids were getting to the age where I was rethinking that commitment of being away from home. Second, it had intellectually intrigued me as to whether someone could turn (CMGI) around, so the sheer sort of intellectual challenge intrigued me. And third is I actually really thought I could work with Dave Wetherell. That got me here in July, and I don't regret it for a day.

What's your management style?
People would probably characterize me as a very strong leader and a very strong team builder. I love being in the field--meaning I like running a business day to day and delivering results.

What do you hope to do differently from David Wetherell? What are some of the things that you see need to be changed?
The most important thing our management team can do is to set realistic expectations, particularly in this economic environment, and deliver credible results repeatedly. I don't think there is a right or wrong. I think at this point in where the economy and the company is, the emphasis is placed on clear strategy, planning and execution. That is not dissimilar from the CMGI of 1980 to the late 1990s--before the explosion in the Internet swung the momentum of the company in the direction of the venture business and away from operations.

My focus is very much how do we keep the businesses that we have and make them profitable; how do we take a collection of very interesting companies and build a much bigger company on top of it.

If one of your goals is to make CMGI profitable, what are your plans in terms of trying to turn a profit? What are your expectations?
The guidance we gave Wall Street was that the company would be profitable on a pro forma basis in the first half of fiscal 2003. (On a calendar basis, that's the period between Aug. 1 of 2002 and Jan. 31 of 2003.) Our single-minded focus is profitability. With almost no exception, it's my expectation that each of those businesses delivers profitability in that time frame, in addition to the consolidated results.

What are your concrete plans toward that end?
Truth be told, it varies by business. We went through a restructuring here early on in my tenure to get the cost structure of the business as low as possible. That was sort of the price of admission. Now it's very much focused on customer acquisition, customer service, and managing the operations and cost structure of each of these businesses in a disciplined manner.

Are you looking to consolidate with other companies? Is that part of your plans?
No. We have no interest in that. We will do what's obviously in the shareholder's best interest. We have no interest in seeking out a business combination. One of the characteristics of operating companies is you take your assets and then you manage them. Our emphasis is on managing the businesses we have retained, not buying and selling and turning assets.

CMGI's model had been to nurture a lot of Internet companies, but does that model hold up in the current company?
We still do that to an extent with @Ventures, which is an autonomous venture capital business. CMGI has long been involved with and remains a venture capital environment. For the operating companies, yes, the core of our mission today is not to birth and incubate small start-up companies, separate from the venture capital way. Our focus is on building businesses into established, stable, moderate- to high-growth, profitable businesses, not launching more start-ups.

I read CMGI's vision statement, and it sounds fairly loose--if not vague. Can you sum up more concisely what this company is about?
We have not thus far, in my six months here, gone to Wall Street with the long-range product market competitive strategy of the company, because we indicated--Dave and I--that our focus was on operations, pruning it to the core businesses and running them. So some of this is TBD (to be determined).

That being said, we grouped the businesses that we retained in three areas: One was in e-commerce, where we have uBid and SalesLink. We had a collection of software and services businesses, the most well-known brands being AltaVista and Engage, that offer real promise. Then we kept one business in the managed services space while exiting the other capital-intensive businesses, and that was NaviSite

As we get closer and closer to profitability, our intent is to come back and make much clearer where we're going with those businesses strategically--which ones will grow organically, and which ones will grow by acquisition and integration with the cash we have.

So what's the criteria for investment these days compared with before?
Those have not been publicly articulated, but I think for the core businesses, investment has to be demonstrated based on...the strategic direction and reasonable payback--whether it's a product investment or an investment in infrastructure. It must clearly fit with that part of the strategy, which has already been sorted out internally. We're not interested in buying other people's losses.

What lessons have you learned from failed dot-coms, and what has made others survive this economy?
It's better to make a conservative assumption than be surprised. The truth about revolutionary trends always lies somewhere in the middle. That is, when I went to Bertelsmann in 1997 to run the music club, at that point the Internet was coming. It and everything related to it was viewed as--I was quoted as saying--the second coming, meaning it would sweep away all pre-existing supply chains, large sections of American industry, and completely revolutionize the world.

The reality is things take longer than expected, and customer behavior changes slower than the technology is capable of driving it. Six months to a year ago, people declared the capabilities that e-commerce and the Internet broadly defined as dead. The truth is somewhere in between.

In light of what's happened the last year and a half, does the concept of an Internet and development company remain valid?
It depends. For example, in e-commerce, there are a limited number of Internet-based retailing platforms that can't survive independent of other terrestrial, brick-and-mortar assets; eBay is one and uBid is two (uBid being the one that we own). Most of the other freestanding e-commerce businesses have failed or are losing a lot of money or are being merged back to terrestrial businesses.

In contract manufacturing, where SalesLink is a very good business, the intrinsic capabilities of the Internet when applied inside a supply chain as a communication and information vehicle offers tremendous promise--not in terms of the use of the consumer, but in the linkage between an OEM (original equipment manufacturer), for example, in its supply-chain management.

It seems CMGI was hit especially hard by the bubble's burst. Is it fair to say that the company was one of the biggest beneficiaries of "irrational exuberance"?
There was clearly tremendous exuberance on everyone's part. What surprises people is that CMGI will be a survivor, even considering how deeply involved it was in e-commerce in general. We have done that by moving to sort of a more rational, coordinated operating model and illuminating a great deal of the complexity that became an intrinsic problem for the incubator model.

Wall Street has remained fairly pessimistic about CMGI. The stock is trading well below $2. Why do you think investors don't believe the story?
The most important thing our management team can do is to set realistic expectations, particularly in this economic environment, and deliver credible results repeatedly. When you do that, people buy your stock. In addition, analysts, as you know, fled the sector--either because it became out of favor from an investment perspective, or just every investment bank, every portfolio fund, has a third of the buyers that they even had a year ago.

People fled the sector from an investment perspective in part out of fear or prudence. And I think as the sector rises again in a new form--in addition to delivering credible results--institutional and long-sided investors will come back off the sidelines as the dust settles and will start to reinvest in this sector. (It will be due to a) combination of our delivering credible results, my ability to articulate a clear strategy, and the general rebirth of investor interest, broadly defined in the sector. (These) should all operate in favor of increasing shareholder value.

So, assuming a moderate rebound in Internet-related business--based upon the assumption of a moderate macro recovery--will that be enough to return CMGI to profitability?
We have tried to engineer the infrastructure and cost of our businesses, individually and corporately, to achieve profitability based on very modest quarter-over-quarter increases in customer demand. We are not betting on a rapid rebound of either consumer demand in our consumer-based businesses or business demand...There's little that will lead us to want to make an aggressive top-line assumption as to rapid profitability. It's better to make a conservative assumption than be surprised.

Before CMGI decides to plunk money into a company, how does your short list of questions differ from two years ago?
I wasn't here two years ago. I can only hypothesize. I can only surmise what a venture focus might have looked at vs. an operating focus. But I think you can fairly assume two things: First, a much harder look today is whether this or that business is something you want to be in for the intermediate or the long haul, because you're not envisioning that you're going to exit it soon. Second, the whole financial calculus today is different from two or three years ago; in particular, the focus on and expectations of operating profitably is much shorter and much more rigorously reviewed. And there's a much greater focus on the intermediate- to long-term profitability of the business vs. an exit strategy.

So what do you think is the most innovative thing CMGI has done so far?
Survival is a good start. We have done many--if not most--of the difficult things necessary to survive, including resolving substantially all the outstanding issues of the company: shutting or selling businesses that either were unattractive or couldn't be profitable, rightsizing our cost structure based on the market expectations, and revolutionizing our culture to emerge as an operating company focused on customer and product. Not bad for seven months.

What can we expect in the future from CMGI? Is there anything we can anticipate by the end of the year?
You can expect a low profile, (and) realistic expectations (being set) around business and financial performance. I think (you also can expect) meaningful progress and (us) clearly articulating the strategy.

As a child, did you ever imagine being CEO of a company, or did you dream about being something else?
I was going to be president of the United States. Honest answer: I think I always knew I would go into business, and my bother and I were doing summer stock theater selling tickets at my church while I was 12, 13, 14.