F E A T U R E S    Issue 2.03 - March 1996

Net Virgin

By Tim Jackson

Of all Wired's readers," says Richard Branson, "I'm probably the least wired." You may think he's joking. After all, this man is the commercial epitome of everything that is young, British and hip. His enthusiasm for new experience is so great that he will risk life and limb for the privilege of circling the earth in a balloon - he might even be dead by the time you read this. And that high-stakes enthusiasm shows through in his business career too. As an entrepreneur, he has already founded (and sold) a games-software company, Virgin Interactive Entertainment, and a music company, Virgin Records. He now runs an airline, Virgin Atlantic Airways, media businesses like Virgin Radio, and an ever-growing variety of other enterprises, including a brand of cola, a small producer of educational CD-ROMs, books, cinemas, financial services, television, wedding-wear, vodka and more.

If it's cool and profitable, Branson has a hand in it. Now that new media - including computers, the Internet and all that they entail - are the coolest and most potentially profitable things around, Branson is getting into the action. Yet he is not so much becoming wired as having wiredness thrust upon him.

Later this year, Branson's Virgin Communications will start providing high-speed dial-up access to the Internet. With it will likely come an array of Virgin Web sites and services. Branson's brother-in-law, Robert Devereux, head of Virgin Communications, has hired a gaggle of ambitious young journalists and designers - including much of the Guardian newspaper's product development unit - and has turned them loose on the task of creating prototypes of Web sites to sell financial services, to provide news, to shop, to entertain and to inform people about both the Virgin empire and the world around it. At the moment, little holds the far flung Branson empire together except the man and the brand that he has created. A branded, brand-wide Web site might be just the thing to pull this collection of bright ideas decked out in red and white into a coherent whole.

The question, however, is whether Branson himself will be able to use it - or even interested in doing so. He can't program a VCR. He doesn't know how to use a typewriter. And the One-2-One mobile phone that Mercury gave him last year, hoping that he'd give them a free plug by using it in public? "I lost it," he admits.

The technology that Branson himself uses most from day to day is a notebook - not a PC, but a large black A4-sized hardcover book from Rymans. Here he writes with a cheap ballpoint in large, confident, slightly childish longhand. When someone tells him something interesting or important, it goes into the notebook. As each book is filled it is carefully filed away, and the Virgin chairman starts a new one.

"Every single conversation or discussion or meeting I have, I scribble in the notebook. I've found that it has been extremely good to me over the past 25 years." It is just about the only writing he does. He hates memos and correspondence; when he has to send a letter, he dictates it to one of his three secretaries. He doesn't use a typewriter, a keyboard or a dictaphone. Don't even ask about e-mail.

"I suppose if I really felt that gadgets would save me time, I'd make more use of them. But so far, I just haven't felt the need. If I want to know what's happening with a Virgin company, I make a quick phone call to the managing director and in about three minutes I've got a summation of how he's doing. Better still, I could pop in and see him. Better still, we could play tennis and talk after the game. Rather than spending too much time behind a desk, I like to get out and about."

Branson has to think hard in order to find even one machine that has made his life easier. Finally, he comes up with a candidate: the satellite phone. Last October he took his family - wife Joan, kids Sam and Holly, parents Ted and Eve - off to Africa on holiday. They hired a guide and a boat, and spent five days canoeing down the Zambezi together. By day, they watched the wild animals drinking undisturbed as they cruised past. At night, the guides would set up tents on the river banks and cook dinner over a camp fire. Branson would pull out a little suitcase, twirl the collapsible dish around until it made a peeping sound to indicate that it was pointing in the right direction, and then, sitting in the dust under the stars, lions roaring in the nearby hills, Branson would make a fifteen-minute phone call to the five-storey mansion in Holland Park, west London, that serves as his office.

"It was a family holiday, so it was a strict fifteen minutes. I'd talk to three or four people, one after the other, yes or no decisions that they really needed me to take."

A people person

In many ways that satellite phone sums up Branson's approach to technology. And it shows up one of the differences between him and the American entrepreneurs who have come to be the stereotype of business movers and shakers. For Branson, the phone was simply a way to take five days off work hundreds of miles away from civilisation, when the need to keep in touch would otherwise have spoiled his holiday. There was no joy in his use of it, not even a muttered "wow."

Somewhat ironically, Branson's indifference to technology makes his company's present flirtation with the Internet all the more significant. Nobody can say that Virgin's venture into technology is merely the result of the chairman's pet enthusiasms. On the contrary, Virgin's move toward new technology will live or die by hard business logic. The Net could do a great deal for Branson's business - if he is smart and nimble enough to take advantage of the opportunities it offers. That it now offers little to Branson himself is a secondary matter.

When you ask Branson why machines play so little part in his life, Branson replies simply that he likes the company of people, as though the two things were not really compatible. This emphasis on personal relationships - particularly family relationships, which tie Branson to some of his closest colleagues - fits the traditions of his upbringing. Although he cultivates a classless image, the Virgin chairman is unmistakably a child of the English gentry. His grandfather was a senior judge and had a knighthood. His father is a retired barrister. His mother, Evette Huntley-Flindt, came from a stockbroking family in the days when only gentlemen were stockbrokers. As soon as Branson started to make money, he put it into a crumbling 17th-century manor near the Cherwell River, which he picked up for £30,000 while still in his early twenties with the help of a mortgage from Coutts, the Queen of England's bankers. But it is probably Branson's dress sense which gives his origins away most clearly. When you meet him up close, you realise that all those heavily patterned sweaters are not the statement of informality they seem to be. In real life, as opposed to the movies, upper-class English men just don't care that much about clothes. On the day in 1986 when Virgin's shares were first quoted on the London stock exchange, Branson turned up to a press conference wearing odd shoes. Today, he is probably the only billionaire in the world who wears brown plastic lace-ups that look as if they might have come from Woolworth's.

A touch of technophobia fits neatly into upper-class attitudes. The British aristocracy is hereditarily suspicious of gadgetry and machines. There have always been other people to know how things worked; the important thing for the aristocrat is to know what should be done. Knowing what is to be done, and leaving other people to do it, is very much the role that Branson has played in his companies. There's just the slightest hint of snobbery in his smile as he points to my notebook PC and says, "I'm talking to the man who lives by his machine."

Yet Branson is no Luddite. When you ask him about technology in general, he delivers a polished little speech about how glad he is that future generations will be computer-literate, how his children are "on the Net every night," how his airline relies on its computerised reservation system to know what a passenger chose for dinner last time she flew. More importantly, he has never let personal enthusiasm, or the lack of it, get in the way of money-making. Indeed, he has based his career on satisfying public tastes that he does not share. Branson built a billion-dollar record label without having much interest in music. When invited to appear on Desert Island Discs, Branson asked someone from Virgin Records to help him choose his eight all-time favourites. And Virgin Atlantic's most successful product is an Upper Class service that delivers first-class comfort at business-class prices - despite the fact that Branson himself always flew economy until he started getting tickets for free.

Whatever its chairman's foibles, Virgin has earned a reputation for being quick to take advantage of the business opportunities created by new technology. The company was one of the early shareholders in BSB, the satellite broadcaster that was later taken over by Rupert Murdoch's Sky Television to form BSkyB. It kept a close watch on the radio and TV spectrum, and made a string of applications for licences. It moved into software even before pundits began to predict that video games would be to kids of the 1990s what records had been to their parents in the 1960s and '70s. Virgin was one of the earliest book publishers to grasp the potential of electronic media and CD-ROMs. The latest recruits to that tradition are the journalists and designers working 12-hour days to create an Internet access business and, they hope, to bring Web-based information, entertainment and commerce to the British mass market.

Little big man

In today's world, clever use of new technology fits well with Virgin's self-proclaimed role as an underdog, the champion of the forces of the new and progressive against the old, powerful and entrenched. Branson insists that the first 20 years of running his business were a constant struggle for survival against such obstacles. For all that, it wasn't entirely unprofitable. When Branson bought the Virgin group of companies back from the stock market in 1988, dissatisfied with the constraints imposed by public ownership of shares in his company, he and a handful of associates raised the necessary £182 million personally.

The David-and-Goliath mentality persists to this day, even though the privately-held Virgin group is worth well over £1 billion. When Branson describes his 1994 entry into the soft-drinks market - an idea brought to him by Cott, a Canadian bottling company that owned the rights to a good cola recipe - he focuses on the vast size of Coca Cola and Pepsi, giants that dwarf the newcomer. Virgin may be big in music, but it accounts for just 7 per cent of the British cola market. And it's not only Coke and Pepsi that Branson talks of "taking on." He has battled spectacularly against British Airways, fighting both private battles to secure loading rights at Heathrow and public ones to halt alleged dirty tricks, like peeking into Virgin's reservation system to steal customers.

Branson has always been able to recruit others to his causes, in part because he puts such personal passion into his battles. He left school at 16 in 1968 to start a national student magazine, and managed to pull in a number of impressive contributors and interviewees for the early issues, ranging from Jean-Paul Sartre to James Baldwin, from Alice Walker to the Beatles. But even though many of the students who were working on it donated their services for nothing, the magazine never made money. So when the British government legalised the sale of discount records, Branson - who has a nose for new distribution opportunities, as his Personal-Equity-Plan-by-telephone business, launched last year, shows - swiftly started selling records by mail order, using schoolkids to fill the orders. In 1971, a national postal strike forced him to think again. So he opened a shop in an upstairs room above an electrical store at the cheap end of London's Oxford Street.

The record store and the mail-order business prospered, and Branson started building a recording studio in his newly-acquired manor house. It was not plain sailing. An attempt to cut corners on tax ended in arrest, tears, back taxes and penalties almost big enough to sink the fledgling company. But there was some luck, too. A shy but talented musician named Mike Oldfield had the strange idea of creating an album without any lyrics. None of the big record companies would have him, so he sat down with Branson at the manor's kitchen table, which was where he wanted to record. When he stood up again it was as the first artist signed to a brand new record label. Tubular Bells hit number one in both Britain and America, and made many millions for Branson.

Signing up acts, though, didn't turn out to be Branson's strong point - however profitable his relationship with Oldfield. Not knowing much about music, he focused his talents on promotion and deal making instead. He hired Simon Draper, a cousin from South Africa, as the "A&R" man who would find new talent. They made a superb team: Branson would fly to New York with a suitcase full of tapes, touting Virgin material around the US record industry. He tended to get great terms - his friends used to joke that if you asked Richard to lend you a fiver, he'd counter with an offer for £4.50. Back in London, Draper signed up one winning act after another. By 1984, Virgin Records was one of the world's leading independent labels. Record distribution by way of Megastore was turning out to be a success. And Branson wanted a new challenge. So he was in a receptive frame of mind on Valentine's Day, when a lawyer named Randolph Fields called him to ask for help in financing a startup that was miles away from Virgin's core business. Fields wanted to open an international airline. Four months later, the first 747 in Virgin livery took off across the Atlantic, with Airplane! playing as the in-flight movie. Within three years Virgin Atlantic was able to declare a £12-million pretax profit.

Unfortunately, Fields was no longer around to share in it. His agreed 50 per cent stake had been whittled back to 25 per cent by Branson even before the maiden flight. Fields was blamed for the airline's teething problems and ousted as its chairman during its first summer. The next year, he grudgingly agreed to sell back his stake to Branson for £1 million. The two men are still enemies.

The brother-in-law's business

Fields's experiences illustrate a tougher side to Branson's personal magnetism. Both the record company and the airline have at times paid salaries well below the market rate, while managing to hold on to talented people largely because of Branson's own appeal. As Fields put it, "Richard fell in love with the idea of the airline. I simply fell in love with Richard."

Past and present Virgin employees find it hard to put their finger on what makes Branson so appealing to work for. They talk about the way he gets people to believe themselves capable of great things and draws out their best work. They talk about the way Branson makes everyone who works for him feel that they are part of a giant co-operative venture from which everyone will benefit if it's a success. They talk about his immense energy and his determination to carry out his plans at least twice as quickly as anyone else believes possible, how he can turn work into fun, and how receptive Branson is to ideas from everyone, no matter how junior. (In the airline, they call this the "Branson sample of one": after hearing a wacky idea from a casual acquaintance, such as offering Upper Class passengers a ride to the airport on the back of a Harley-Davidson instead of in a limousine, Branson is inclined to call up the airline's managers and ask them to put it into practice right away.) It's the small things that count; when Branson flies to New York, he travels into Manhattan in the minibus that takes the crew rather than in a limousine.

Branson's Pied Piper talents may also help to explain how Branson seems to motivate his employees without having to give away as much equity as have many less inspirationally-endowed managers. When he sold Virgin Records to Thorn-EMI in 1992, it was no surprise that the lion's share of the billion dollars paid went to the Branson family, which holds most of its investments in offshore trusts. A few tens of millions went to Simon Draper, the cousin who had run the business for the past decade, and to Ken Berry, the former accounts clerk who had become the backroom power of the business. But there were dozens of others who had devoted most of their working lives to the company, and who felt that they deserved something more than to be left to the mercies of Thorn-EMI, which promptly started slimming down the operation. Jeremy Lascelles, the record label's aristocratic chief talent scout, knew of independent record labels taken over by majors where even the secretaries got payoffs of £100,000 from their former bosses when they sold. What did Lascelles get? "Not a single fucking dime. Not a phone call, but a letter on everyone's desk, addressed to 'Dear All.' I said to Simon the next day: tell him my name's Jeremy, not Al."

The record business was sold partly to provide needed cash after the group was bought back off the stock market. One of the reasons Branson bought it back after only two years as a public company was that he hated having to account to outside shareholders. Don Cruickshank, the former management consultant and newspaper executive who was brought in as managing director when the group went public - and who now, as head of Oftel, is the regulator for Britain's telecom businesses - detected a lack of strategy in Branson's approach to his ramshackle group. He pressed Branson to sell the ventures that were furthest removed from his core music business.

But Branson was never happy with the formal disciplines that they teach at business school. So when Cruickshank's second-in-command, Trevor Abbott, raised the idea of taking the group private again, Branson grasped it with both hands. Convinced that his boss was making a mistake, Cruickshank tried in vain to persuade him of the benefits of remaining a public company. He lost. Once the buyout had been completed, Cruickshank departed. Abbott, better at dealing with Branson, became the group's managing director.

What Abbott understood instinctively and Cruickshank could not deal with was Branson's style of doing business. He works 18 hours today on a hot new idea that could easily be dropped by tomorrow. One example of this was Virgin Interactive Entertainment, the games software company that suddenly began to take off in the early 1990s. In late 1993, Branson described VIE as the cornerstone of a new empire that would by 2000 be equal to his airline in size, or even bigger. Three months later, however, VIE was up for sale; having received an offer too good to refuse, Virgin was out of the games software business.

At least VIE could claim to have been sold from a position of success. There is a long list of other schemes - ranging from a nurses' babysitting agency to clothes retailing, from a gourmet sandwich delivery business to a listings magazine - that Branson trumpeted in the papers with an appropriately outlandish costume, only to drop afterwards when the profits failed to roll in. The Virgin group's foray into PC manufacturing in partnership with ICL, once Britain's largest computer company and now a subsidiary of Japan's Fujitsu, was one of those that withered quickly.

These days, the Virgin group's most exciting ventures in the world of new media are in the hands of another trusted lieutenant: Robert Devereux, a former book publisher who chairs Virgin Communications, a group of companies ranging from a radio station to a video post-production house. Devereux is Branson's brother-in-law by virtue of his marriage to Vanessa, Branson's younger sister. But it is not just family loyalty that has made him the third most powerful person in the empire after Trevor Abbott.

Devereux had a reputation in his publishing days as a precociously gifted marketer; these days, he is also seen as a tough businessman who has learned the family knack for negotiating hard and keeps a keen eye on costs and margins. Oh, and he's also a bit of an aesthete. His offices around the corner from the family mansions in Holland Park are not only sumptuous when compared with Branson's, they're tasteful, too, with interesting pieces of furniture and works of modern art. Devereux's desk is an inventive contraption that appears to be made entirely of driftwood and sheets of green glass - which, an unkind visitor might think, makes it rather like the Virgin empire, except with more transparency.

"What's our strategy?" laughs the man behind the desk, when asked to account for the broad range and chequered in-and-out history of Virgin's media businesses. "The reason you can't discern one is because it's not there. We genuinely don't have an overarching business strategy." But he insists that Virgin Communications is about more than just identifying good deals and good individuals. Devereux sees Virgin's future as being heavily dependent on the creation and distribution of a wide range of intellectual property.

Among the latest moves in the division's switchback history has been a £190-million deal in which Virgin acquired MGM's 116-strong British cinema chain. At first sight, the old-fashioned distribution business of projecting movies onto walls may seem strange for a company that sees itself as futuristic. But Devereux insists that film projection is a great business in terms of gross margins and cashflow; he also believes that in risk-reward terms, it is a more attractive business than most other parts of the film business. And there is something more to the deal than that. Virgin also has ambitions to go back into film, and Devereux sees the deal as a great platform from which to start.

Devereux also manages Sound and Vision, a Los Angeles-based producer of educational CD-ROMs for children, and oversaw Virgin's failed bid for the control of Britain's fifth television channel. He sees himself as a venture capitalist, opportunistically seeking out potential wherever he can find it. But, although each project has to stand on its own financial feet, Devereux also examines each for fit with the Virgin brand, and for potential synergies with other parts of the Virgin group. In few areas are the potential synergies as large as they are in the Internet.

Sometime in 1996 Devereux will launch V-Net, a national service which will offer dial-up access to the Internet at 28,800 bps. True, the Internet access business is already glutted with small players. But Devereux is hoping that the Virgin brand - together with software that makes the service both more fun and easier to use than its rivals - will enable him to carve out a niche among consumers left cold by the bits-and-bytes sales pitches of Demon and Pipex, Britain's biggest providers of dial-up Internet access.

Virgin has left much of the technical dirty work in setting up a national communications infrastructure to a partner not yet named as this article went to press. The software for the network is being developed in partnerships with database giant Oracle and BroadVision, a Californian start-up specialising in subscriber-management software for online services. Virgin's advantage will come from its ideas and any synergies which may develop as the service develops links to other parts of the company. Devereux is cagey about any plans he might have beyond the launch of V-Net, but if his competitive focus is intellectual property, then V-Net can only be a first step on to the Internet. The fact that he has already hired journalists and designers to work on a variety of Web publishing ventures strongly suggests that next steps are already being planned. Such a use of the Web could offer Virgin entrées into a range of new markets. It could also improve its service in existing businesses.

Take the airline. It already runs a Web site, on which it advertises fares and flight times. It hasn't taken the matter too seriously, though; because of failures to update data, it won the dubious distinction of being the first Web site to be fined by American authorities for misleading advertising practices. But there is no reason why it should not sell tickets directly over the Web.

Or take financial services. Virgin sells investments over the telephone. It could provide information to would-be investors over the Internet, and perhaps even sell its wares. Or take MGM cinemas, or Virgin Radio, or the Megastores or Sound and Vision ... or just about any other part of the Virgin empire.

The Web offers a way to provide information about the businesses and what they sell, a way to reach out to customers, while wrapping the whole empire in a groovy ambience of new-media hipness - like the sound track at the Virgin Megastores, provided by in-house disk jockeys who entertain, relax and push new product all at the same time. Virgin might even put Internet kiosks into MGM cinemas so film-goers can surf the Net while waiting for their film to start instead of playing video games, or it might link its radio station to a Web site that distributed both music and information about the musicians playing it. From the real world to the virtual one, and back, and all without leaving Virgin territory.

The Internet plays to all of Branson's strengths. It allows him to take advantage of new distribution mechanisms. It is new media battling against the old. It provides a perfect platform for Branson to marshall troops for the cause of whichever underdog he is promoting at any given time. And the Net also plays neatly to the strengths of the brand Branson has built up over the years. The Virgin name and the red logo exude youth, attitude and value - but in such a vague, non-product-specific sort of way that these attributes can be use-fully attached to anything from pensions to Internet provision. Tomorrow the Web operation could strengthen the crucial role that the Virgin name fulfils today, adding value and a sense of unity to Branson's diverse businesses. If there is a Briton whose company can take off and run with the Internet, it's Branson; his brand alone makes him the prime contender. The opportunity is his for the grasping.

Mastering the niceties

But there's no point asking Richard Branson about any of this. Virgin Communications is the part of his empire that he tracks least closely. And it is a misunderstanding of Branson's role to think that he has to keep close tabs on a project like this.

The bottom line is that Richard Branson performs three functions in the businesses he owns. The first is to be the ambassador, the front man who gives interviews and who, when he has a product like Virgin Cola to promote, can pop up on any programme from Baywatch to Sixty Minutes. The second is to be the start-ups specialist, the guy who galvanises a team into action, fills people with enthusiasm and sells potential partners on the new project. The third is to take the final decision to close down the ventures that no amount of enthusiasm can revive, and to sell those whose earning power has outstripped their interest.

In the end, the decision as to whether new media will be a passing fling or an integral part of the Virgin empire will rest largely on how much it engages Branson himself. Branson's very personal tastes and enthusiasms have created his businesses' greatest strength: the brand. The business is so closely associated with him that polls show the Branson name has higher recognition than the Virgin name. He protects and nurtures both carefully.

Although my book on Branson, Virgin King, was an unauthorised biography, he spent hour after hour with me. He took particular exception during these meetings to being described as "ruthless." It was only his charm and his niceness, he maintained, that had made him a billionaire. And when the questions got tough he'd start to stammer a little and leave sentences half-finished, hanging in the air.

I always left Holland Park feeling that I'd been much too hard on him. Richard Branson was such a good guy: modest, considerate, nice. But Trevor Abbott and Gerrard Tyrrell, a partner of Harbottle & Lewis, the London law firm that deals with Branson's private affairs and those of the company, were never too far out of the picture. The three perform in an intricate and effective team. Richard charms while Abbott and Tyrrell take care of numbers, laws and hardnosed business detail. Having seen the team in action, I felt I understood better why Simon Draper, citing a desire to maintain family harmony by keeping business out of personal relations, always refused to negotiate his equity stake in the business with Branson directly and insisted on interposing two law firms between himself and his cousin.

Up in the air

But that's all history now. Virgin King is out in paperback. Branson wrote me a 20-page letter complaining how unfair and negative the book is, which I stuck up above my desk next to the article from the Daily Telegraph complaining that I had been bewitched by his charm. And Branson is preparing to soar off in pursuit of another of his enthusiasms: a round-the-world balloon trip.

As this article was being written, Branson was awaiting favourable winds to whisk him and his Swedish pilot, Per Lindstrand, on the first-ever around-the-world voyage by balloon. This time Branson has become personally involved in the technology. He has ensured that the capsule has a parachute and "extremely good floating devices," as well as the high-tech engines and navigational equipment needed to chart a globe-girdling course. For all Branson's care, though, it is still a very risky venture. Previous balloon voyages have ended in near catastrophe.

All going well, the trip could also provide Branson with a chance to reflect on the opportunities before him. Nearly everything that Branson will see beneath him, Devereux can connect to via the Net. While Branson floats above the globe, his company is preparing to embrace it. That is a vista which should inspire even Branson to get wired - when he gets his feet safely back on the ground.

Tim Jackson writes a technology column in the Financial Times. He has written a biography of Richard Branson, Virgin King, and is currently working on a book about Intel.