Managing email hell: a surge in legal demands for long-forgotten emails is playing right into the hands of Zantaz CEO Steve King - Technology - Related article: CEO Stats - profile of Steve King

Chief Executive, The, May, 2003 by Kim Girard

The feds want your email-and that could mean trouble. Just ask the CEOs of Deutsche Bank Securities, Goldman Sachs, Morgan Stanley, Salomon Smith Barney and U.S. Bancorp Piper Jaffray. In December 2002, federal regulators slapped the five firms with fines of $1.65 million each for failing to preserve internal email.

The prosecutor leading the email charge is, of course, New York Attorney General Eliot Spitzer. As Citigroup and Merrill Lynch discovered to their chagrin, Spitzer is a staunch enforcer of the Securities and Exchange Commission regulation 17a-4, which requires trading firms to save copies of all email for three years and keep them in a readily accessible place for two years.

In this new environment, Wall Street brokerage firms, which may have 10 million emails zipping across their networks each day, have to archive the traffic and must keep a hefty percentage of them at their fingertips. CEOs of nonfinancial companies also realize they're going to have to do a better job of maintaining access to emails, as prosecutors and plaintiffs' attorneys take a page from Spitzer's playbook and demand "electronic discovery" of email.

All of this provides a boon for Pleasanton, Calif-based Zantaz, which offers centralized hosting, standard archiving and indexing, and restoration of email and other documents that many firms now store on tape. "Enron, WorldCom and the controversies on Wall Street have really highlighted the importance of what we do," says Zantaz CEO Steve King, who jokes that he should send Spitzer a Christmas basket to show his appreciation. "There's a recognition among our clients, and Corporate America in general, that we can't live without email. But it can be a double-edged sword."

Zantaz, which King says was one of the "poster boys" of excess during the dot-coin bubble, created buzz over its supposed ability to help companies archive and manage their data better than anyone else. But in the post bubble era, it has had the challenge of creating real and lasting meaning for itself. Under King's leadership, that has meant a sharp focus on easing the email quandary by persuading companies to outsource the problem. Zantaz takes emails and documents off a customer's tapes or disks and puts them online, where they are instantly available. For customers, the service is less a cost-saving proposition than it is "a peace-of-mind purchase" to appease concerns about regulatory requirements, says IDC analyst Doug Chandler. "The archiving firm can take the worry out of this situation."

But the real potential cost savings for brokerages and other customers come during a lawsuit or audit. Larger companies are being asked to conduct two or three document "investigations" a day in response to audits, inquiries or lawsuits, says Pete Delle Donne, president of enterprise solutions at Iron Mountain, a Boston-based competitor of Zantaz. It costs a company that hasn't archived its email in an organized way about $2,500 to search one tape, which stores about 40,000 email s. Costs can quickly mount for a company with 400 tapes in storage. However, iff a Zantaz or Iron Mountain can archive and index the information stored on those tapes, then employees can easily search for the record by keyword.

ShareBuilder Securities, an online trading firm, turned email archiving over to Zantaz for two reasons: to comply with SEC regulations and to control costs. The SEC mandates that broker-dealers have a third party that can independently access their electronic records, to protect customers and respond to regulatory inquires or audits. Outsourcing also relieved the company of what it would have had to pay to develop, run and maintain an extensive digital record-keeping system.

Chief Technical Officer William Bankert and Chief Financial Officer Randy Gausman founded Zantaz.com in 1996. At that time, the SEC had not yet issued its ruling requiring brokerages to archive all email related to financial transactions. Back in 1934, the year the SEC was founded, the agency mandated that exchange members, brokers and dealers preserve paper business records. By 2000, new rules that applied to computer technology and electronic storage were in place, but companies weren't exactly scrambling to comply. Nonetheless, there was much hype surrounding the issue, coupled with the dot-coin market fervor. More than a dozen venture firms were throwing money at Zantaz, which raised $35 million in its fourth funding round.

Today, Zantaz, which has 110 employees, is defined by the button-down but amiable personality of CEO King. The company charges customers a monthly subscription rate based on the amount of email volume. It also generates fees from services and software licensing. Expected to turn a profit by year's end on sales of more than $100 million, Zantaz is still private and does not have plans to go public in the current environment.

One of the first things King did when he arrived two-and-a-half years ago was to drop the dot-coin from the company's name. "We changed it pretty quickly, considering by no means are we a dot-coin," King says. (Zantaz itself is a made-up name, which the CEO jokingly acknowledges sounds like a heartburn medication.) Shortly after King joined, Gausman left the company and Bankert retired.