Move and layoffs repeat a Motricity pattern

Workers accuse CEO of lavish spending, tech errors at profitless venture

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CORRECTION

A story in the Business section Friday contained inaccurate projected revenue and profit figures for Motricity. The projected revenue this year is $100 million; the private company will not disclose its projected profit.

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Until last week, Motricity was a symbol for entrepreneurial possibility and a shining corporate headquarters for the city of Durham.

Then executives announced a restructuring last week at the behest of shareholders. They called for cutting hundreds of jobs and moving the headquarters to the West Coast.

Employees, who feel as if they've been abandoned for shareholders, have blamed mismanagement for the company's failure to turn a profit in seven years. One target of much ire has been CEO and Chairman Ryan Wuerch, whom they have accused of lavish spending.

But neither the cuts nor the headquarters move should come as much of a surprise.

Motricity has a clear record of restructuring after mergers. In 2004, its predecessor bought a Durham startup, eliminated a few jobs and moved to the Bull City from Nashville. Several subsequent acquisitions resulted in layoffs.

So when Motricity bought a unit of Bellevue, Wash.-based InfoSpace in December, it was apparent there would be overlapping operations and layoffs. How many and which city would be hurt the most was all that was unclear. At least until last week, when Wuerch announced a plan to phase out 250 of Motricity's own jobs this year.

Venture capitalists, who have sunk more than $380 million into Motricity since 2001 and wield strong influence, backed the InfoSpace deal for its potential to more than double sales, slash overhead and drive up the value of their asset. That's Investing 101, said Rich Burton, a professor of management at Duke University.

"This is not unusual in the tech world," Burton said. "We're in an era of shareholder interests. And these ... [employees] were hired knowing this is a high-risk business."

Motricity owns and operates infrastructure that allows people to download games, ring tones and other media to their cell phones. It takes a cut of sales in that huge market from wireless carriers and content originators.

The company must now turn slashed overhead into a return for shareholders, who include such notables as billionaire financier Carl Icahn and former AOL Chairman Jonathan Miller.

And both Icahn and Miller, who announced Wednesday that he is joining Motricity's board, make it clear they're keeping close tabs on their investments.

When asked to comment on reports of Wuerch's profligate spending, Icahn said in a phone interview, "I take lavish expenses by management extremely seriously."

Those include junkets, pricey caterers and the company's sumptuous headquarters at downtown Durham's American Tobacco Campus. Some employees argue anonymously on blogs that such expenditures were inappropriate for a company that has never turned a profit, relies on outside investors for operating income and routinely lays off large numbers of committed workers.

Dozens also have blasted Wuerch for poor technology decisions.

One expense that earned particular notoriety was Wuerch's use of a Learjet in 2004 to fly himself, several Motricity executives and a customer from London to Turnberry, Scotland, for an afternoon round of golf. When asked about it, Icahn said: "Concerning this expense, Ryan stated this was a very rare exception for a very large customer."

Wuerch also defended his actions, saying everything he's done has been for the long-term success of the company. "Our competition is multibillion-dollar companies," he said referring to IBM, Qualcomm and others. "People needed to have confidence in us."