The Corner ISP

Perhaps nothing typifies the mainstream migration to the Web better than the expanding list of bricks-and-mortar retailers – many so low-tech that their only previous high-tech activity has been proffering VCRs in stores – now offering shoppers free Internet access.

There are several reasons why chains are experimenting with branded Internet-access service as a marketing tool. First, providing Internet access enables chains to reinforce real-world brands online, even if their merchandise doesn’t necessarily translate into e-commerce. It also avoids the brand dilution associated with online shopping portals, where retailers set up shop but have to contend with competitive sellers being only a hot-link away. Best Buy might run into Circuit City on many online malls, but if the chain gets customersto dial into its own branded Web service, it can retain those customers and shield them from competitive offers.

Becoming an Internet service provider (ISP) is also an easy way to begin creating relationships with Net users before other, more targeted e-commerce strategies can be developed.

With the demographics of new Internet users becoming increasingly more representative of the population at large, retailers are betting their familiar brands can win the trust of newbies over alien-sounding ISPs such as Mindspring.com, Earthlink, or NetZero. A recent study from market research firm Jupiter Communications, New York City, found that 47 percent of online users would switch to an ISP service offered by a favorite retailer or charity.

Troy, MI-based Kmart is pitching a free Internet access service via its new Bluelight.com subsidiary, which has garnered a lot of media attention and could end up being a blueprint for brand-side marketers: The retailer is using free Internet access as a way to build a loyal customer base for its shopping site.

Bluelight.com is based in San Francisco, linked to portal giant Yahoo, and owned jointly by Kmart (which has a 60-percent share) and Softbank Venture Capital (Martha Stewart Living Omnimedia also owns a slice). Installation CD-ROMs for Bluelight.com’s service are being handed out at Kmart’s 2,100-plus stores. Kmart and Yahoo will promote the service with in-store kiosks, signage, and circulars. Yahoo will hype BlueLight on its shopping Web sites.

The service, which gets its name from the famous Blue Light Specials Kmart ran in stores during the 1970s, gives the retailer a way to run specials online and in-store, and closely track buying habits and responses to banner ads. “We are more than just an e-retailer,” says Bluelight.com vp-marketing Fran Maier. “Free ISP allows us to build traffic and relationships.”

BlueLight.com already has 1.3 million subscribers and is growing rapidly. Offers for free shipping on all orders, a $5 Kmart gift card, and a sweeps dangling trips to Hawaii and Ireland are being used as lures. The site currently sells only several hundred items, but plans to have about 20,000 SKUs available by summer.

Similarly, America Online and Bentonville, AK-based Wal-Mart are offering co-branded, low-cost Internet access in an alliance that weds the world’s largest retailer with the world’s largest Internet service provider.

The service is being marketed to Wal-Mart’s core customers. The two companies will work together on in-store and Internet marketing initiatives. The venture was announced last January, shortly before the Bentonville chain created a Wal-Mart.com spin-off now co-owned by Silicon Valley venture fund Accel Partners.

BEHIND THE SCENES

Recognizing a potential market for private-label ISPs, a bevy of suppliers have come out of the woodwork with offerings pitched to brand marketers. MicroPortal.com, White Plains, NY, expects to attract more than 250,000 subscribers for clients in the next few months. The private-label ISP launched in January, backed by venture capital group iCentennial, New York City.

MicroPortal.com’s software allows any company to offer its own branded ISP service. The company’s first clients include online retailer and sister business WorldSpy.

“To say that you’ve got a million consumers subscribing to your branded service is a powerful promotional tool,” says Ted Herman, MicroPortal’s executive director of marketing. “We think there are large organizations with existing communities that will respond to receiving the Internet from a familiar brand.”

The cost for brands is usually based on a per-person fee (about $6 to $11 per month), but some providers are discussing revenue-sharing and other arrangements.

NaviPath, Andover, MA, offers its ISP service to both business-to-consumer and business-to-business customers. Target categories include financial institutions such as banks, affinity groups including alumni associations, retailers, and portal sites looking to broaden their appeal. “We can put anybody into the Internet access business,” says NaviPath vp-marketing Brendon Howe. “This market segment [non-traditional-ISPs] will explode.”

“Private-label ISP is a cost-effective means to acquire customers,” says WorldSpy vp-marketing Matt Gore. “If you look at free ISPs, most of their users are inactive. Even for traditional ISPs, active users are less than 50 percent. [But] more than 70 percent of our users are active.”

Bluelight.com launched an affiliate program in March to promote a new Totally Free Internet service, which enables linked sites to earn cash from new subscriber referrals. Under a two-year exclusive agreement, LinkShare Corp., New York City, will manage the program. Companies that join the affiliate program are rewarded 50 cents for each download of BlueLight.com start-up software that comes from their site.

Call it a modern-day Blue Light Special.