Randy Petersen is a man who knows his core competency. The company he founded in 1986 is now a 34-employee business built around the improbable subject of frequent-flier programs. Believe it or not, Frequent Flyer Services, in Colorado Springs, Colo., makes $10 million a year publishing frequent-flier newsletters, magazines, and books; hosting a FlyerTalk bulletin board that has 600,000 users; and selling T-shirts, mugs, and insurance.
Petersen recently departed from his aviation agenda, however, when he began offering free Internet access and free WebFlyer.com E-mail addresses through his Web site. A jet-setter himself -- he's a member of Hilton Hotel Corp.'s Frequent Traveler Hall of Fame -- Petersen had been throwing more and more cash at his local Internet service provider for long-distance access on the road. He reasoned that a nationwide network with local dial-up service in every city could really take off with his road-warrior customers. And he hoped that putting his company logo in front of his customers whenever they were staring at their computer would help him promote his other products. "We look at this as a brand extension," he says.
Analysts agree: branded Internet access can be an effective marketing tool, even if a company's core business has nothing to do with technology. Consider it digital direct mail. Companies and affinity groups from Ace Hardware (at OurHouse.com) to the Democratic National Committee to the Baltimore Ravens football team to The Simpsons TV show are providing Internet access to customers and fans, with such enticements as celebrity chats and vanity E-mail addresses.
Now for the fine print: small companies probably won't see a tangible return on their investment in branded access, at least not right away. The major benefit seems to be giving customers a warm and fuzzy feeling for a company. That translates into brand loyalty, which can help a business in the long run. Other upsides are more surf traffic to the company's Web site and more foot traffic to its offline location, where people can pick up the free disks to launch the service.
Warm and fuzzy sounds good to you? Consider the following three options for becoming a "private-label Internet service provider." Using one of the start-ups that specialize in such things, you can set up a free service for your customers as Randy Petersen did, or you can offer a paid-subscription service as the New York Yankees do. (See "For the Fans," below.) Behind curtain number three: the large Internet backbone providers, which are rolling out their own private-label services.
Free for All
Petersen chose a "virtual ISP" company called Brand3 to build his freebie. But first, to define terms: a virtual ISP isn't an ISP at all. Rather, it leases network lines, contracts with a customer-service company to handle phone calls from end users, sells ad space, and repackages it all with your brand. Brand3, founded in San Francisco and Los Angeles in June 1999, aims to compete with two other "virtuals": Spinway, in Palo Alto, and 1stUp.com, in San Francisco, both founded in October 1998.
Branded Web access can be a great marketing tool. Everyone's doing it, from Ace Hardware and the Democratic National Committee to the Baltimore Ravens and The Simpsons.
Spinway and 1stUp.com sell full-motion ads that "air" during the 30-second dial-up. You could buy those ads yourself; for example, customers of Kmart's Bluelight.com service, which is powered by Spinway, are subjected to a Kmart television ad starring the Judds.
In addition, Brand3, 1stUp.com, and Spinway place a small bar on your customer's screen; it's always there, but the customer can move it around. The bar usually contains ads that are targeted to customers based on the information they supply. If customers click on the bar, special content from your company pops up: daily deals, news, whatever you choose. And even when customers are offline, your logo and special content sit on their screens. That's because Brand3, Spinway, and 1stUp.com have developed a technology that downloads content right to the user's desktop, where it sits "like an egg waiting to hatch," says Brand3 CEO Peter Mansfield.
WebFlyer.com customers see a sleek blue menu with a picture of a stylized wave; if they click on it, they can read about frequent-flier deals or dial up all over again. Randy Petersen is particularly pleased with that feature, which Brand3 calls GluOn. "We don't just own the browser; we own the desktop," he says. "That's kind of sexy to us."
Some providers of free private-label Internet service are real ISPs -- that is, they are already in the business of providing Internet access. LibertyBay.com, in Tacoma, Wash., is one such company; its service does not include the ever-present bar, but it requires users to sit through a 30-second ad every 20 minutes, as if they were watching television.
With either kind of ISP, you'll pay for the CDs that customers use to log on. You'll also have to market the service to your customers. Your final cost: around $14 per customer per month. The cost to the customers: zero.
Pay and Play
Free private-label service may tempt you because customers love free stuff. Millions of people are already using a free Internet service of some kind. But the free model is a bit risky for companies both large and small. That's because there's no immediate revenue stream to defray the costs. So some providers -- like UltraStar in New York City, NaviPath in Andover, Mass., and Genuity, headquartered in Burlington, Mass. -- offer a paid-subscription ISP model. Your customers won't have to put up with ads, but they will have to shell out a few bucks to connect.
Your final cost: $8 to $12 per customer per month. Cost to customers: as much as you like -- typically $13 to $22 a month.
Finally, Internet backbone providers like Cable & Wireless and PSINet are offering their own versions of private-label Internet service. These companies will work with businesses of all sizes, but they give volume discounts to those that can provide many subscribers. They're less focused on value-added services than the virtual and small ISPs are. On the plus side, however, they offer solid nationwide networks, which they control themselves. (NaviPath, mentioned previously, also has its own network.)
Your final cost: $13.50 to $15.50 per customer per month. Cost to customers: again, whatever you choose. Consider it an expense, make back your investment, or make a profit.
Of course, not every kind of company should try to be an ISP for its customers. Those most likely to make it work are companies that have a loyal following of some kind or that have customers who need to be kept up-to-date on the company. "If you're a local oil distributor, this doesn't make sense," says George Peabody, a vice-president at the Aberdeen Group.
If you take to the ether, don't lend your brand to a service that will crash and burn. Check out the providers yourself and see if the ads annoy you; if so, your customers may feel the same. Ask providers about reliability and how easy it is to scale up. How often does the network go down? How fast can you add new users? Because like Randy Petersen, the last thing you need is a bumpy ride.
Jill Hecht Maxwell is a reporter at Inc. Technology.
The Origin of ISPecies
The business of Internet service has become an interesting industry in itself. Pioneering ISPs like America Online offered the whole package: access and content. They first faced competition from regional providers like Erol's and Shore.Net that had a different proposition: access but no content. Then in late 1998 free services like NetZero and Freeinternet.com created an entirely new model for Internet service.
Now both free and paid services from consumer brand names are rising in popularity. A June 2000 Jupiter Communications report titled "Private-Labeled ISPs" indicates that such services will command 16% of the ISP market by 2005, up from 5% today.
The business of Internet service continues to evolve. Broadband is the next permutation; Flashcom Inc., in Huntington Beach, Calif., is a DSL-only ISP, and E*Trade has partnered with SBC Internet Services for private-label DSL service for its customers. "Smaller ISPs can offer that local touch," says senior analyst Dylan Brooks, who wrote the Jupiter report. "That kind of extra assistance is still needed with DSL, because switch activation is more complicated than connecting by dial-up."
A future generation of ISPs will be focused on wireless access, starting with a business audience willing to pay a premium. "Everybody wants in on the wireless game, but mass market is a few years away," Brooks says.
Face to Face
For the Fans
They paint their faces. They stand in the rain, the heat, the cold. They spend hard-earned cash on jackets, jerseys, beer koozies, and giant foam hands.
There's almost nothing a hard-core fan wouldn't do for his or her beloved sports franchise. Private-label Internet service is the newest way for sports teams to retain the loyalty -- and the dollars -- of the faithful, by offering them merchandise, tickets, player statistics, chats with athletes, and the cachet of a YankeeNets.com E-mail address.
To find out why the New York Yankees have become a private-label ISP, Inc. talked with John F. Krimsky. Formerly the marketing head of the U.S. Olympic Committee, Krimsky is president of YankeeNets Properties, the marketing arm of the holding company that owns the New York Yankees and basketball's New Jersey Nets. (At press time, YankeeNets was in the process of acquiring hockey's New Jersey Devils as well.)
Inc.: Baseball and Internet access -- what's the logic here?
Krimsky: I have to use every possible opportunity to communicate to our fan base. We're trying to enhance the close relationship that we've got with the avid fans who embrace the brand. We have to keep that person from moving to some competitive team.
Inc.: But what's the bottom-line business advantage to providing this service?
Krimsky: We're not making a profit on it. Internet sites in sports are, for the most part, subsidized by other activities. We get very little ad revenue from it, though we do sell some merchandise online because of the ease of purchase and delivery. Someday, if we get a large enough group, perhaps revenues will exceed expenses.
Mission #1 is to give our core fans another reason to spend time with the New York Yankees.
Inc.: The Yankees are a cherished and, in some places, despised institution. Were you concerned about staking the august Yankee brand on such a new kind of service?
Krimsky: Every member of the New York Yankees organization has a keen sense of the history and tradition. That was very well conveyed to the people designing and programming our service. And Mr. Steinbrenner is a tough taskmaster; if he sees something he doesn't like on the site, you can be sure he tells us about it. There are always going to be things that need to be fixed. But the Internet has become such an important part of our society, we can deal with the glitches. They're just like foul balls. We'll get past them.
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