Bluelight.com Goes Shopping for More Support, Buys from Level3

The revised services contract signals an increased confidence by KMart executives that its online model works and that the company is willing to support free dialup.

by Jim Wagner of internetnews.com [May 9, 2001]

Bluelight.com, the online arm of retail giant KMart Corp., gave Level 3 Communications the green light for additional services this week. As part of the new agreement, Level 3 will provide complete back office support in 47 markets for Bluelight.com, expanding on its original contract to provide nationwide services from 24 back office support teams.

In effect, Bluelight.com is a virtual ISP in these areas, since Level 3 takes care of the Point of Presence (POP) solution and customer support, with Bluelight.com collecting the revenues.

Level 3 isn't the only dial-up provider for the free ISP. The company also has POP arrangements with AT&T, PSINet, StarNet and Telia Internet, to name a few.

According to Abagail Jacobs, Bluelight.com spokesperson, the agreement wasn't expanded to make up for the shaky status of PSINet, Inc., which has been under an increasing amount of financial scrutiny.

"This doesn't affect any of our other providers," said Jacobs. "The deal with Level 3 is just proof that we're always looking to make sure that our subscribers don't lose service and that we're providing the best coverage ever and giving them the best deal."

More than just a portal for online shoppers, Bluelight.com has come under fire for its free Internet access, a free Internet service provider (ISP) model that hasn't shown a profit yet. In the past, many of these free ISPs tried to sign on customers and pay for the service with ad-supported revenues. The end result was vast capital burn rates and out-of-business signs.

Converting free to fee
Earlier this year, Bluelight.com tried to head off insolvency by setting up a tiered Internet access plan. The program has been a huge success, Jacobs said.

"In looking at our ISP users, they have increased as shoppers by 56 percent," Jacobs said. "That's been great for us, because they're spending more on the site to get their free ISP service."

Many scoffed at the service, saying all a person need do for unlimited monthly access was to buy a $2 trinket on the site. Jacobs said that early on it was a concern for officials at Bluelight.com, but hasn't happened yet.

"In fact, our ISP users are our top 10 percent of best shoppers, meaning they're spending the most, too," Jacobs said. "They're not doing that, customers are really finding that in addition to the ISP service they're getting, they want to stop and shop at Bluelight.com."

Bluelight.com's tiered program began at a time when many in the high-tech community had already written off the free ISP model. The largest free ISPs, including 1stUp and Spinway (which was assimilated by Bluelight.com), had already gone out of business months ago.

Even the number one free ISP in the nation, NetZero, Inc., was unable to stay free despite its smug assertion as the "Defender of the Free World," moving to a tiered Internet product in the early February, 2001. Juno Online Services, Inc., officials told its free users that if they wanted to continue using free service, they would have to participate in its virtual supercomputer program.

Promotional fine print
The POP extension with Level 3 is proof that K Mart officials are confident its ISP customers will continue shopping online.

Originally scheduled to end at the end of May, Bluelight.com's success has prompted officials to continue with the program. Jacobs said the May 31 end date was put in its news release to satisfy the legal requirements of running a promotion.

"The plan was never to end the deal we provide customers," Jacobs said. "The reason there was an end date was because this is considered legally a promotion, since we were giving something away for free."

Bluelight.com currently providers dialup services to more than 6.6 million members of its online bargain hunting community. According to Jacobs, about 30 percent of its subscriber base could be considered an active account each month.

Jacobs also noted that the industry average of free account usage is 30 percent across the board. A fair estimation of the number of active users Bluelight.com actually serves each month is about 1.98 million.

—End