Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
BlueLight.com, which based its success on free ISP, is restricting riders on its ISP bus. Too many hours online and you get booted off.
The free ride on the BlueLight.com express is not over, but BlueLight is becoming much more selective about who boards. The Internet sales arm of Kmart Corp. made a splash in 2000 by offering free Internet access. Between December 1999 and January 2001, more than 5 million subscribers jumped on board.
But when BlueLight’s ISP partner, Spinway, folded in late 2000, BlueLight was forced to re-evaluate its service. Spinway offered the free access in exchange for the ad revenue from BlueLight’s banner ads. But that revenue wasn’t enough to keep Spinway rolling, so BlueLight assumed the role of service provider.
BlueLight will announce the details of its long-term plan later this month. However, it has already pared back the unlimited free service to 25 free hours per month. The company said a small number of users (mostly small business or those using the Internet to download music) were spending much more than 25 hours per month online. Those users were typically not shopping at BlueLight.
BlueLight says it will focus the service toward its customers. One way it will do this will be by offering added free time for each BlueLight purchase. Those who buy the BlueLight PC, which sells for about $650 fully loaded, will continue to receive free unlimited access. A BlueLight spokesman says the company has a long-term plan that will likely involve other ISP partners.
Duif Calvin, senior retail consultant with Atlanta-based iXL, does not think limiting access will hurt BlueLight. “The expectation of BlueLight shoppers is not that they will get something for nothing for life, but that they will get good deals,” she says. Most ISPs are moving away from free offers, she says, and this won’t hurt BlueLight unless a competitor offers free access.
The days of free Internet access are likely numbered, Calvin says. She says BlueLight and others will probably eliminate free access completely within three years. “Free access wasn’t here in the beginning and it won’t be here in the end,” Calvin says. “It looked like something worth trying, but what we found out was that people are willing to pay $20 per month for Internet access.”
BlueLight’s spokesman agrees the business model does not work, but says BlueLight has no plans to discontinue the limited free service. The typical BlueLight shopper likes discounts and the limited free access will work as an enticement to shop, he says. The company has always viewed the free offering as a marketing, not a revenue-generating, device. The goal of that marketing is to bring BlueLight’s sales up to $100 million this year. The company won’t say how far it has to go. Kmart has annual sales of $36 billion.
One area BlueLight may have problems with is customer service. Calvin says customer service is especially important to new Internet users. For instance, America Online, which has excellent customer service, has a 24-hour toll-free number and live, online help, she says. BlueLight, on the other hand, has a toll number and says its average e-mail response is 24 hours. “The highest level of customer service cannot be provided by a free ISP,” she says.
And BlueLight agrees, saying it knows the importance of customer service, but also that it cannot afford to provide supreme service. That is one of the tradeoffs to free service, the spokesman says.