IQ News: Closeup - Terminal Velocity

Public Internet terminals bring the Web, and advertisers, to well-traveled places. These days, truck drivers are more wired than ever before. But it's not just the turbo-charged coffee in their thermoses. Commanders of the nation's big rigs are discovering Internet access in the most unlikely places: small-town truck stops. According to reps from Net Near U, which manufactures and maintains pay-for-use devices, the company's three highest-earning units are located at a truck stop in the wilds of East St. Louis, Ill. But the pay-for-use units aren't pay phones or toothpaste dispensers. These over-achieving machines are Internet terminals--public Internet-wired PC "kiosks"--each bringing in over $1,000 a month in cash revenues. The truck-stop success of the Bryant, Texas-based Net access provider may speak volumes about Internet penetration among the 16-wheeler set, but it also heralds a brand-new market for advertisers, site publishers and ad networks seeking their manifest destiny beyond the desktop. ADAPT OR ... The proliferation of Internet kiosks in airports, truck stops, malls and other public spaces is partly the result of pay phone and vending machine original equipment manufacturers (OEMs) responding to flat pay phone market growth and pressure from the exploding Internet and wireless market. Some pay phone and vending machine players have responded to the Darwinian threat to their niches by evolving in one of two directions: The companies are either making next-generation Internet-enabled telephones with small PDA-type screens driven by the Microsoft CE operating system with limited Internet access or they are offering full-screen, full-service PCs like NNU's in East St. Louis. Such units feature Web surfing, e-mail, games and e-commerce with the swipe of a credit card or the insertion of cash. NNU's first Internet-enabled units shipped three years ago, and the company now claims to have 300 units in the field. "It's been slow, and there's been a lot of development work done," says Cody Catalena, NNU's senior vice president and chief technology officer. "But development has reached a substantial point now. People have gone from 'Wow that's interesting, but I don't really know what to do with it' to ordering units and placing them." According to Francie Mendelsohn, president of Rockville, Md.-based Summit Research Associates (www.summit.com)--perhaps the only consultancy devoted exclusively to covering the kiosk market--the Net-enabled kiosk sector is growing rapidly. She says the bipartite market--divided into Internet-based kiosks (essentially wired, pay-for-use PCs) and Web-enabled pay phones with limited browsing capability--will expand from several thousand units to hundreds of thousands installed within the next two years (see chart on page 58). SMELLING THE COFFEE Though growth in the public-access terminal market may have been sluggish compared to the expansion of e-commerce, kiosk and Web-phone player activity is expected to heighten beginning this year. Net Near U, with units in the U.S. (including Hawaii), Canada, the Caribbean and Central America, signed a deal in early June with Bell Atlantic for NNU to provide Bell Atlantic with Internet access terminals and proprietary remote management software, which Bell Atlantic will install and operate in several public locations. New Brunswick, Canada-based National Electronic Technologies (NET) began launching its Global VideoNET kiosks into North American markets on March 15, and Sarasota, Fla.-based Elcotel is currently shipping the Grapevine Web-enabled phone to sites in the U.S., and plans to have 1,000 in place by year-end 2000. The three companies are former pay phone or vending machine OEMs with extensive distribution networks in place. In June, NET inked an alliance with Cupertino, Calif.-based CMGI subsidiary AdForce, a server-based advertising management service. NET, which currently has about 1,000 units in the U.S., plans to expand its network to 40,000 of its Global VideoNET units within the next 16 months. For AdForce, the move is part of the company's larger strategy, called "EveryWhere," to deliver ads wherever a digital signal can be sent, including interactive TV and broadband, point-of-sale, kiosks and Web-enabled phone devices. Tim DePriest, AdForce's director of worldwide strategy, says the company will integrate banner ads, branding for news, weather, and other information or game sites, and rotating ads at the VideoNET kiosks. "There are many benefits for advertisers," says DePriest. "For one thing, unlike a desktop PC, public terminals can serve ads even when the terminals are idle." In March, NET also inked an agreement with America Online that will allow AOL members to access the AOL interactive services via the VideoNET terminals. "We are the only manufacturer of kiosks, worldwide, licensed by America Online at this time," says Brad MacPherson, president of NET. "It's very much the portal solution," says DePriest. "You will sit down, swipe a credit card or insert money, and be able to select between branded finance, news, e-mail, weather, sports, AOL or games." Advertising is served on menu pages. "We will make money the same way we do serving ads to the Internet: on a CPM (cost per thousand) basis for the volume of ads delivered." MacPherson says while VideoNET owners can set their own fee for use, the devices leave the factory with a default setting: $1 for five minutes, $2 for 12 minutes and $5 for half an hour. Design is Everything Summit Research Associates's Mendelsohn says that drawing traffic to public-access devices is a function of utility and design. "With a lot of units," says Mendelsohn, "a big problem is that people don't recognize what they are." She says that's not a problem with phone devices like Elcotel's Grapevine series, which look like sophisticated telephones. "It's drop-dead gorgeous and you know exactly what it looks like: a telephone." The Grapevine reflects Elcotel's commitment to retaining its foothold in the traditional telephone business, but moving beyond it with panache. "We spent almost three years in concept design for the Grapevine series," says Mike Nastanski, director of marketing and business development for the 11-year-old company. Besides the regular pay-phone function, Grapevine features a row of co-branded speed-dialing buttons to advertisers offering services a user at an airport or hotel lobby might want. "We're in the process of signing the largest flower company in the U.S. to be a co-branded speed-dial option," says Craig Hammond, advertising sales manager for Elcotel. The Grapevine provides Internet access via a Palm Pilot-sized high-definition color screen and a yellow modem/infrared PDA synching port on the bottom, with a smart-card slot. When in use, the graphic interface offers Internet service in a Windows CE-based environment, with five navigation buttons underneath the screen. When the high-definition screen is idle, it continually rotates advertising. "We have a central hub where we get information from the Internet, then reformat it and push it to each individual phone," says Nastanski. The company has placed over 100 Grapevine Web-enabled phones in Milwaukee and Indianapolis airports. Nastanski adds that Elcotel is also in the process of negotiating with a major telecommunications company for placement of Grapevines in the top three airports in the United States and several major business centers in New York. "By the end of the year, we will have at least 12,000 units out," he says. BACK END'S THE BEEF If design is the gravy, the beef for advertisers on public terminals and Internet phone devices is robust server-based back-end management, allowing companies like NET, NNU and Elcotel to monitor activity on each terminal and serve targeted ads. Kiosks offer not only data-mining capability, but the ability to insert very focused interactive and idle-terminal ads based on site, geographic location and demographics. "With the VideoNET," says AdForce's DePriest, "since we know where the unit is placed and the type of consumer frequenting each terminal, not only can we serve site-based advertising, which could be national or local, but we can get demographic targeting based on consumers who live in that community." MacPherson says each Global VideoNET terminal is remotely monitored by the Global VideoNET Information Services (GVIS). Machine owners can use the GVIS to accurately track all revenues per terminal, monitor all usage, track the URL's visited by users and monitor clickthrough navigation. Catalena of Net Near U says he can target ads to a community as well as to a location profile. "To truck stops, for instance, we can offer driver-related businesses. For an advertiser who is planning to launch a product in a given city, we can offer ads to all terminals there. We can selectively deploy ads based on any type of demographic you seek." He says that cost to user is typically 25 cents per minute, and 40 percent of customers use NNU machines to retrieve e-mail and 60 percent to surf. The most popular sites among NNU users are AOL, Yahoo!, MSN, Excite and Amazon. Elcotel's Nastanski says he's shooting for full replacement of telephones with the Grapevine Web-enabled phones, and the success of NNU's Internet terminals in East St. Louis may be a harbinger of things to come. "Truck drivers have a tremendous amount of down time, since by law they can only drive a certain number of hours a day," says Catalena. "So you have a captive audience looking for something to do." Sounds like the average captive audience at Gate 23.

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IQ News: Closeup - Terminal Velocity

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