IQ Interactive Special Report: It's All Net

Can Bluelight.com get the attention of Kmart shoppers with a free ISP and stock offers on its site? When Kmart launched its Web site, Bluelight.com, in 1999, the news made quite a splash. Things have been a bit quiet since then, though, and there's still not much merchandise for sale on the Troy, Mich.-based Kmart's site. Is the retail discount giant making a sluggish online debut, or simply establishing itself with all deliberate speed? "It hasn't taken [Bluelight.com] very long, when you think of other stores," says Charlene Li, a senior analyst at Cambridge, Mass.-based Forrester Research. " We're still very early in the e-commerce space. There's lots of time there. While it's true that Bluelight.com is coming from way behind in the field, their powerful partners and real world assets will stand them in good stead." In contrast, Li cites Paramus, N.J.,-based Toys "R" Us as an example of a bricks-and-mortar company that hasn't been able to transition successfully so far. "The site broke a lot. At some point fairly well before Christmas, the company issued a statement that it couldn't promise the orders would arrive by Dec. 25," says Lee. Bluelight.com's attenuated list of product offerings at least makes it likely that the San Francisco-based Bluelight.com won't have problems similar to those of Toys "R" Us, Li says. "Kmart is learning what are the things people are most interested in buying online and not taking on more than it can handle," she says. Bluelight Special? One of the things that distinguishes Bluelight.com from other major online discount store sites such as Wal-Mart of Bentonville, Ark. and Minneapolis-based Target is its attempts to establish itself as a Net entity. The site offers a free ISP service and the option to purchase Kmart stock on the site. It has a different name than Kmart and is based in San Francisco, not Troy, Mich., Kmart's home base. It's true that Bluelight.com is not totally unique in its Net-centric efforts. Target, for example, has had a Web site for several years, and last year launched several additional sites, including a catalog site. And both Target and Wal-Mart have more established sites with larger inventory. But Bluelight.com is arguably the most Web-focused major online discount retailer. "The biggest difference between Target, Wal-Mart and Kmart's sites is Kmart's free ISP service," says Ken Cassar, a senior retail analyst for New York-based Jupiter Communications. Free ISP service is becoming a standard offering on most portal sites. Like television, it is subsidized by advertising dollars. When a user connects to the Internet via a free ISP service, the sponsoring company's logo and ads show up in various places, generally on the desktop and perhaps in the browser window. By offering a free ISP service, Bluelight.com strengthens its Net presence and its brand as well. The company uses Palo Alto, Calif.-based Spinway.com, a provider of co-branded, free dial-up Internet access, to power its service. This gives Spinway.com the benefit of Bluelight.com's reach, and Bluelight.com gets an added service to offer its subscribers. Yahoo! of Santa Clara, Calif. is also a partner in the deal with Bluelight.com and Spinway.com. When users log on using the free service, a co-branded My Yahoo! start page with Bluelight.com shopping options comes up. Bluelight.com also advertises in the Yahoo! shopping area and across the Yahoo! network. Sign up, Aisle 3 Kmart has taken an integrated approach to the ISP offering. Users can sign up for the service on the Bluelight.com site, an offer that is currently displayed at the top of the homepage. There is a link to the service from Yahoo!'s front page in the market section. And the disks for free ISP service are available in 2,200 Kmart stores. "The stores are driving more users than Yahoo right now," says Danny Robinson, CEO and founder of Spinway.com. "If I had to guess I'd say people on Yahoo! are already connected to the Internet and people in Kmart might not be connected. Plus when you're in the store it's a tangible thing. You can hold the disk in your hand and you bring it home and give it a shot." Spinway's other customers include NBC, CollegeClub and Tutopia, a Latin-American portal. The company has the same type of partnerships with these companies as it does with Bluelight.com, and is negotiating some deals with other major bricks-and-mortar retail stores as well. The December 1999 announcement of the Bluelight-Yahoo!-Spinway.com partnership made quite an impact. The service signed up its millionth subscriber after about three months, marking a significant step toward establishing Bluelight.com's online presence. Not everyone sees it quite this way, however. "Just about anybody who wanted to could get into the business of giving away ISP services," says Jerry Storch, president of new business for Target. "At Target we're the upscale store so we sell premium products, and it's our belief the consumer wants Internet service without the nuisance of persistent windows characteristic of free ISPs." Storch feels that "ultimately, free ISP service either has to be lower quality than the services which charge or lose a lot of money. It costs between $10-$15 a month to provide quality Internet service." No Busy signals Spinway's Robinson responds, "The service we are providing has customer support as good or better than most of the paid ISPs out there. If you want to talk about dialup or busy signals, we get less busy signals than any that I know of. This is because we have a redundant dialing system which reduces our cost and results in a higher availability of the service." Though Robinson refused to specify numbers, he said, "That dollar quote is way higher than our cost." Robinson adds, "We wouldn't be around if the users couldn't use the service. They would just leave because it is as easy to leave as it is to get on." Though the Target site is better populated with goods than Bluelight.com, Analyst Cassar says there is nowhere near the same number or variety of products for sale on Target.com or Wal-Mart's sites as there is in the bricks-and-mortar stores. Storch responds, "I would agree that we could have more and we are adding more. We will keep adding through 2000 and will have more than four times as many items." Storch defends Target's Web presence vigorously, pointing out that the company is bringing its bridal registry, Club Web, which is something of a natural for the Internet, on line this year. This move on Target's part underscores the philosophy, "To survive on the Internet, you have to have an Internet mentality," as Spinway's Robinson puts it. Whether or not Bluelight.com has achieved this condition, the site does appear to be headed in the right direction. "Bluelight.com is morphing into a Web-based entity, and any way a company differentiates itself and extends its brand will yield dividends in the future," says Stephen Klein, CEO of the San Francisco-based Stockpower, which enables the site's online stock buying program. Stocking Up "This is a new and formidable distribution for Kmart and they're leveraging it in many ways. One way is by offering customers an opportunity to buy the company as well as its products." To buy Kmart stock on the Web site, users click on what is currently a rather unobtrusive link on the left-had rail of the homepage. They are transported to a page where simple instructions lead them through the stock buying process. Klein comments, "When you make someone a stakeholder, they become more loyal. We have data that indicates on average if you were a shareholder in Kmart and a customer you would visit the Web site 68 percent more on average than if you were just a customer." Klein says the volume of stock sales on the site is going up. Kmart seems to feel positively about the arrangement. "We are very pleased with Stockpower's performance so far; it has only been up eight or 10 weeks. We are happy with the activity on it right now and look forward to it building," says Mary Lorencz, a Kmart spokesperson. If Bluelight.com's stock purchasing service and free ISP offering are key elements in its Internet identity, another important element is the attitude of its executives, who affirm the site's independent status. "We are not Kmart.com, but Bluelight.com," says Frances Maier, vice president of marketing for Bluelight.com. "It's our intention to extend the brand and go places where Kmart might not go. We're not just promoting Kmart." Maier says efforts by Kmart and the site to integrate promotions have been successful. "Bluelight.com was mentioned in a radio spot Kmart ran to advertise the free ISP service. People can get information on Bluelight.com at over 2000 Kmart stores. This all drives traffic to the site, which in turn drives traffic to the store," Maier says. Bluelight.com was formed in 1999 by Kmart, which owns 60 percent of the company, and major investor Softbank Investment Capital, which put over $60 million into the deal. Commenting on the competition, Maier says, "Kmart was the first to partner with a VC partner; Wal-Mart followed. We were the first to do an ISP relationship; then Wal-Mart did a deal with AOL, though it's not free." Wal-Mart did not return phone and e-mail messages. WHAT'S IN STORE? Maier acknowledges that there's not much to buy on the Bluelight.com site at the moment, but says, "Right now we're in preview mode. What's up right now does not reflect the full scope of our partnership with Kmart. Bluelight.com is ramping up and intends to have around 100,000 items for sale on the site by early summer 2000." Kmart "has tremendous buying power," Maier says, and "we intend to leverage that. Kmart has exclusive brands and merchandise, such as the Martha Stewart line and the Route 66 line, and we will offer them soon." Ken Cassar, a senior retail analyst for Jupiter Communications of New York, agrees that Kmart's strength lies in its brands and says that is what Kmart should be selling online. He also applauds the ISP offering: "The adoption of a free ISP service was a smart one, especially the way they financed the deal. As far as I can tell Kmart didn't commit any cash, just their brand name and participation." Overall, Bluelight.com appears to be more like a grande dame deliberately plotting her strategy than a slow-moving behemoth making a tardy entry on the scene. Adding to this impression, Maier says, "We plan to integrate our offerings by placing Bluelight.com kiosks in the stores. We intend on touching the Kmart/Bluelight.com customer everywhere she goes." Cassar approves. "What Bluelight.com really needs to do is offer Kmart customers the opportunity to buy whatever they want to buy wherever they want to buy it. If they're at home with their computers, they should be able to buy from home. Kmart has to accommodate the customers' needs, wherever they want to be."

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IQ Interactive Special Report: It's All Net

Janis Mara

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Janis Mara