BlueLight.com LLC, the online unit of Troy, Mich.-based Kmart Corp., this week agreed to acquire select assets of troubled Internet service provider Spinway Inc. before that company went out of business. Spinway provided the free Internet access for BlueLight's customers, and those of other big-name Web sites offering free service such as Barnesandnoble.com Inc.
"We're pleased that BlueLight will be continuing the service because that means there's not going to be any interruption for our customers," said Gus Carlson, a spokesman for New York-based Barnesandnoble.com.
Besides Barnesandnoble.com, Spinway customers Costco Wholesale Corp. in Issaquah, Wash., and Spiegel Inc. in Downers Grove, Ill., opted to continue with the Internet provider under its new ownership, though all others have chosen to redirect to another provider. Those customers include Capital One Financial Corp., Yahoo Inc. and OurHouse Inc., said BlueLight spokesman Dave Karraker.
Under the terms of the agreement, San Francisco-based BlueLight will acquire the Sunnyvale, Calif.-based Internet service provider's intellectual property, physical office space and 30 employees, said Karraker. No dollar figure was announced.
"Spinway was going out of business, which would have left us in a lurch at the busiest time of the year," said Karraker. "We were determined not to allow that to happen."
BlueLight.com successfully marketed its free Internet service through Spinway to more than 4 million Kmart retail customers. But Spinway's revenue model - based on selling advertisers a package that included a combination of TV commercials over the Internet, banner ads and additional branding opportunities - wasn't enough, or it at least suffered from the demise of the dot-coms inclined to use those services.
"The general Spinway business model to co-brand with brick-and-mortar companies was a terrific business model," said Lydia Leong, a principal analyst at Stamford, Conn.-based Gartner Group Inc. "It brought customers to the table who might not have had Internet access. However, it was dependent upon advertising, and dot-com companies have spent a lot less money on ads in the last few months."
Other free service providers that relied on ad dollars also haven't survived. Those include San Francisco-based 1stUp.com Corp., which delivered 3 million of AltaVista Co.'s 5.5 million paying and nonpaying customers. Gary Baker, a spokesman for New York-based Juno Online Services Inc., one of the few remaining providers that offer free Internet service, said Spinway's business wasn't diversified enough.
"Free [service] is a very important part of our business model, but it's not all that we have," said Baker. "We also have 750,000 subscribers that actually pay us each month. They generate 60% of our revenue."
Although BlueLight plans to continue offering unlimited free access through the holidays, the company says it will eventually re-evaluate the business model, said Karraker. "The unlimited free model as it was built by Spinway does not work," he said. "Otherwise, they would still be in business." However, Karraker said, BlueLight "will always have some form of free Internet access."
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