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RealTime IT News

BlueLight.com Finds Bargain In Spinway

In a turn of events that reads like a passage from Oedipus Rex, Bluelight.com bought out its Internet provider Spinway, Inc., Monday for an undisclosed amount.

But whether Bluelight follows the path of the doomed son, who ends the life of his parent, remains to be seen as free ISPs around the country face experience considerable difficulty in the market and on Wall Street.

It's a story the company wants to rewrite, hoping to continue the success its online entity has been enjoying this year.

The buyout comes less than one year after BlueLight.com started its marketing experiment to offer free branded Internet service to online Kmart customers. Since December, 1999, company officials said it has garnered more than 5.2 million subscribers.

The deal couldn't have happened without the blessing of parent company, Kmart. For now, Randy Allen, Kmart executive vice president of strategic planning and chief information officer, feels BlueLight.com is providing a valuable service to its online community of customers.

"We fully support BlueLight in its decision to acquire the assets of Spinway in order to maintain its Internet service," Allen said. "Kmart and BlueLight both feel online shopping is a luxury everyone should be able to afford, especially during the busy holiday months. We want the Kmart customer to have an enjoyable, fulfilling shopping experience, whether it be online at BlueLight.com or in one of our more than 2,100 stores nationwide."

Allen no doubt has been looking at reports from online research companies like Cahner's In-stat, which said that 60 percent of U.S. households will access the Internet by the end of 2000, an increase netting an additional $2.2 billion in the dial up access industry.

The report also cited findings that said most Internet users name pricing as the most important factor in Internet services, with value-added services coming in a distant second.

Officials expect a smooth transition of service and have retained key employees from Spinway to ensure that, officials said.

The new ISP is also working with other bricks-and-clicks companies like Costco who were partnered with Spinway. It remains to be seen whether these other companies feel they would benefit from a service run by the competition.

If BlueLight.com can keep its customer base, it gains instant legitimacy as the sixth-largest ISP in the nation, with 2.8 million customers. If it doesn't, it could go the way of the dodo bird and several other free ISPs that have gone extinct.

Several free ISPs have put "For Sale" signs on its doors this year, most notably FreeInternet.com, WorldSpy and 1stUp.com. The only two major free Internet players remaining are Juno Online Services, Inc., which patterns its free model on the assumption its subscribers will upgrade to paying services, and NetZero, which remains solvent because of investor faith.

NetZero has yet to post positive earnings before interest, taxes, depreciation and amortization, but retains 3.6 active members, while Juno is the third largest ISP in the nation, with 3.7 million active subscribers.

Whether BlueLight.com can keep its standing as one of the nation's top Internet providers depends on its success keeping the many companies Spinway offered its branded free Internet services to, including Barnes&Noble, Costco and Speigel. BlueLight's acquisition puts the three in direct competition with Kmart, and it's doubtful the company would want to provide advertisements that potentially draw customers away from its site.

Mark Goldstein, BlueLight.com chief executive officer, said Spinway's undisclosed price tag justified the risk it was about to take.

"The cost of acquiring the core assets of Spinway was very modest for BlueLight and will have little impact on our current march towards profitability," Goldstein said. "BlueLight's Internet service is an invaluable marketing tool for t



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