Suddenly broadband Internet access has become a loss leader.
Urban Media, a start-up
communications company slated to launch today, plans to give
free high-speed Internet access to small and medium-sized business
customers, hoping to make money by getting them to buy a package of voice
and other data services.
Formerly code-named Project Liberty, Urban Media was founded earlier this
year by three former @Home Network executives. The company has struck
partnerships with several real estate companies and property management
firms in order to wire their large office buildings for a variety of
communications services and then sell them to business tenants who are using
Urban Media's free Net access.
Essentially, the Palo Alto, Calif., firm hopes the attraction of free high-speed Internet access will result in strong sales of its other services, offsetting the money it loses on free broadband. The strategy is not unlike retail outlets that sometimes sell an advertised item at a steep loss in order to attract consumers into their stores.
"Our model is all about selling additional services to these registered users with which we have the free broadband relationship," said Urban Media chief executive Sean Doherty, the founding chief operating officer at @Home Network and a one-time partner at Shoreline Capital Partners.
Urban Media already has partnerships with Liberty Property Trust, Prentiss Properties and Trammell Crow--all of which took equity stakes in the company in exchange for early funding--to string fiber optic cables and copper wires in more than 350 million square feet of office space. The company hopes to strike alliances with other real estate investment trusts (REITs), property management firms and even some pension funds, which often are large property owners.
Company executives are betting that building owners will promote their Urban Media wired offices in order to attract prospective tenants in the competitive commercial real estate industry. "The building owner makes [broadband data connections] an amenity in order to entice higher occupancy rates," Doherty said.
Urban Media's strategy is not entirely new--analysts say the market used to be referred to as "shared tenant services."
Many competitive local phone companies, such as MFS Communications and TCG, as well as fixed wireless companies Teligent and WinStar Communications, operate as so-called on-site service providers (OSPs). Such firms install
technology in office buildings to serve business customers' communications needs.
Allied Riser, which publicly offered stock for the first time in October, provides similar services. And Silicon Valley venture capital heavyweight Kleiner Perkins Caufield & Byers has given funding to Broadband Office, a comparable
Free high-speed Net access is just the beginning for Urban Media, which also plans to offer local and long distance phone service, e-commerce services, Web hosting, application service provider (ASP) functions and other offerings through a variety of partnerships.
Company executives believe many office building tenants will sign up for additional services from Urban Media because it will be easier and faster than researching new technologies themselves and waiting for larger, established companies to provision service.
"Once we've got the building [wired], then we're done. The tenants can get
whatever service they want," said Paul Mockapetris, Urban Media's chief technology officer and a former engineering executive at @Home. "As new tenants come into the building you can provision those customers almost instantly, rather than 30, 60, 90 days later."
The company intends to offer its service in ten markets next year, initially
activating service during the first quarter in Philadelphia, the Dallas-Fort
Worth and Houston areas of Texas, and in northern Florida. Urban Media will
offer the free high-speed Net access in those markets as early as January
with voice services coming in May or June of 2000.
Executives said Urban Media expects to announce at least one long distance
company as a partner within 30 days, and the company will detail additional
venture capital funding in about three weeks.
Analysts say the business model can be successful if companies such as Urban
Media can gain access to a large number of office buildings.
"The basic shtick is every one of these companies is trying to get an exclusive, or quasi-exclusive, deal to get access to the folks in the building, because that gives them a measure of control," said Jeannette Noyes, a telecommunications analyst at International Data Corporation. "Is [the strategy] going to take over and dominate the market? I doubt it. But it'll be one model. There's a role for them to play in bringing a full
package of services to the end user."
Noyes said the "shared tenant services" companies have sometimes faced challenges in the past in getting building owners to allow them access to the offices. But free broadband Net access could be an attractive gimmick, she said.
"I think it's a reasonable hook because broadband access is going to fairly quickly become a commodity anyway," Noyes said. "[Urban Media is] sort of
leading that wave. It's a good hook for establishing a relationship with these business customers."
Urban Media is only the latest example of a second-generation start-up stemming from @Home. For example, Project Skytalk, a digital imaging company, also features several former Excite@Home executives.