Orange County tech entrepreneurs Chad and Ryan Steelberg aren’t afraid to wear their confidence on their sleeves. In fact, they’ve printed up T-shirts for the staff at Broadband Digital Group that sum up their response to skeptics who doubt the feasibility of their newest venture, a free high-speed Internet service:
“FreeDSL? Now that’s a big pipe.”
The double entendre is a sly retort to the question Chad Steelberg, BDG’s chairman and CEO, says he gets all the time,whether the pair is “smoking crack” when they say they can make money giving away a service their competitors charge up to $60 per month for. FreeDSL launches this week in a torrent of media attention and questions about whether the service can make money.
The Steelbergs say it can, and are revamping their business plan in what will be an industry first: variable-rate data subsidized by broadband content providers or paid for by subscribers on a pay-as-it’s-used basis.
Thanks to a pricing model developed in recent months that enhances anticipated advertising revenue with money from Internet content providers and new software that allows pay-as-you-go billing for temporary boosts in connection speed, they’re looking to prove their critics wrong sooner than expected.
Both notions are untested, but Chad Steelberg says they’re the first of at least 50 patent-worthy ideas coming out of BDG’s 65-person engineering department.
Software created by the company’s development staff allows BDG’s $200 digital subscriber line modems to adjust connection speeds on the fly and makes it possible for the company to pre-store web site data on intermediary servers connected more or less directly to BDG subscribers. That makes it feasible for content providers such as Yahoo! or MP3.com to pay BDG to transmit their web content to customers at higher-than-normal speeds, subsidizing customers’ connections when they use those web sites.
A similar concept touted by Internet newcomer Akamai Technologies,which, for a fee to web-site operators, stores graphics-intensive parts of popular web pages on hundreds of servers geographically closer to users than the web sites’ centralized primary servers,has caught on like wildfire. The technology speeds up customers’ web sites, whose ease of use is crucial to the success of any Internet company.
BDG’s software would perform a similar function, but accelerate the actual connection rather than just the server speed. Chad Steelberg says Akamai’s performance (it went public in October and has a market capitalization of about $15.8 billion) bodes well for his company’s prospects.
In addition, BDG’s infrastructure allows customers to temporarily upgrade their Internet connection,for a fee,when they need the boost in speed for special circumstances, such as when sending a large file or transmitting video.
The company is offering free 144-kilobits-per-second connections supported by pop-up advertising, a $9.95 ad-free version of the service, a $19.95-per-month, ad-free 384-kilobit-per-second version and a $34.95-per-month 1.54-megabit-per-second version. In comparison, the fastest standard dialup modems transmit data at about 53 kilobits per second.
Neither brother is giving a time frame for BDG to reach the break-even point, let alone when they expect to make a profit. But they estimate their cost per customer to be around 20 cents per hour, about the same per-hour cost as dialup services like NetZero that don’t have much opportunity to collect revenue beyond advertising and e-commerce referrals. And that cost is dropping rapidly.
BDG also got a boost from a reported deal with Newport Beach-based Conexant Systems Inc. that will have Conexant invest in the company and supply high-speed modems to be bundled with the FreeDSL service.
At least one other Orange County company appears to be entering the free broadband market, an existing Internet access provider that is rumored to be looking at the concept. But so far, the brothers consider America Online, which is occupied by its merger with Time-Warner but reportedly interested in subsidized broadband access, their biggest threat.
The brothers worked closely with AOL when the Internet behemoth took a stake in their previous company, AdForce.
“We’re in the spotlight now, but it’s about 4:45 and the sun’s going down,” Steelberg says, recounting a speech he gives frequently to his employees. “It’s getting dark and we don’t have a single stick to defend ourselves.”
That stick, he says, is the company’s technology.
“If we can pull this off, it’s game over for the industry as we know it,” he says. n
