Winfire Inc., a high-speed Internet access provider hoping to catch fire with consumers and advertisers, has been busy trumpeting deals with businesses lately.
The Newport Beach-based company recently has detailed a string of agreements that include everything from wholesale Internet service from telecommunications firms to music videos from record companies.
The shift toward alliances with other businesses comes at a time when industry experts are fretting about slumping online advertising, a situation that could hinder Winfire’s already uncertain business plan.
The company, which is wrapping up a new round of venture funding, aims to offer a basic package of digital subscriber line Internet access for free and make money by selling advertising and charging for even faster connections.
Analysts say Winfire’s move into business services isn’t surprising.
The Internet access market “is in its adolescence,” said Rob Lancaster, an analyst with The Yankee Group. “It’s starting to figure out the direction of its life and it’s realizing that the ad-based model is not the only model that will work. There’s going to be consolidation in this sector, and the ones that are going to survive are the ones that are able to bring in revenue other than just advertising.”
Other sources of revenue include referral fees for online sales and partnerships with companies that provide news, music and other forms of content. Not surprisingly, Winfire has announced several agreements that fit those categories.
The 9-month-old firm, founded by Orange County wunderkinden Chad and Ryan Steelberg, has announced a series of agreements with companies such as Williams Communications Group Inc. and Verizon Communications Inc. for wholesale Internet access; House of Blues Digital Inc. (the online arm of the music-themed restaurant chain) and Universal Music for programming; and DoubleClick Inc. and JFAX.com for services aimed at customers and advertisers.
And Winfire recently touted the response rate to an advertising campaign conducted with credit card firm NextCard Inc., notable because advertisers have become increasingly skeptical about the effectiveness of banner ads that grace the top of most Web sites, a category already suffering from a pullback in spending by dot-com companies.
Still, many believe there’s a huge untapped market for advertisers who so far have stuck with print, radio and television ads. Winfire hopes to snag many of those with its television-like advertising, possible only through high-speed connections and highly targeted because of demographic information the company collects in the sign-up process.
Teaming up with outside firms always has been part of the plan, & #341; la America Online Inc.,and Winfire’s announcements have increasingly emphasized its business partnerships. Lancaster said companies that provide free dialup connections are adopting the strategy as a way to share marketing costs with business partners.
Part of the Steelbergs’ business plan always has included up-selling service: offering faster connection speeds for a fee. Several well-known ad-supported Internet services have embraced the idea, including 1stUp.com Corp. and Juno Online Services Inc., which now offers high-speed access. Unlike Winfire, Juno does not subsidize any high-speed offering with advertising.
The Steelberg brothers say the Winfire strategy is working, with the majority of users opting for the company’s upgraded service. About two-thirds of their customers have signed up for the $10-, $20- and $35-per-month plans, they say. The company originally expected just 20% of its customers to upgrade to the paid service.
So far, investors have pumped more than $23 million into the venture, not counting a $50 million to $75 million round company officials have said they’re close to wrapping up.
The Steelbergs have poured in much of their own fortune, using money from the windfalls of their previous venture, online advertising firm AdForce, which they sold to Andover, Mass. Internet firm holding company CMGI Inc. for more than $500 million last year. It’s not clear how large their stake was.n
