Bluelight Secures $80M
2nd Round Funding

Kmart (of course) and Softbank stump up loads of working capital for the free ISP/merchandising vessel. Will it be enough to keep the venture afloat? Sail it to profitability?

by Jayson Matthews
Asssociate Editor, siliconvalley.internet.com
[August 17, 2000]

San Francisco-based free Internet service provider (ISP) Bluelight.com, Kmart Corp.'s creative online manifestation of the "bluelight" special, announced this week the closing of its second round financing at more than $80 million.

While most of the funding came from the dotcom's mom (Kmart coughed up $55 million), venture capital giant Softbank Inc. also jumped in with another $25 million, totaling an impressive load for a big player in a market analysts all say is destined for major consolidation in the coming months.

The company says the funds will be used primarily for adding to its inventory of online offering, which is the primary means through which the ISP earns its revenue. Users of the free dial-up service can already buy more than 100,000 products through Bluelight, a number the company says it will increase five-fold in the coming months.

Like all of the free ISPs, it remains to be seen whether Bluelight will be able to survive the flurry of buyouts and back downs already spreading throughout a market of more than 100 players of all shapes and sizes. Recent reports from Forrester Research suggest only two or three of the big free ISPs will still be connecting customers by this time next year.

"We expect to break-even by [that time]," asserts Bluelight.com CFO Christopher Lein.

All the right stuff?
BlueLight.com's free ISP is actually a result of a partnership between Kmart (for product), Santa Clara-based Yahoo! (for content), and Sunnyvale-based Spinway.com, the last of which provides the technology and customer service behind the dial-up. Spinway and Yahoo! have also partnered to provide services to other off-line organizations in an attempt to help them build their brands online.

"In opposition to Juno's business model—the largest of the free ISPs so far with over 10 million subscribers [see ISP-Planet's Ranking of top ISPs]—which brands itself to end consumers, Spinway leverages the customer loyalty and brand recognition of leading off-line leaders, such as Kmart, which are creating a presence online," says Cheryl J. Bella, a public relations executive for Spinway. "This has enabled Spinway to rapidly build its advertising network to over four million consumers in only seven months, and over three million on Bluelight, making it the fastest growing free ISP ever.

Fast growing? Yes. Money making? That's doubtful, at least in the short term. If the Kmart/Bluelight/Yahoo!/Spinway play does manage to extend its product offering past 500,000 items as it plans, it will be considerably more than are available at Kmart's 2,170 brick-and-mortar stores, which serve far more than Bluelight's current three million consumers.

Kmart's recent second-quarter earnings report also revealed that net (no pun intended) income fell to $33 million from $69 million during the same period last year, mostly due to what the company would only describe as "soft sales." Kmart also said it will close about 70 stores this year.

—End