Opening The Retail Outlet Channel

It takes a big direct sales forces to cover the waterfront in multiple markets. Channel partners, on the other hand, can help you get to lots of prospects quickly, and at relatively small cost.

It's perhaps especially important for data CLECs. Two that we know of recently opened up what could be the most lucrative and certainly the broadest resale channel of all: retail.

DSL.net Inc. (www.dsl.net) of New Haven CT completed a deal late last year with the Staples (www.staples.com) office supplies chain that involved investments from Staples. As part of the deal, about 10 stores so far have DSL.net sales kiosks promoting the company's business-grade DSL services.

Denver-based Jato Communications Corp. (www.jato.net), a data CLEC allied with Lucent, Qwest and Global Crossings, took this strategy one step further earlier this summer when it entered into a three-year partnership agreement with Office Depot (www.officedepot.com).

Cellular and PCS service providers, and cable ISPs as well, have been in the retail space for some time, of course, but mainly to sell to consumers. Jato, on the other hand, like DSL.net, primarily targets small and medium-size businesses. And as Jato president of indirect markets, Tom Hall, notes, selling business-class DSL is not quite as simple as selling prepaid wireless. 

"Our customers are not interested in technology, but what it can do for their businesses," Hall notes. "So an important part of our sales effort is to show them how they can use the technology. It's more than just signing somebody up for something."

Like Staples, however, Office Depot sells into the same small and medium-size business markets and has sales and marketing skills and experience with these markets beyond what most retail chains possess. It's a good fit, Hall says. 

Office Depot, with over 800 stores in the U.S. (Staples has over 900), clearly has a larger footprint than Jato for now. Jato is currently in 40 cities in 18 states - mostly Tier 2 and 3 markets. It's ambitious plan is to be in 120 cities by the end of 2000. 

Unlike the DSL.net-Staples deal, Office Depot won't just provide floor space. It will actually buy DSL circuits at wholesale prices from Jato and use its own sales staff to sell to customers - and not just in the stores. Office Depot in fact represents four distinct channels. It will also resell Jato's DSL service through its own direct sales force, at its Web site and in its catalogs. "We think the way they're approaching this is very progressive," Hall says.

In the stores, Office Depot will set up trade-show-style sales offices where customers will be able to test drive Jato's business-grade DSL service, use an interactive PC application to find out if their office is in the coverage area, check pricing and ultimately place an order. 

The first stores will be up and running later this year. "It's really unknown what the success rate is going to be," Hall admits. "But we both have very high expectations. We expect this to be enormously successful." He won't reveal what the target line commitments are for the first year.

Office Depot will only sell the Jato DSL offering. Jato, while it started out as a pure data CLEC, now also sells ISP services - access, hosting, etc. - and will add application services in future. Office Depot will sell its own branded ISP services, which makes this a typical 21st century kind of partnership. Call it co-opitition.

Hall acknowledges the potential conflict. "We think it's important to manage that conflict, though," he says. "You absolutely need to employ multiple marketing channels to succeed in this business."

Jato has three different channel models: wholesale, agent and referral. It has already signed up 50-plus resellers to which it wholesales DSL circuits. They include ISPs and VARs of various stripes, mostly local and regional players. It also has some agents, VARs that pre-qualify and in some cases sign up customers on behalf of Jato. Referral partners simply pass Jato leads to customers interested in DSL.

Meanwhile, the Office Depot deal is not exclusive to either party, and based on its success in completing this one, Jato is now looking for other opportunities. "We're talking to others in the retail sector," Hall confirms. "It's clearly something we're interested in doing."

Could it be a strategy for other CLECs - even voice CLECs? Notwithstanding that the Office Depot and Staples deals are non-exclusive (Staples is also working with Bell Atlantic), those chains may not be interested just yet in considering other suppliers. 

But if you packaged it in the right way, a local or regional office supplies chain - or even a single store - might well be interested. And the thing is, retailers will turn up very small business customers that would be too expensive and time-consuming for direct sales people to find and close.