From...

July 7, 1999
Web posted at: 11:48 a.m. EDT (1548 GMT)

by Bernhard Warner

(IDG) -- Could the British, with their appetite for free ISPs, teach the rest of the world a trick or two about e-commerce? The blokes at Zoom, a free ISP from the U.K. retailing giant Arcadia Group, think so.

Launched this month in the U.K., Zoom combines e-commerce and free Internet access. Well, almost free. British telephone companies still charge users, regardless of the ISP, by the minute, as they do for all local calls.

Zoom is hardly the first company to provide no-fee access. In fact, the U.K. has become the land of the free ISP. With Zoom's launch, three major retailers have jumped into the fray, including Dixons, the country's largest electronics and appliance chain. Dixons' Freeserve service has become the U.K.'s leading ISP, with twice as many subscribers as AOL Europe. And Freeserve has filed to sell stock to U.S. investors.

With Zoom, consumers have no obligation to buy products from Zoom or its 17 online retailing partners. But Zoom is betting the typical U.K. online shopper eventually will buy something from one of its partners, which include Amazon, Ticketmaster, music retailer HMV and auction site QXL.

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Arcadia makes its own clothing lines, so it's no surprise that Zoom is heavily focused on apparel. A "fashionbot" comparison-shops through Arcadia's many labels and those of competing manufacturers. Zoom also has deals with Yahoo, the online dating service Match.com and the Daily Mail newspaper.

Eva Pascoe, managing director of Zoom, says Arcadia wants to encourage its 15 million Arcadia store credit-card holders to shop online. Arcadia can communicate more cheaply with customers via e-mail and targeted online advertising than via direct mail, so it is using Zoom to collect e-mail addresses and shopping data. The reduction in direct-marketing costs should more than offset the Internet access costs, Pascoe explains.

"If you can save 20 percent to 30 percent a month on mailings, you're talking massive numbers," Pascoe says, adding that the venture should be profitable when it hits 200,000 customers.

Pascoe notes that, thanks to the regulatory structure of the U.K.'s telephone system, Zoom makes money even on users who just window-shop. The phone company pays Arcadia a percentage of revenue for calls generated by Zoom users. Meanwhile, Zoom is flush with advertising messages. And when consumers purchase on Zoom, the company collects a commission.

In July, Zoom plans to launch both a Zoom-branded online credit card and a loyalty program that gives shoppers points for more free stuff.

Pascoe believes the Zoom model can work in the U.S. Zoom's newest American counterparts are companies like DirectWeb and Gobi, which give away a PC and cheap Internet access, but have yet to figure out e-commerce models. While the U.K. has economic factors in its favor, she says the most important factor is brand loyalty. Sounding eerily like Amazon's Jeff Bezos, Pascoe says, "Nobody should know more about you than your favorite retailer."

"Internet access," says Pascoe, "is not about pipes and telephone line. That's the mistake they make in the States."

GOD SAVE THE FREE SCREEN

Three major retail chains in the U.K. have entered the free-ISP market. Based on either advertising, e-commerce or kickback fees from phone companies, these businesses are redefining the access business.

COMPANY	PRODUCTS	PRICING	CUSTOMERS
Arcadia Group	$3.5 billion apparel retailer, with stores in Europe and the Middle East, operates the Burton, Principles and Dorothy Perkins chains.	Similar to Dixons' Freeserve, except it collects bounties on all sales leads it generates to partners. The company hopes to turn its 15 million store credit-card holders into online shoppers.	The company is in talks to buy Sears Group's fashion chains, including Wallis, Warehouse, Richards and Miss Selfridge.
Dixons	U.K.'s top appliance and electronics chain operates 950 stores, including the Link, Currys and MasterCare.	Free access with customary ISP features. Only charge is a per-minute dial-up fee that the user pays to the phone company. Revenue comes from advertising and through collection of a share of phone charges.	Aside from gaining notoriety for launching the first free ISP in the U.K., the company was a hit with a major PR problem last year when Intel publicly attacked the company for over-charging for computers.
Kingfisher	$10 billion retailer owns chains such as Woolworth's, B&Q and Comet.	Operates in France, plans to expand to other European countries. Free e-mail, Web browsing and some homepage-building. Ad-supported; hopes to negotiate a commission from telcos.	It recently lost out to Wal-Mart in a bid for Asda Group, Britain's third-largest food retailer.