EarthLink calls on retail
When it comes to selling VOIP and broadband, there's no place like stores, the ISP says
By Owen Thomas, Business 2.0 Magazine online editor

SAN FRANCISCO (Business 2.0 Magazine) -- In the busy, ever-changing financial district here, stores come and go in the blink of an eye. But Market Street's newest tenant isn't planning to stay long.

Last week, EarthLink (Charts) opened up a temporary store hawking its DSL and VOIP products in downtown San Francisco. It's the second store EarthLink has opened in order to experiment with marketing broadband via a retail venue. Its first temporary store, which opened in Seattle in June, is closing this Friday.

In the San Francisco store, blue- and white-shirted employees waved passers-by inside for demonstrations of EarthLink's latest products, including high-speed DSL and three different kinds of VOIP.

"It's about getting the word out," says Steve Howe, EarthLink's vice president for voice. "We've got new products."

A case of Apple envy?

The unexpected success of Apple's (Charts) chain of retail stores has Dell (Charts), Nokia (Charts), and Motorola (Charts), among other tech players, opening their own retail stores. But EarthLink appears to be the first Internet service provider to try selling broadband in its own bricks-and-mortar environment.

Part of the reason why EarthLink is trying out temporary stores is that it's rolling out a dizzying array of products that can benefit from a one-on-one sales pitch.

EarthLink has started offering a new kind of VOIP called line-powered-voice, which uses existing phone lines rather than requiring customers to hook special adapter boxes up to their high-speed Internet connections. With DSL, the service is $69.95 a month, but the service is only available in the Bay Area, Dallas, and Seattle for now.

For $24.95 a month, EarthLink is selling its TrueVoice VOIP service, which, like Vonage, requires a special box but is available anywhere in the United States. And it's also offering free PC-to-PC VOIP calling software that is similar to Skype, called Mindspring.

On top of that, EarthLink is peddling Wi-Fi in Anaheim, Calif. - with other cities on the way - and it's selling nationwide cell-phone service through its Helio joint venture with SK Telecom.

Retail is a difficult environment for broadband products, says Keith Dalrymple, a communications analyst at New York Global Securities, an investment bank. Broadband companies typically pay retailers like RadioShack, Circuit City and Staples a fee for prime placement of their products, as well as commissions when customers sign up for service at a store.

Vonage, which signed up 14 percent of its new VOIP subscribers through retailers like Best Buy in the first quarter, blamed an increase in in-store marketing costs for part of a 59 percent jump in its marketing costs in that quarter to $32.9 million.

But unless broadband providers pay up for prime placement, their self-install kits, routers, and other equipment can get exiled to the back of the store. Instead of locating VOIP products near regular phones, for instance, most stores lump them in with wireless routers and other high-tech products, Dalrymple points out.

Cost of doing broadband business

Still, these retailer fees haven't deterred broadband service providers from expanding their retail presence. Comcast, the nation's largest cable provider, signed a deal with Wal-Mart (Charts) in April to market self-install kits for its high-speed Internet service in 500 of the discount retailer's stores.

Such retail deals seem to be paying off: Comcast announced that sales through its retail channel, which include Staples, Best Buy, CompUSA, and Circuit City, increased by almost 50 percent last year. Comcast also maintains kiosks in malls in areas where it offers service, selling broadband self-install kits and taking sign-ups for video service. And it plans to sell its Comcast Digital Voice VOIP service through retail stores next year, a spokesperson says.

For EarthLink's potentially confusing menu of broadband and VOIP services, having its own retail presence may make sense more for marketing purposes than for generating sales, says Dalrymple.

"They're trying to get the word out on line-powered voice, which is a bit of a different animal from your standard broadband and VOIP products," he says. "The stores themselves might not drive a lot of business, but they might drive awareness."

And despite the relative expense, EarthLink is also selling its broadband service through retailers like Best Buy and Circuit City. In the Bay Area, it recently signed up Fry's Electronics to market its line-powered voice service which combines DSL and VOIP.

Buying broadband and VOIP at retail isn't for everyone, says Joe Laszlo, an analyst at JupiterResearch. "Younger users are savvy enough that they probably don't need retail so much," he says. "They'll comparison-shop online. It may be older users that benefit more from retail and from talking to a brand representative. A friendly, knowledgeable human being can address things like security concerns in relatively plain English for them."

EarthLink's Howe says that the company's shift towards retail is inevitable, given the change in its product lineup and the competitive landscape.

"As the world has evolved, how you convey consumer benefits has changed," he says. "You know there's this thing called the Internet already, but here it is faster and cheaper."

Just as Apple found it's easier to show the differences between a PC and a Mac in a store than explain them in an ad, EarthLink is hoping that it can convince would-be subscribers that its DSL and VOIP offerings are something special.

Playing up distinctions between different kinds of broadband isn't the easiest sell - but it's easier if you've got your own storefront. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.