America Online Inc., the leading Internet provider for consumers, is about to have another go at the business market.
Early next year, Dulles-based AOL plans to roll out a new service aimed at users from small businesses and home offices, Ted Leonsis, president of AOL's interactive properties group, said yesterday.
Leonsis said the still-unnamed offering will be a new AOL "brand"--much like its regional Digital City guides--that will be available across all of AOL's properties, including its fee-based online services and its free Web sites such as AOL.com.
The project, code-named Free Agent Nation, will offer a place for business owners to meet and buy products and services from one another, as well as to find information helpful to running their companies, AOL officials said.
Free Agent Nation is the first toe in the water for AOL in what many consider to be an enormously lucrative business-to-business Internet market. If successful, other related initiatives are expected to be launched soon after, although AOL would not give specifics.
"It's yet another way to monetize their audience," said William Whyman of Legg Mason Wood Walker in Washington.
Some analysts suggest that AOL's next step could be changing Netcenter--the general-interest gateway site of Netscape Communications Corp., the Internet company AOL bought earlier this year--into one that focuses on small businesses. AOL could overlay electronic-commerce applications on customized business sites it builds for Netcenter clients, they say.
AOL in November plans to relaunch Netcenter, spokeswoman Ann Brackbill said, although she would not provide details.
Still, as the projects become more complex, Whyman questions how AOL will compete against e-commerce powerhouses such as International Business Machines Corp. and Microsoft Corp., which have much more experience with corporate clients. "I think it will be a real challenge for them," he said. "It's just not what they're about."
Online business-to-business commerce by U.S. companies is predicted to grow from $109 billion in 1999 to $1.3 trillion in 2003, while the smaller business-to-consumer market is expected to grow more slowly, from $20 billion in 1999 to $184 billion in 2004, according to Forrester Research Inc., a Cambridge, Mass., market research firm.
The Free Agent Nation initiative appears to be less ambitious than what AOL was trying to do four years ago with its Enterprise unit, which offered to build corporate intranets for a hefty upfront development price and a $9.95 monthly fee, including voice over the Internet.
Mark Walsh, who ran the Enterprise unit and now heads a Pennsylvania business-to-business portal company called VerticalNet Inc., argued at that time that consumers and business people wanted very similar things, and that people would want the same service at work and at home.
But that group fell apart amid criticism that executives couldn't imagine their companies dealing with the same online service that their children used to chat with their friends. Since then AOL has primarily--and successfully--concentrated on building its consumer base and attracting big-ticket advertisers to its sites.
Whyman and other analysts voiced concern about AOL's earlier failed efforts to enter the business market. "Clearly, the record of the past gets one to raise eyebrows," said Ulric Weil, an analyst with Friedman Billings Ramsey Group Inc. of Arlington.
Weil said he believes it's smart of AOL to start with smaller businesses because large corporations don't think of AOL as being able to manage their e-commerce projects, and because to target the large companies and then not be able to deliver would be disastrous.
Leonsis argues that many of AOL's 18 million subscribers are business people as well. If AOL can identify them and bring them into a new service, the company will have a new base to promise to advertisers, and ideally, a whole new revenue stream. "We want to have these people stand up and be counted," said Leonsis.
Paul Merenbloom, an analyst with Prudential Securities Inc. in New York, said that historically, Internet companies have trouble trying to tap into both the business and consumer markets. "It becomes a real pain to find the right mix, so companies abandon one or the other," he said.