The launch…but will they come?

And so it
was launched. The service went live in February 2001. Absa put TV ads together,
this was backed up by CD distribution throughout all the branches, Posters,
Point Of Sale material, ATM screens, you name it, it was done. A significant
amount of money, effort and time was put in to make it a successful launch.
Absa wanted to prove to South
Africa that the Free model was the
gamechanger and that the likes of M-Web and Worldonline (so named at the time)
were charging ridiculous amounts of money for a service which, Absa believed,
could be offered for free. And so the games began. In fact almost within a few
days of the announcement of the free service, Antonie Roux, then MD of M-Web,
was vocally refuting the viability of the service. He claimed that it was
impossible to sustain this model because “M-Web knew how much it costed to run
an ISP” 

 

That was
certainly true, M-Web was the biggest ISP in South Africa at the time and
certainly was the major player. However, M-Web was not positioning themselves
as an ISP, but was going more for a “Media company” positioning and had built a
substantial portal to boot. So Antonie Roux’s comments were somewhat myopic.  He was commenting from the point of view that
even though M-Web was the most expensive ISP and the largest, they were still
not turning a profit and in fact were not going to for some time. This was the
core of his argument. If M-Web couldn’t make money, and they were charging a
handsome fee, then how could the “free” model survive? Also, whilst Roux may
have been shooting from the hip (as was his custom) he did have a point. He
also knew the online advertising market was at best, flat, if not, going
backwards, so how was Absa going to survive? He then pulled his trump card and
claimed that Absa was misleading the public and that there was no way that this
model could survive, so convinced was he of this fact, that he shut off all
access of non M-Web subscribers to the M-Web portal. A move that was reversed
in the months to follow, but showed just how serious this had become.

 

What was
happening on the Absa Front?

 

Absa had
launched the service, and things were frenetic, the pace was unreal and the
uptake of the service was much higher than anticipated. Absa has initially estimated
that by the end of February 2001, they would probably have 10 000 users on
board. The actual registrations at the end of February were almost 84 000.
Unbelievable…..the service had shattered all forecasts for the first six months
in the first month of it going live. Suddenly, Absa, the old, stodgy,
Afrikaans, technologically challenged bank, was now showing one of the
countries biggest technology companies (M-Web and the like) how things were
done in the Internet space. This raised the ire of M-Web who voiced their
opinion most vociferously through Antonie Roux, whilst, the rest of the ISP’s
seemed to adopt a “wait and see” attitude. The numbers grew in the next month
at unpredicted rates and the cracks were beginning to show. Branches couldn’t
keep up with demand for registration CD’s, the service was impossibly slow if
you could even get on. Remember the initial estimated were that 40 000 people
would sign up in the first few months, this had been obliterated and now
customers could not dial up at all as the ports ratio was undeniably
overloaded. March 2001 showed that just over 125 000 users were now using the
service. Absa had been smart when they initially negotiated the service in that
they were only going to pay for active users. Active users were users who had
used the service once in the last 30 days. By doing so, they could be guaranteed
that they would only pay for users who were active on the service. However at
this point the active users and the actual registrations were running parallel,
costing the bank close to R 3 million a month, a hefty fee in anyone’s books.
However, at this point, no one was really paying attention. Absa was on every
billboard and newspaper on a weekly basis, Santie Botha was seen as the person
who was doing a promethean act of valour for the average man in the street and
Antonie Roux was the arch enemy. And so the stage was set, a showdown was
certainly going to take place. This was giving Absa more media mileage than
they had ever enjoyed without having to pay for it. Although, it could be
argued that they paid for it by paying for the subscribers each month, but the
payment was not direct. Absa was hailed in the press as the hero and daring for
trying to take on the established players in a market that had very little to
do with banking. Even more exciting was the fact that it was a bank, a
conservative institute that was taking this stance, could this be a taste of
things to come from the bank? Would this thinking spill over into the banking
realm of their offering? Could customers expect “free banking”? And so the
speculation fueled the debate and Absa was certainly on every persons lips. The
dark side of it was this, the users signing up for the service grew unabated…by
April 2001, almost 163 000 users had signed up and there was no sign of this
slowing.

 

The Absa
share price seemed to be affected by the interest in the bank and grew from R
30.90 in Feb 01 to R 35.15 in April and was still on the up throughout the
year. This added significant amounts of market capitalization to the bank, but
questions were being raised as to whether this growth could be solely
contributed to the Free Internet Access service. The debate was furious and
there was much dissension internally as the Free Internet Access team were seen
as Mavericks and heroes all at the same time. Absa then looked at the link
between the Free Internet Access service and the growth in Internet Banking to
see if there was a correlation. The figures suggested that Internet Banking had
grown faster than predicted, but they were reluctant to give the Free service
the glory. Naturally, as you can imagine, there was much jostling and
politicking internally, Some executives were calling for a stop to this
foolishness of wasting R 3 plus million a month on a service that shows no hope
of ever recouping the costs and in fact the costs were escalating.

So the Free
Internet Access team went back and did the numbers, how had Internet Banking
been affected by the service? On average, before the launch of the service, they
calculated the average new Internet Banking registrations over a 6 month
period. They then worked out what the average was per month since the Free
Internet Service and lo and behold, the average was indeed increasing, by a
phenomenal 61%. This could not be a tenuous link, however, the powers that be
claimed that it was as a result of Internet Banking campaigns and various other
mechanisms.

 

So, it
seemed that no matter what was REALLY happening the senior executives at Absa
were NOT happy about the spend on something they weren’t even sure was working,
let alone on something they didn’t understand i.e. the Internet. The numbers
were clear, but that didn’t seem to be the issue. Some market research was done
on the base and it was reported that 70% of the Free Internet base was willing
to be marketed to about Absa’s other services (it was a bank after all..) But
still, it seemed that there was much unhappiness at throwing millions to people
each month who were not necessarily Absa clients, interestingly only 35% were
non Absa clients.

 

So, the
next level of work needed to be done, with the growth rate soaring and no end
in sight, it was estimated that by the end of 2001, the service would be
carrying over 300 000 subscribers, at a cost of R 7.5 million per month, some
money had to start coming in and fast. The only solution was to turn to value
adds to the service. The question was how? How much? How long and a nagging
question was, why was this done in the first place? And so, more tap dancing
had to be done and still…they came in their droves to sign up.

Free Internet Access….make it so!

And so, with this idea of online advertising now being a
possible revenue generator, the model was getting to be more crystallized.
However, the service was still going to be very convoluted. Essentially ICL was
buying bandwidth from Internet Solutions, marking it up, selling it to Affinity
Internet who in turn marked up and then sold onto Absa. There was now the
quality of service issue which needed to be discussed. ICL proposed a 20:1
ratio of users to ports. That means that each person who dials up to an
exchange shares a port with 20 other users, once all the ports become full,
then no one else can dial up. This ratio implied a somewhat lower level of
quality of service; however it was felt that because the service was being
offered free, people would not object too much if they weren’t able to connect
on the first attempt. ICL planned to have 2000 ports ready for launch,
effectively they were able to support 40 000 users and then they were at
capacity. Of course, a call centre needed to be set up to support all of these
users and so it was done. The smart part of that deal was that there was a
cellphone number used and the money made on customers calling the cell line
would be shared with Absa, so some revenue would be seen, the rationale was
again, that if clients were given a service for free, surely they would not
object to phoning a cell phone number for support. That may be true as long as
the support technicians are able to sort the problem out quickly and that there
are not long queues putting customers on hold.

And so the wheels were in motion, bear in mind that all this
had taken place in the time leading up to launch, so this was being done around
November of 2000. Neither Affinity nor ICL
anticipated that the service would grow so fast after launch and they
initially estimated that after 5 months of the service running that there
should be at least 70 000 users on the service. By all estimations, this was
astronomical. No one thought that this would be possible, but that was the
initial projection. It was assumed that with the branding and marketing might
of Absa behind this, it would in some measure be possible.

Also, what must be remembered, the whole offer of Free
Internet Access was to be a marketing exercise. Absa’s marketing department was
wholly and solely responsible for making this fly under the solid guidance of
Santie Botha and a few of her lieutenants. As a result, the whole exercise was
to be a marketing show of prowess and brand showcase to lift Absa’s perception
from e-luddite to e-leader, a perfect marketing vehicle had been found. The
only question was how does it get funded. Well, if the idea could be passed off
as a branding and marketing exercise, then marketing funds could be used. And
it was made so!

Absa’s marketing teams worked feverishly to get things going
and used as many opportunities as possible to cram the stylized red and blue
Absa “A” into everything. Those of you who did sign up with the service will
remember a few things. The first was that you had to login via an “Absa”
screen. In the days of e-hype, that was exceptionally valuable to have your
brand popping up each time a user logged in. Sanity has since prevailed and we
all know that internet users simply ignore that kind of opportunistic
advertising, but nonetheless it was punted as a good opportunity by Affinity
and Absa bit. Affinity positioned this opportunity as a great way to push Absa
products and services and surely convert non absa clients to becoming Absa
clients. Another incorrect assumption as I will detail at a later stage, but a
strong argument, one that many marketers would have found difficult to pass up.
On that note, it must be understood that Absa had no one internal who had
worked at an ISP or had been directly involved in marketing or developing ISP
or online services. If they had, things may well have not developed to this
advanced stage as many of the ISP’s would have laughed at this model of
“eyeballs” viewing ads. In fact, at M-Web where I was working at the time, we
were coming to the realization that banner ads and the like were at best
ineffective “selling” mechanisms, but may in some small way create some brand
awareness.

Another strong move by Affinity saw them negotiate to own
the Internet Access subscriber base. In fact, Affinity were quite clear that
the service always had to branded to the client as “being brought to you by
Affinity Internet” and that the client actually entered into an agreement with
Affinity on the service, not Absa. Affinity was then permitted to market to the
subscribers any products and goods, as long as they were not competitive with
Absa offerings. There was an opt in mechanism which did enable clients to tell
Absa if they wanted to receive marketing or not.

Absa’s role you may well ask? Absa had to make the sign up CD’s, market the
service and get the thing off the ground. Also, Affinity had signed up another
client in Liberty
and they offered Free Internet Access to all their brokers, the marketing and
advertising idea was starting to get momentum for Affinity. Affinity’s prowess
in doing this kind of thing was evident. Neither of the two financial services
companies had ever run an ISP, nor had they even begun to understand what a
compelling offer Free Internet Access would be.

Another misconception was the amount of money and product
sales that would be made off the advertising. Affinity’s estimates were way
out. The CTR (click through rates – clients who click on an advertising
mechanism such as a banner) were hopelessly low. Even at M-Web (South Africa’s
biggest portal at the time) the CTR on banner ads was below 1%, a good banner
got up to 1% and an excellent rate was 1.5% – 2% So, that means that of all the
customers who visit a particular page, only 2% bother to click on it, an even
lower rate purchase or act on the offer after that. So, for Affinity, this was
a good move on their part. They got some great mileage at very little cost.
Absa had to market and brand the ISP, which, with Santie Botha behind it, would
be done in a significant way and so, the service was poised and ready to be
rolled out to market. One or two things remained however, how many people would
sign up, if any, how would the quality of the service be when 10 000 people
were on the system? These questions could never be answered in a theoretical
situation, the only true test was a live system and so, in February of 2001,
Absa’s Free Internet Access Service went live. The TV campaign was clear, Free
Internet Access for all in South
Africa….no catch! Well, not yet anyway!

Preface and Intro to the story….

I initially thought that I would simply jump in and get the ball rolling on how things started. As I went through some of the material that I had, I soon realized that this was impossible, context was key. So, this first post will give a high level context and before each “chapter” I will give a contextual update. This is critical, because the context informed many of the decisions around the offering and guided the way decisions were made. So, here goes..

February 2001 – I was working at M-Web (www.mweb.co.za) at the time, and at that time, M-Web was South Africa’s largest ISP. In fact, no one was even close to the 250 000 subscribers that M-Web had notched up through both natural growth and through several buy outs of other ISP’s such as iAfrica, Hixnet, Netactive and others. So at that time M-Web was the proverbial 500 kg gorilla, almost untouchable. Of course being backed by the likes of Naspers (www.naspers.co.za) who was funding the company, not too many challengers waited in the wings.

In February of 2001, M-Web had been in business for approximately 4 years and was doing reasonably well in growth terms, but had some massive startup debt to recover. The ISP market in South Africa at the time was a challenging one, there was a lot of consolidation and in fact there was a lot of parity with regards to the service that customers could expect from an ISP. The Internet Access market was basically Dial Up access (56K) and 64 or 128K ISDN, 5 email addresses (in some cases aliases) and 10 mb of webspace, that was the offer of most ISP’s. On average ISP’s were peddling their options from between R 59 per month to up to R 110 (Mweb and Worldonline being the top end and most expensive at the time)

There was no single ISP that stood out with a significant value proposition (this hasn’t changed much, mostly because we are in the unfortunate position in South Africa to have only one Telecoms provider in the form of Telkom (www.telkom.co.za) The numbers at the time were not overly exciting, but South Africans wanted Internet Access to be connected to friends and family overseas and to be part of the then burgeoning WWW (World Wide Web) Also, we need to remember, the Dot.Com bubble had recently burst in 2000 with many online businesses going to the wall. The devastation was tangible and the Internet world was reeling after the sudden death of numerous instant millionaires in the making. (For more insight on the happenings of the Dot Com bubble burst etc, visit http://www.stock-market-crash.net/nasdaq.htm or http://en.wikipedia.org/wiki/Dot-com which give some background to the whole situation.)

It was into this environment, this intensely confusing and difficult time that Absa decided to launch the intensely compelling Free Internet Access offering.

The Numbers..

At the time of Absa’s foray into the digital arena, the dial up Internet access market was sitting at just under 1 Million subscribers (according to BMI-T at the time www.bmi-t.co.za) certainly not a massive market, given that at the same time, the US access market was over 100 million subscribers (approx).

Having said this, the market was growing significantly in South Africa and there was a lot of marketing and activity in the land grab for subscribers. M-Web was in the market with their Big Black Box offering, Worldonline was part of Vodacom, and Telkom Internet was, well Telkom.

The market was ripe for another entrant and if that entrant was to offer a better price than the rest of the ISP’s, and simply offer the same level of service, there was a good chance that they would be able to create enough churn (customers leaving existing ISP’s and moving to the new entrant) to sustain a business. No one considered the Free Model to be viable, least of all the current incumbents and most particularly M-Web. Xsinet had already been offering a “free” service. It wasn’t completely free…the subscribers who wanted the free service had to endure numerous online banner advertisements in order to access the Internet for free. So, there was no truly free service out there…until Absa announced that they were going to launch “Free Internet Access” and that there would be no catch. By no catch they meant that subscribers to the service didn’t have to be an Absa client, they didn’t have to sign up for Absa products or services, they didn’t need to do anything, all that they had to do was sign up. And sign up they did, in their thousands. By the end of February 2001 there were more than 10 000 subscribers on the Absa Free service and they were signing up at unpredicted rates.

The market responded with…silence. The main player in the market, M-Web however was exceptionally vocal about their displeasure at the free offer. Antonie Roux claimed that Absa was misleading the public and that the business model was unsustainable. Absa’s Santie Botha entered the public debate and the rollercoaster ride began in earnest. M-Web responded in a very negative way and decided to “lock out” all non M-Web subscribers from the content on the M-Web portal (mostly to block the Free Internet Access Users) and so the game started. The beginning of an unbelievable 2 year journey that had some incredible highs and equally deep lows.

And that is what this blog will cover over the next few weeks and months, so step in and enjoy. There will be much that previously wasn’t made public, but also, insights as to how the bank decided to attack the market, the meetings behind closed doors with M-Web and Absa and other ISP’s at the time, the PR and communications strategy that worked so well in spite of the fact that the offer was fundamentally flawed and how, at the end of the day, Absa as a brand and as a company was vindicated and was seen as being innovative and risk taking and ultimately how the bank benefited from the offering in ways that were not though of up front. So, sit back and enjoy, its going to be an interesting story!