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Internet start-up delivering lower bills
Tuesday, February 29, 2000 By Pamela Gaynor, Post-Gazette Staff Writer
A Pittsburgh-based Internet start-up has launched the third in a lineup of dot.com ventures designed to help consumers lower their bills for utilities and other services.
The company, OnlineChoice, said its latest endeavor, TelephoneChoice.com, signed up 10,000 customers in its first week in business, allowing it to use their combined purchasing power to get a long-distance rate of 4.75 cents per minute with no monthly fee. The rate prevails 24 hours a day, seven days a week and applies even to calls made using a credit card.
TelephoneChoice is the latest in a series of ventures that OnlineChoice hopes will help it harness the purchasing power of some 250,000 consumers by August of next year. Assuming it does, OnlineChoice forecasts its total revenue by then will reach $12 million, a level that would help it reach break-even at about the same time. The company hopes to go public within the next 12 months.
Among the ventures driving its growth are ElectricityChoice, launched in August, and GasChoice.com, started in January.
Together, the three dot.com services have 30,000 customers, and OnlineChoice expects to double that figure monthly as the existing services expand and others are added.
The concept behind OnlineChoice's portfolio of ventures is not dissimilar to that of FreeMarkets Inc., the Internet company that went public in December.
Like FreeMarkets, OnlineChoice uses so-called reverse auctions to purchase goods or services for customers. In reverse auctions, the lowest bidder wins as suppliers compete to get a sale.
Unlike FreeMarkets, which runs the auctions on behalf of big corporate buyers, OnlineChoice "pools" the purchasing power of thousands of smaller buyers to give them the kind of market clout that, until recently, only huge companies have enjoyed. In Internet circles, the pooling of purchasers is known as "aggregation."
Suppliers are willing to give the discounts because their usual marketing expenses and other costs of acquiring customers are lowered.
OnlineChoice makes money because its supplier contracts provide it with a fee for each customer, a percentage of revenue, or some combination of both, said Sanjay Chopra, the company's president and chief executive officer.
Pooling the business of TelephoneChoice.com's initial 10,000 customers brought them a discount of roughly 40 percent compared with the best deals they could have gotten on their own, he estimated
Chopra made the calculation based on the fact that major long-distance carriers typically charge customers monthly fees of about $5 for their lowest-rate plans. In addition, they restrict their best rates, of roughly 5 cents per minute, to evening and weekend calls.
Assuming customers with that type of calling plan make only 80 percent of their calls at the lowest rate and spread the cost of monthly fees among all their calls, their average per minute rates work out to about 8 cents a minute vs. TelephoneChoice's 4.75-cent all-the-time rate, he said.
In its OnlineChoice ventures, savings to electricity buyers have been about 20 percent, while its natural gas customers have saved between 12 percent and 18 percent, Chopra said.
Chopra said OnlineChoice also saves the consumer the trouble of sorting through the sometimes mind-boggling details of deals offered by utility vendors.
In fact, before joining forces with Chopra, OnlineChoice's other co-founders, company Chairman Marshall Cohen and Chief Technology Officer Bill Kirkendale were exploring online ventures aimed at helping consumers make the difficult comparisons between electricity suppliers..
Chopra, 32, started thinking about launching an online venture in 1998 while enrolled in a master's program at Carnegie Mellon University's business school, where he had earlier earned a master's in computer science. He first made contact with Cohen when he discovered that Cohen controlled Internet domain names that he wanted to acquire.
Cohen, Kirkendale and Chopra brought in outside investors to help them start OnlineChoice. They include DQE Enterprises, a DQE Inc. subsidiary that holds a 20 percent stake, and Lycos Ventures and Draper Triangle Ventures, which together hold a 20 percent stake in the venture.
Chopra said the company is in discussions for another round of venture capital backing that might soon bring in another substantial Pittsburgh player.
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