- The Washington Times - Monday, December 4, 2000

Washington-based InPhonic Inc., the cell-phone distributor, is expanding to market books, compact discs and various services to its phone subscribers.

The move is expected to open new lines of revenue for this young company through a complicated, specialized and potentially lucrative method of electronic commerce.

InPhonic gives away phones under the brand names of Web sites like Lycos.com, the portal; Kozmo.com; Sandbox.com and the chat room site Talkcity.com, among others. The Web sites, in turn, give the phones to users of their service who request them.

The phones have been, in effect, bonuses intended to build Web site loyalty. Now the Internet companies plan to capitalize on the access to users that the phones provide for marketing products and services.

"People are going to buy stuff with their handsets," InPhonic founder and Chief Executive David Steinberg said.

By the end of next year, InPhonic estimates more than 500,000 people will have its phones through Web sites like Lycos.

More than 70 million people are expected to make Internet purchases over Web-enabled phones by 2004, according to the Yankee Group, a Boston-based researcher.

Mr. Steinberg, 31, started InPhonic last year after selling Sterling Cellular, a business he began in his basement in 1993 to market wireless phones and service.

His new company offers wireless phones through its Web-site partners wherever those wireless carriers offer services. And the places its partners reach are the places reached through Verizon Wireless, AT&T; Wireless Services and Southwestern Bell Mobile Systems.

InPhonic doesn't charge subscribers for using the phones it provides on behalf of Web sites. It has been making its money by charging the wireless carriers a fee for each new customer enrolled. However, when its marketing operations begin, it will collect a percentage of each on-line purchase made through the Web sites.

InPhonic will market Lycos products and services to Web users who have signed up for a phone through Lycos. It will market Sandbox.com products and services to people who signed up for a phone through the Sandbox.com Web site and so forth.

The marketing will involve sending information to the cell-phone subscribers of each Web partner. And at the end of each information update InPhonic will place an ad.

In tests last month, Mr. Steinberg said, 4.8 percent of the 1,100 people who were mailed updates with ads attached responded to them, and 47 percent of those respondents bought what the Web sites advertised.

That's a high response rate especially when compared with the response rates obtained by direct mail and e-mail marketers, said Alan Laifer, vice president of direct marketing at Sandbox.com. Sandbox markets lotteries and fantasy sports games on the Internet to five million subscribers.

"I think the response rates will ebb and flow, but if you do it the right way, it's a good marketing channel," Mr. Laifer said.

The right way, according to Mr. Steinberg, is to send no more than two ads per week from the Web sites.

"The key is not to bother or inundate the end user," Mr. Laifer said.

But the cell-phone subscribers indicate early on whether they want to be bothered. They provide personally identifiable information including credit card information when they subscribe and accept the phone. InPhonic vows it does not share consumers' personal information.

At any rate, when InPhonic sends its ad-laden information to phone subscribers, the subscribers can place an order merely by pushing a button.

The push-button system is modeled on one that American Online uses.

When AOL's subscribers log on, advertisements appear; the subscriber can buy the advertised product or service simply by following instructions to "click here."

That option clearly eliminates what Mr. Steinberg said is the reason people hesitate to buy on line. That is, that it takes too long.

InPhonic, which has 64 employees, has raised private equity in three rounds of venture capital from Riggs Capital, Mid-Atlantic Venture Funds, and former Apple Computer chief executive John Sculley. Company officials won't disclose the amount of money invested. But they admit the privately held, year-old company isn't profitable.

Profits are expected by the fourth quarter of 2001, Mr. Steinberg said.

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