The Day Ahead: Vicinity sees boom in wireless services

Verizon Wireless to come into the Vicinity wireless stable
Written by Larry Dignan, Contributor

Vicinity will add to its growing stable of wireless partners this week when it announces a deal with Verizon Wireless.

Vicinity, which provides Internet marketing services and leads to its bricks-and-mortar customers, has been pushing hard to bolster its wireless and international efforts. The company provides maps, directions and other services mobile networks and portals in an effort to refer consumers stores and brands in its database. A bevy of recent wireless partnerships will create a transaction, lead-based revenue streams, said Vicinity president and chief executive Emerick Woods, in a recent interview with ZDNet Inter@ctive Investor.

Under the Verizon deal, Vicinity will provide its database of directions, addresses and product information over Verizon's wireless network. In a separate deal, Vicinity will also provide Lycos with its mapping service for its portal. Vicinity, backed by CMGI, has recently announced deals with wireless providers, including OmniSky, Palm, AT&T and Phone.com.

The company, which garners most of its revenue from hosting fees from its 350 global customers, said the wireless efforts will develop a transaction "pay for success" revenue stream. Woods said over the long run, 40 percent of Vicinity's revenue could come from transaction fees.

"Our customers will pay us anywhere from ten cents to $10 per lead," said Woods. Hotel customers, including Marriott and Hilton, will pay more per lead because Vicinity can track a purchase better. Vicinity executives said they are partnering to track leads to other customers.

The wireless push is key to Vicinity. In its third quarter ending 30 April, the company reported revenue of $4.3m and a loss of $4.5m, or 18 cents a share. Revenue was above analysts' estimates and the loss was in line with expectations. Vicinity's revenue growth was strong, but came from a low base.

Although the quarterly growth was impressive, Vicinity is dwarfed in sales by its closest competitor -- Infospace, which has its own wireless plans.

Woods said the company will boost sales two ways. First, it will grow its average hosting contract. Vicinity acts as an application service provider to bricks-and-mortar customers such as Barnes & Noble, Best Buy, Starbucks Coffee, Federal Express and Gap.

But Vicinity can't live on hosting alone. Woods said he expects transaction revenue to be material in four quarters. The company is expecting usage of its wireless services to pick up in the 2000 holiday shopping season, and gain significant traction in the 2001 shopping season.

"Usage will depend on how quickly the services are deployed and transition to WAP (wireless area protocol) phones," said Woods.

On other topics notable to investors, here's what Woods had to say:

On cash burn: Woods said the company is burning through "less than $1m a month", and is on track to be profitable in the fourth quarter ending in July of fiscal 2001. Vicinity has more than enough cash -- more than $127m as of 30 April, to fund itself until profitability.

On the competition: The Vicinity chief said Infospace is the primary competitor, but there are differences. Vicinity doesn't try to sell ads and can offer more granular product data. The company also works primarily with bricks-and-mortar companies, which are increasingly using the Internet to market themselves. America Online's MapQuest is also a competitor.

On acquisitions: Woods also added that he expects a lot of consolidation among smaller, private players. In the end, he expects Vicinity and Infospace to be the two top players. "We intend to take advantage of M&A to consolidate the space," he said.

See ZDII for US tech investor news.

See techTrader for more technology investment news, plus quotes and research.

What do you think? Tell the Mailroom. And read what others have said.

Editorial standards