Affinity Internet munches Blue Carrots

Affinity Internet has scooped up the assets of niche ISP Blue Carrots for approx. £700K.

The company is taking on all commercial contracts, existing staff and equipment, so it makes one wonder what liabilities are being left behind with Blue Carrots former owner, Cube 8.

Emails from Blue Carrots members suggest that the liability could be equity commitments made by Cube8. Set up originally as a mutual ISP-owned by the members, Blue Carrot converted to a joint stock company last year.

Members were told that they would receive shares in the company in three slugs, the first tranche to be handed over on August 11. However, members say that this allotment has not been received.

It will be interesting to see how Cube8 resolves this: Blue Carrot 550,000 claimed members (how many actives?) could leave in droves if they feel hard-done by. But presumably membership attrition is factored into the price Affinity is paying for the assets.

Affinity has built its business on the back of supplying white-label infrastructure and content services for third-party companies to brand as their own ISPs. The company is now building its own-label ISP - and on the cheap.

BlueCarrots.com is to operate as a branded ISP alongside former basketcase and fellow recent acquisition, Breathe.com, in Affinity's new portal subsidiary. Cube8 will pick up 30 per cent of the shares in this business, 10 per cent of which will be converted to Affinity Internet stock (locked in for 24 months).

Affinity reckons it can generate considerable cost savings - certainly there is scope in deduplicating technical resource, and doubling up on content. The company also reckons the Blue Carrots/Breathe combo is worth more together than separately. Again this is true - size means it's easier to negotiate better Cost per Click/Cost Per Aquisition deals with merchants. And size means it is easier to generate straightforward advertising revenues.

However, the Affinity Combo will need to be a darn sight bigger before it gets on to the A-List...the big three - AOL, MSN and Freeserve - soak up 80 per cent of UK online consumer advertising revenues placed with ISPs.

Finally, size means that Tiscali is interested in buying you.

Cube8

The sale of Blue Carrots tidies up Cube8's portfolio and injects a useful sum into the business. Cube8 set up life as a mini-Internet incubator, not a very wise thing to be these days. Now it is now focused around two operating businesses, Boris Commerce, a shopping engine, and Freeloader, a games download concern. In recent months, the company has shut down a number of businesses in its portfolio. It says it will support the remaining businesses where possible. But clearly this does not extend to fresh funding. ®