An Absa-lutely fabulous offer?

I cannot figure out if Internet companies are purposefully not profitable, knowing they will eventually see a return on investment, and live off the generous donations from investors and venture capitalists until that date, or if they are genuinely daft.

[VIDEO]Perhaps the business plans they port around in manila folders, filled with market research and organograms, are no more than hare-brained schemes that only an insane person could envisage, let alone attempt to implement.

For the latter to be true, there must be a lot of insane people in the world with a lot of money to invest, keeping the system afloat. But perhaps the investors are not as insane as those whom they support: they are just fools.

In the interests of parting the fool from his money, I would like to suggest the following ready-made business plans to give the entrepreneur a head-start in duping would-be investors.

1)       Start an airline and open numerous duty-free shops. Fly people around the world for free. Hope that when they land in the airport they will spend money in your duty-free.

2)       Start a fashion label. Don`t worry about marketing - you`ll get all the publicity you need when you go out of business in a spectacular fireball fuelled by investor`s money.

3)       Pay for other people`s access to the Internet. Give it away.

Hang on, the last one sounds familiar.

The Absa Group must be applauded for its gutsy move to boldly go where others have so often failed. What was once potentially the Next Big Thing - free Internet access - proved a little too much of a money-drainer for most investors, who said "bye-bye" to other such ventures and pulled out while the losses weren`t too heavy.

Fortunately for Absa, it is not fronting the cost. It is merely lending its name to Affinity Holdings, which hopes to leverage the excellent brand to make another go at offering free Internet to everyone and their dog. Let`s look at cost for a moment.

Absa is printing 100 000 CDs. It expects them to go quite quickly. For bandwidth, servers and support costs, it will cost Affinity a minimum R70 per user per month (although it`s costing M-Web in the region of R100 per user per month). That`s a cool R7 million a month, which is - even in Affinity`s pounds - a hell of a lot of debt to absorb. Considering that Affinity is reportedly not a profitable company to start with, it makes the future of the venture seem tenuous on a long-term - or even short-term - basis.

This initiative could be the boost that e-commerce desperately needs in this country.

Jason Norwood-Young, Technology editor, ITWeb

If Affinity`s investors eventually tire of spending all this loot, it could leave Absa in a very tricky predicament. Absa could can the project, leaving all of its users fairly annoyed, or it could pick up the tab in the hopes that its e-commerce model - the details of which are still a bit sketchy - eventually pays off.

Another little problem that Absa could very easily run into is that of gaining the position of dominant player in the Internet service provider (ISP) market. The dominant vendor is not allowed to give services away for less than they are worth. This means Absa will either have to start charging its ISP customers, or will have to limit its customer numbers. Once you have given something away, it is very difficult to get people to pay for it. Limiting customer numbers could damage Absa`s "critical mass" requirements for its gateway to get the project to pay for itself.

Enough doom and gloom. Absa is doing one thing right - it`s lowering the Internet`s barrier to entry for all South Africans, and for this it must be applauded. Its amount of faith in the project - and R7 million worth of faith from Affinity - is heartening. This initiative could be the boost that e-commerce desperately needs in this country.

It is also positioning itself correctly to be the leader in e-commerce. You somehow have to drive customers to your portal in sufficient hoards to make it all worthwhile. There is a magic "critical mass" that will sustain the initiative. Finding it has proven too big a challenge for most. For a traditionally old-economy company to do it shows great vision and commitment - the likes of which have seen GE emerge like a Phoenix from what was almost a very hot fire.

If Absa pulls it off, I will be duly impressed. If it doesn`t, I will not be surprised.