Virtual Copies

Virtual Copies

Take the franchise model. Add the Web. Here’s what you get.


By COLLEEN DEBAISE
October 1, 2007; Page R8

Fast-food restaurants. Retail stores. Fitness chains.
For most people, those are the images that come to mind when they think
of a franchise.

It’s an easy idea to grasp — a successful business
expands by granting others the right, for a fee, to open carbon-copy
stores in untapped markets.

Now, a small but growing number of online companies
are tailoring the concept for the Internet. Call it "virtual
franchising," where Web pages substitute for physical storefronts and
customers drop by using keyboards.

Though it may be less straightforward than the
brick-and-mortar version, online franchising offers distinct
advantages, according to some Internet-business owners who have taken
the plunge. Chief among them is the elimination of frustrating,
time-consuming searches for suitable commercial space. That, in turn,
makes it easier to get operations off the ground.

"You eliminate a huge chunk of something that can turn
the [franchising] process into a nightmare," says Dan Martin, president
of the San Diego software firm IFX Online, who sits on the board of the
International Franchise Association. And as more business shifts
online, he adds, "I guarantee you that more people will come in with
online franchise models."

Quality Control

Teri Gault is the founder of TheGroceryGame.com, a
seven-year-old Web site that tracks the best deals at supermarkets for
coupon-clipping consumers. The company generates revenue by charging
members fees, which typically start at $10 for eight week’s worth of
research on price deals at stores in their ZIP Code. Like many business
owners, Ms. Gault saw franchising as the best way to expand her Los
Angeles-based company nationwide. She rejected the idea of simply
hiring staff in other cities because "I wasn’t sure I could trust
employees that far away to be reliable," she says. "I needed a sense of
ownership for people who would be providing the customer service."

Ms. Gault now has an online network of franchisees and
company-owned territories in all 50 states, a system she says has
worked for her. (She declines to supply details about her franchise
fees, or how much franchisees typically earn.) New franchisees get a
turnkey system that includes a training manual and access to
GroceryGame’s proprietary software and databases, she says. When
GroceryGame members log in, they are routed by ZIP Code to a
franchisee’s Web page, which lists the best deals at local stores.

"I can’t conceive how difficult it is for a national
operation to monitor the quality of a brick-and-mortar franchise," she
says. "We can just log in and monitor the quality of customer care and
products online."

Time in the Field

A number of Web consulting firms, meanwhile, say the
Internet is the most efficient way to design and develop a franchise
model. TruePresence, a Baltimore company that sells Internet-design and
search-engine marketing services to businesses, awarded its first
franchise almost two years ago, and now has 16 in locations such as
Denver, Austin, Texas, and various cities along the East Coast.

TruePresence franchisees typically act as sales
agents, signing up new clients and directing technology projects back
to the main office for staff designers and programmers to complete.
After paying an initial fee of $35,000 for a territory, franchise
owners receive Web-based training, marketing materials, business
stationery and a personalized page within the TruePresence Web site.
The company’s online "office locator" sends local prospects directly to
franchisees’ Web pages; franchise owners get access to TruePresence
services at wholesale prices and then resell them to clients at the
market rate.

Michael Teitelbaum, president of TruePresence, says
the Web-based franchise works well because owners spend most of their
time in the field and don’t require a physical storefront. Franchisees
enter client and prospect activity into a Web-based database, which the
national office can monitor. And, "we typically get a higher-caliber
individual that wants to be a franchise owner, as opposed to an
employee," he says. "They have an owner’s mentality — they will do
whatever it takes to get the job done."

Franchisees say the model allows them to get off to a
quick start. "I didn’t want to wait two to three years before starting
operations and making money," says Mike Sweeney of Reston, Va., who
bought into the TruePresence system in November 2006 and now sells the
company’s services to clients in Northern Virginia. He figures he saved
a lot on overhead expenses because he didn’t have to hire a technology
staff or lease an office building.

Mr. Sweeney currently has about eight active clients,
which he says surpassed his expectations. About half were referred to
him by the main office. He plans to attend an annual conference for
TruePresence franchise owners in December, where he and other
franchisees can share best practices and client stories.

Twists on Franchising

Some companies that do business online have come up
with alternatives to the franchise model. CaféPress.com, a Foster City,
Calif., company that sells customized T-shirts and merchandise via the
Internet, says it didn’t consider traditional franchising when it
started operations in 1999. Instead, the company allows a network of
artistic entrepreneurs to sell their own designs through its Shopkeeper
program.

Shopkeepers, who agree to a term of service, get a Web
page within CaféPress.com’s site and sell their own designs; when an
order is placed, CaféPress prints the product and ships it, and the
shopkeeper makes a commission. Shopkeepers pay $4.95 to $6.95 a month
for a "premium" shop, where they can sell multiple designs and
products; a more limited "basic" shop is free.

"There are some elements that are similar" to
franchising, says Marc Cowlin, a CaféPress spokesman. But unlike most
franchisees, shopkeepers are encouraged to do their own marketing. And
unlike, say, Burger King restaurant operators, who can call their
stores Burger King, shopkeepers can only say that their stores are
"powered" by CaféPress, he says.

Name Recognition

Other companies see little value in creating a network
that doesn’t have physical locations or brand recognition. "We did look
into franchising…and after a very thorough evaluation, it just didn’t
seem right for our business," says Thomas Harpointner, co-founder of
AIS Media, a Web-services and interactive-media firm in Atlanta.

Potential franchisees would be working from home or a
small office, and really wouldn’t benefit from the association with AIS
Media — at least not enough to justify the territory restrictions,
franchise fees and royalties of a typical franchise agreement, Mr.
Harpointner concluded. "There isn’t a McDonald’s of Internet
consulting," he says. "Why would they pay a fee for a name that’s not
well-known?"

Instead, AIS Media launched a "partner" program,
essentially a looser version of a franchise business. Partners buy AIS
Media’s products and services at wholesale rates and then resell them
to customers at retail rates, keeping all of the profits. A partner
pays a deposit of as much as $29,995, but gets that money back as
performance goals are met, Mr. Harpointner says. A partner isn’t as
vested as a franchisee, but the program is a way "to attract
serious-minded individuals," he says.

For some Web-based franchise owners, building the
brand is part of the challenge. Marty DiBello, a franchisee of Netspace
International Inc., an Internet marketing firm in Framingham, Mass.,
says it is a thrill to get in on the ground floor. He paid $40,000 in
2004 for the franchise and currently works with about 35 clients.

"There’s not a name recognition like Microsoft," he says. "But I bought into this because

I believe we can make some progress in building that brand."

He doesn’t mind not having a storefront — he usually
holds client meetings at a local Starbucks coffee shop. Like any
business "you have to be committed financially," he says, "and willing
to bust it for a few years."

–Ms. DeBaise is an editor at SmartMoney.com.

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