Hoping to win converts to a new form of on-line payment, a group of electronic commerce consultants has left Dove Associates Inc. to create a software company.
Called the Farragut Group and based in Washington, the start-up is developing Vertical Hold, software intended to let consumers bill their purchases of electronic goods and services directly to accounts held with Internet service providers.
"We want to mimic the cable TV model by allowing users to purchase a subscription to HBO or pay-per-view and have it show up on their bill," said Edward L. Neumann, managing director of the new company and the former director in the Washington office of Dove, a Boston consulting firm.
"That is the future, and until we reach that point, the Internet will be held back," said Mr. Neumann, who also managed the electronic commerce practice at Furash & Co. He is joined at Farragut Group by former Dove Associates colleague Alfred J. Funk, an Internet security expert.
Vertical Hold is similar to a patent-pending system developed by eCharge Corp. of Seattle in that it hopes to piggyback on an existing payment method. Two-year-old eCharge is promoting a system that charges Internet purchases to buyers' local telephone bills. ECharge uses the infrastructure for 900-number billing, and Internet purchases appear on telephone bills as such charges.
ECharge has attracted the attention of several international telecommunications companies, including Telia in Sweden, Cable and Wireless in the United Kingdom, and France Telecom. Executives said they expect more than 5,000 merchants to feature the eCharge billing system by yearend.
The first version of Farragut Group's Vertical Hold is about one-third developed and will not be available until January, Mr. Neumann said. The software will route billing information through the credit card payment infrastructure, which processes the vast bulk of Internet sales.
The software's initial focus will be on helping content providers manage and bill subscriber accounts. "There are a growing number of sites that realize they can't support themselves through advertising alone," said Mr. Neumann. "The trend in the industry is toward charging for part or all of the site."
Ultimately, however, the software's chief focus may be to help Internet service providers cultivate a new source of revenue, which would gain them an advantageous position in the electronic commerce sweepstakes.
"This will help with customer retention and provide a new revenue stream for the Internet service providers," said Mr. Neumann. Internet service providers, or ISPs, will have a compelling service to offer content providers: the ability to run their electronic storefronts on the accounts receivable and customer service frameworks of ISPs.
Consumers may benefit by getting fewer bills. But "sticker shock" could occur when various premium-content Web packages are grouped on one bill, said Gary Arlen, president of Bethesda, Md.-based Arlen Communications Inc.
"Customers understand bundling of bills when they fit together in the same mind-set," Mr. Arlen said. For example, "video entertainment, HBO, and pay-per-view are all coming out of the TV."
Dove Associates is a minority investor in the company. It plans to work with other technology companies to capitalize on the collective electronic commerce knowledge of its principals.
The venture's other partners are Dennis Kernahan, former chief executive officer of the CyberMark Inc. smart card architecture development team, and Thomas McClintock, a former software marketing executive at Deloitte & Touche.
