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No-charge E-mailers may give other online services a pain

With legislation on California's soon-to-be-deregulated electric utility industry coming to a head, it was Julie Blunden's job to keep the South Bloomington (Vt.) office of Green Mountain Energy Resources, a reseller of environmentally friendly electricity, abreast of what was happening in San Francisco. Armed with a cell phone and a laptop, ''I am the poster child for the low-cost, high-tech, single-person office,'' says the 31-year-old regional director for Green Mountain. And her most vital weapon for zipping off 100-page documents and maintaining contact with her boss? E-mail--to the tune of 40 to 100 messages a day. ''It's like an artery for me,'' she says.

Tapping into that vein is Hotmail Corp., the Sunnyvale (Calif.)-based company that provides Blunden with her E-mail connection. While other Internet sites struggle to attract visitors, Hotmail and its E-mail rivals have proven that it doesn't take costly content to draw Netizens. It just takes E-mail--free E-mail, that is. In the 14 months that Hotmail has been in business, it has nabbed 6.5 million customers and is adding a stunning 40,000 members a day. By contrast, it took America Online Inc. (AOL) nearly six years to get that many subscribers. ''The growth of our user base has exceeded even our most optimistic projections,'' says Sabeer Bhatia, who co-founded Hotmail with Jack Smith.

Indeed, E-mail is beginning to look like the ''killer app'' on the World Wide Web. Four11, an Internet ''white pages'' directory of E-mail addresses, started experimenting with free E-mail last year. Since its launch in March, its RocketMail site has drawn 700,000 members, with about 7,000 new users signing on every day. In July, Excite, a Web search engine, followed suit with an advertiser-supported E-mail service called MailExcite. Excite won't reveal membership numbers, but industry analysts say it's close to 100,000 members.

And that could be just the beginning. Last year, there were more than 40 million E-mail users in the U.S. churning out more than 100 million messages a day, says senior analyst Kate Delhagen of Forrester Research Inc. By 2005, that could reach more than 170 million users, creating a staggering 5 billion messages a day on the public Internet and private intranets. ''E-mail is out of control,'' says Delhagen. ''We can't use it fast enough or cheap enough.''

But the explosion raises a critical question: Does the success of the free E-mailers threaten the health of Internet access providers? Typically, E-mail is wrapped into a monthly subscription fee of about $20 from a service provider such as AOL or Netcom On-Line Communication Services Inc. If cybernauts can now get their E-mail through any access provider--from the office PC network connected to the Net or the free Net computer at the local library--there could be downward pressure on the rates that AOL and others can charge. ''If everyone wants free E-mail,'' says Peter Krasilovsky, an analyst with Arlen Communications Inc. in Bethesda, Md., ''it could force a drop in fees.''

PROFIT PINCH. One big supporter of freemail: advertisers. Since members must fill out a profile (page 70) to join these free E-mail services, advertisers can tailor their marketing campaigns to specific demographic groups. In the five months that Four11 has been running RocketMail, 60% to 70% of advertisers on the main Four11 site have crossed over to RocketMail. Juno's number of advertisers has jumped from 25 to 80 in the past year. And HotMail now has 35 advertisers, including mainstream Visa.

Still, that hasn't translated into operating profits--yet. ''Right now, it's all about land grab,'' says analyst Delhagen. Hotmail's Bhatia says his startup could ''easily be profitable,'' but he has instead poured revenues back into expansion. If his customer sign-ups continue at this pace, HotMail will hit 10 million members by yearend--and profitability by early 1998, says Bhatia.

But there have been stumbles along the way. Late in 1995, Juno and Freemark tried to break ground with the concept of getting advertisers to foot the bill for E-mail. But those setups required special software and dial-up phone networks--a costly way to go. Privately funded Freemark folded last year. Meanwhile, Juno, which is supported by New York investment banker D.E. Shaw & Co., has only 3 million members. What's more, not everyone is convinced no-charge E-mail is a surefire thing. ''Lots of people sign up for free,'' says Shaun G. Andrikopoulos, an analyst with Alex. Brown & Sons. ''But they don't use it on an active basis.''

So freemailers are finding other ways to keep Netizens coming back for more. On Aug. 29, Hotmail announced that Kinko Inc.'s 835 copy centers in the U.S. will feature PCs with Web and Hotmail access. RocketMail is pursuing local libraries and schools in a similar push to get its Web site--and its advertisers--in front of millions of more eyeballs. Excite is pushing more than just E-mail: Co-founder Joe Kraus says the combination of the Excite search engine, freemail, chat services, and ''instant message'' capabilities--all funded by advertising--will draw surfers to his site.

DIAL-UP DISCOUNT? Even Juno isn't out of the race. Its software is now available on the Juno home page, which cuts some of the operating costs for the New York-based service. And while members still need the software to dial directly into Juno's computers, President Charles Ardai says that gives Juno one big advantage: faster and cheaper E-mail access than Web-based services. Since Juno's dial-up network covers 90% of the U.S., most users pay for only a local, 30-second phone call to send and receive E-mail. ''Saying that E-mail is free over the Web is sort of like saying The Larry Sanders Show on HBO is free,'' gripes Ardai. ''Problem is, you can't watch it without paying for HBO.''

No, but freemail services are finding a way to cut out all the extraneous content and use advertising dollars to provide what may be the only service many Netizens want. And for companies like Hotmail, the check really is in the E-mail.

By Paul M. Eng in New York



TABLE: The No-Postage Postmasters


Updated Sept. 4, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.
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