| BUSINESSWEEK ONLINE : APRIL 26, 1999 ISSUE | ||||||||
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| INFORMATION TECHNOLOGY
ISPs with Something for Nothing No-fee service providers may finally be getting it right The allure was almost irresistible: ''Free Internet Access for Life,'' the ads promised. What it didn't say was that they meant the ''life'' of the company. Such free Internet service providers (ISPs) as BOSnet, USFreeway, and CyberFreeway, have all folded, leaving tens of thousands of Americans stranded with a bum E-mail address. Now, a couple of new companies are trying again--and this time, they may get it right. NetZero Inc., a Westlake Village (Calif.) startup, has reeled in more than 700,000 customers since it began offering free Net access six months ago. And in July, Dallas-based Net Access Exchange Inc. plans to launch a similar service, Y-Pay. Unlike the earlier tries, NetZero is outsourcing its network to Level 3, AGIS, and GTE, saving millions on infrastructure costs. And it isn't charging a $25 to $50 startup fee, making the service virtually risk-free for subscribers. In exchange, they must view a barrage of ads in a banner-size box that floats on top of their Web browser. ''It's only free from the consumers' perspective,'' says CEO Ronald T. Burr. ''We've just had to find some other way to generate revenues.'' NetZero is betting it can charge a premium for ads because it knows its subscribers. To sign up, consumers are asked such details as age and income. NetZero also knows the phone number they use to connect, allowing it to target ads geographically. And because NetZero's technology tracks every Web site that its customers visit, it quickly learns their druthers. The ads don't bother Diana Pederson of Lansing, Mich. She runs a gardening Web site for the disabled called the Enabling Garden at Suite101.com. She signed up because she was frustrated with the busy signals she got from Toast.net, her for-pay ISP. ''I tune out the ads,'' she says. But she likes the ''back'' button so that, when an ad catches her eye, she can find it again. What she and other users don't like is NetZero's growing pains: ''It disconnects quite frequently,'' she says. ''That's why I keep an ISP that I pay for.'' Will NetZero be a success? Venture capital backers are sold and expect it to go public this year. But most say the jury is still out: ''There's enough evidence to support the fact that free Internet access hasn't worked in the U.S.,'' says Abhi Chaki, a director at market researcher Jupiter Communications. ''But it looks like NetZero can easily reach a 1 million market, which is the point [at which] advertisers start taking them seriously.'' So far, advertisers haven't hesitated. All of its banners were sold out to 50 advertisers in February. CHAGRIN. NetZero already is an irritant to classic ISPs. ''Our chagrin is we don't know how they can afford it,'' says William C. Heys, senior vice-president at ISP EarthLink Network Inc. in Pasadena. Heys says EarthLink pays on average $8.50 a month in phone charges for each customer and an additional $5 in support costs for its 800 number. Swedish telecommunications giant L.M. Ericsson has come up with a technology for delivering ads or messages that mimics NetZero's, and that's what Y-Pay will use for its free Internet access this June. But Ericsson is trying to sell it to existing for-pay ISPs. But customers who pay $19.95 a month are likely to balk at getting ads. NetZero, up front about the trade-off, can get away with it. Just as on TV, you get what you pay for--and that includes the commercials. By Larry Armstrong in Westlake Village, Calif. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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