By
Mike Musgrove
Washington Post
If practically
everything you look at, read or use on the Web is free, why
can't getting online be free, too?
But free Internet service providers (ISPs), which sprang up
as quickly as every other type of Internet company in the
past year or two, have been going through a major shakeout
lately. This summer and fall, three major ones, WorldSpy,
Freewwweb and FreeInternet.com, went under. Last month, the
venture-capital firm CMGI announced that it is yanking its
support for 1stUp.com, a free ISP based in San Francisco that
provides behind-the-scenes services for businesses interested
in getting their customers online.
Deidre Moore, vice president of communications at Andover,
Mass.-based CMGI, said that the firm had hoped to find a buyer
for 1stUp.com but hadn't succeeded in doing so. There's no
"generic outcome" for users of the service, she said. Some
former 1stUp.com users will be handed over to other ISPs,
and some will simply find themselves out of luck.
1stUp.com would not comment for this story, other than to
confirm CMGI's statements.
The ranks of ISPs that don't charge for Internet access look
to be winding down to two main players with somewhat different
strategies, NetZero and Spinway. These two have survived so
far, but that doesn't necessarily mean they'll make it, either.
Spinway's approach - like that of 1stUp.com - is to be a behind-the-scenes
player. Kmart is the company's biggest customer.
After the discount retailer estimated that 57 percent of its
customers weren't online, Kmart started its BlueLight.com
free ISP last December, running on Spinway's network. BlueLight
already has about 5 million registered subscribers, making
it the fastest-growing ISP around, free or pay - but only
about half of those are active users of the service.
Fortunately for the Sunnyvale, Calif.-based Spinway, Kmart
doesn't care too much about making a profit from its Internet
service. "The ISP is not a revenue model for us, it's a marketing
tool. We're using the ISP to get eyeballs on our site," said
Dave Karraker, director of corporate communications for BlueLight.
"Think of it as our one big commercial - it's our Super Bowl
commercial."
This approach gives Spinway an edge in the eyes of some analysts.
Ty Cottrill, with Strategis Group in Washington, isn't a believer
in stand-alone free ISPs - even though he predicts that the
numbers of free ISP users will triple by 2005. "I don't necessarily
think offering free Internet service is a good business, but
I do think that it will increasingly be used by retailers,
banks, any group that has a large number of customers that
it wants to get online." But, he added, "the pure, free ISP
driven by ads will go away."
Even with at least one major, satisfied customer, though,
Spinway appears to be struggling financially - the company
has recently been accused of not paying its bills. ZipLink,
a discount Internet service provider for businesses based
in Lowell, Mass., counted Spinway as a major customer and
blamed that company's delinquent payments when it went under
last month. Spinway did not return phone calls for this story.
As for the "pure, free ISP driven by ads," the original such
company, Westlake, Calif.-based NetZero, has been snapping
up its competitors, recently acquiring FreeInternet.com, its
number-two competitor.
NetZero's chief executive says there's no doubt that free
ISPs can support themselves. "The reality of it is, the media
business has been operating like this for 50 years ... if
this didn't work, we'd be putting quarters in our radios,"
said Mark Goldston, chairman and CEO of NetZero. Goldston
said bad business planning, not a bad business concept, is
what's killing competitors.
NetZero's survival is assured for the time being, thanks to
its financial reserves. "It's not the case that NetZero is
doing so much better than everyone else, it's that they have
enough money to ride out the storm," said Stephen Harris,
an analyst at IDC. According to Harris, NetZero has enough
money from investments to survive another two years without
making a profit - at which time the company hopes to be making
a profit, or to have a more favorable investment climate again.
One possible solution may be the path taken by Juno, the New
York company that started as a free e-mail service but later
expanded to offer free and for-pay dial-up service, plus paid
DSL service. "Our model is a up-sell model," said Gary Baker,
vice president of public relations. Juno's service has about
3.7 million customers: 750,000 pay for its dial-up and broadband
service, while the rest surf for free.
One free DSL service is taking a similar approach. Winfire's
no-cost DSL option runs much slower than competing, for-pay
services - just 144 kbps - and customers still have to pay
$200 for the DSL modem to connect to the service.
"If you don't have somewhere for your customers to go from
your dial-up, it's going to be very difficult to stay in business,"
said David Steinberg, vice president of marketing at the company.
Winfire, based in Newport Beach, Calif., doesn't consider
itself a free ISP; Steinberg said that about 30 percent of
the company's new customers use its free DSL - most opt to
pay a little more to get a faster connection speed and no
ad banners.
If free ISPs are going to survive at all, they might look
something like Winfire or Juno, who are using freebies to
lure customers in the door. And as for the ISPs who don't
have something to sell to customers? Harris, with IDC, offered
that though he believes long-term viability is "theoretically"
possible, "I'm skeptical and always will be of free ISPs."
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