FREE unfazed by AOL challenge:
internetnews.com
New AOL Service to Shake Up UK Internet August 25, 1999
ISP News Archives
AOL Europe's launch of a free Internet service provider is the biggest challenge yet to Freeserve, analysts said on Wednesday, but Britain's Web wonder said it was unfazed.
"We welcome competition in a marketplace that has expanded enormously since we started less than a year ago. Imitation is the sincerest form of flattery,' a Freeserve spokeswoman said.
Launched in September, Britain's pioneering free Internet service provider (ISP) rapidly overtook AOL Europe as the market leader in Britain and now has 1.3 million active users, but on Tuesday, AOL hit back with what analysts said was a hefty punch.
It launched its own free service, Netscape Online, aimed at Internet-savvy users, saying it was sure existing subscribers would be happy to keep paying the monthly $16 fee for extra services, such as parental control, and more technical support.
The aim is clearly to hit back at Freeserve, which was valued at some 1.5 billion pounds ($2.4 billion) when its parent, electrical retailer Dixons Plc, floated off a fifth of it in Britain's biggest Internet-linked share offering in July.
"Netscape is the first strong competitor to Freeserve and one they need to take very seriously,' said Anthony Miller, an analyst at UK IT research company, Richard Holway Ltd. "Freeserve has the first-mover advantage but this is really a transitory benefit in the free ISP market.'
He is watching how the market would value Freeserve once Netscape Online, a joint venture of America Online and Germany's Bertelsmann, was up and running.
AOL Europe, with a million users, has said it felt compelled to join in Britain's stampede to provide no-subscription ISPs, but remained sceptical about their long-term viability. Free ISPs make money -- or rather cushion their losses -- mainly from a share of telephone revenue and from advertising and e-commerce. Calls in Britain are charged by length and not as a flat rate per connection.
Since Freeserve launched, some 200 others have jumped on the bandwagon, most of them new but some former subscription servers who dropped their charges.
One major contender is CurrantBun.com, provided by Rupert Murdoch's best selling Sun newspaper, which has one third of a million users and aims to be in the top three ISPs. Analysts said there was a place for smaller niche providers -- such as those run by banks for customers or by popular football clubs -- but that competition amongst 'generic' free ISPs would separate the wheat from the chaff.
"Freeserve faces a challenge. They must go out and use the capital they have raised to buy in content to win customer loyalty -- there is very little of it around,' said one London IT analyst.
Freeserve, which is to offer online foreign exchange and share dealing, said it had the best UK content on the Web.
While AOL Europe hopes Netscape Online will attack Freeserve, analysts said it was fanciful to think it would not also gnaw away at its own subscription-paying customers, though inertia and the extra services would prevent many leaving.
Some research has shown scant new-user take-up for subscription services, but AOL -- which aims its AOL and Compuserve brands for families and professionals respectively -- said it had gained around 300,000 new users in the last year.
A spokeswoman said this was slower growth than prior to the arrival of the free ISPs, "but still pretty healthy." "AOL is making the right move. If they are going to bleed subscribers to a free ISP, as I am sure is already happening, they might as well bleed them to their own," said Miller. |
