Free Internet Fever
Thursday, September 16, 1999 6:54 PM
by Mike Ogburn
When Lucent's (LU) chief executive predicted this week that a web firm will offer free
Internet stock trades within the year, he poured more fuel on the free Net fire.
The Internet already offers free e-mail, free web site hosting, numerous free
giveaways.com and even sites that pay you to surf the web. Netizens can snag free
music downloads, online games and coupons, as well as free job searches and career
assistance.
In addition, content-providing sites continue their shift from subscription-based services
to for-free (note TheStreet.com's (TSCM) never-ending free trial period). And all of the
software you ever needed to enjoy the Net – from Internet Explorer 5.0 to
Macromedia Shockwave to the RealPlayer G2 – is free.
In the past year, this free phenomena has spread like an e-epidemic. Several Internet
Service Providers now offer a free computer to any user who signs up with their
service. FreePCs.com, a spin-off of VC company idealab!, has given away more than
one million computers in exchange for the right to track users' online habits. UK
company Totalise PLC offers free shares of the company's stock for individuals signing
up for Internet service.
Leading the free Net-access market are future IPOs Netzero (another idealab!
company) and Alta Vista (CMGI), two of a growing list of companies that provide free
Internet service with one string attached – usually permanent on-screen
advertising. In its first month on the market, Alta Vista's service attracted more than
250,000 users, and the CMGI-company aims to sign up over 1 million users by the
end of year one. Netzero already counts over 1 million registered users.
Contrary to some opinions, this free movement is gaining momentum, not losing it.
And the need to bring more customers to the web and to better identify them will likely
drive additional free initiatives.
The free scenario is playing out in a unique parallel to the Net business model, in
which a company spends exorbitant amounts of money to gain the necessary market
share to enable it to ultimately make money. With the free model, companies give
something away with the hopes of generating enough traffic to justify enough
advertising spending that will in turn support the free service.
This model seemed to work for radio and television, although neither group of
broadcasters gave away free radios or TVs to accelerate user growth. Wouldn't that
have been cool?
The key here is advertising, the engine that drives both old media and new. It's already
a $3 billion business on the Internet, and is expected to grow to $22 billion over the
next five years, according to Forrester Research. Online ad spending has surpassed
spending on outdoor ads, and Jupiter Communications estimates that by 2003 it will
surpass cable ads and amount to three-quarters of ad spending on radio.
If Net advertising can evolve past mundane banners (it will), if its targeting can become
even more effective (it will), and if its click-through rates hold their ground (who knows),
the industry is poised to explode. That's good news for consumers, and good news for
surfers who like free stuff.
Of course, when broadband goes mainstream, the balance of power may shift back to
the pay-to-play model. You would think that the deep pocket advertisers will be more
likely to run slick, streaming video ads for @Home's (ATHM) paying, cable-Net users
in lieu of targeting ad dollars toward the cheapies getting wired through a NetZero or
Alta Vista. That possibility could make some sites less attractive to advertisers.
The only sure winner in either scenario will likely be the consumers – and some
well-positioned online advertising companies. Meanwhile, don't forget to click on a
banner or two at Internetstocknews.com, so we can keep it free.
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