Posted at 4:53 p.m. PDT Friday, September 24, 1999
Free Internet access takes one
step forward and two steps
back
NEW YORK (AP) -- Even as investors gave the usual hero's
welcome to the newest Internet stock, there were strong signs that
the newcomer's main product -- free dial-up access to the Internet
-- may not be the wave of the future after all.
NetZero's shares nearly doubled on Friday, the first day of trading
after the free Web service's initial public offering of stock.
Investors were apparently unfazed by news that Microsoft, which had considered giving away
access to customers of its MSN service, is actually going the other way and raising its fee by $2 a
month, to $21.95.
Still, Microsoft's decision came amid increasing skepticism by analysts toward the free-Web trend.
One problem, they say, is getting users to stick with a free service, which make money by parading
a steady stream of advertisements across a user's screen.
Several early providers of free Web access, including Bigger.net and Tritium Networks, have died
trying to make a profit.
''After doing further work on the 'free access' business model, we are also highly skeptical that it is
economically viable,'' Merrill Lynch analyst Henry Blodget wrote in a report to investors on Friday.
Joe Laszlo, an analyst with the Jupiter Communications research firm, agreed.
''As people look more closely under the hood, the idea you can provide Internet access solely
supported by advertising seems less and less like a winning proposition,'' he said.
Underlying their skepticism is an obvious conclusion: Most people, including Internet users, don't
like being bombarded with ads. More preferable are subtle advertisements such as paid Web links
on the start-up pages for Internet access.
Microsoft, for its part, is placing its bets on its for-fee service. Starting Oct. 5, MSN service will
cost the same price charged by America Online, the No. 1 provider of Internet access.
Despite the risks, analysts say companies are likely to continue to experiment with providing free
access, particularly to consumers who are heavy users of goods and services.
Last month, Surfree.com introduced a service that lets customers cut their monthly bills by watching
ads. Also in August, AltaVista decided to give away access to customers who click on a window
of ads and Web links at least once an hour. Those who don't are disconnected.
NetZero's public offering was the latest test of enthusiasm for the trend, and investors appeared to
embrace it, boosting the company's stock more than $13 to $29.12 1/2. Notably, the big gain
came at the end of a week in which technology stocks have suffered punishing losses on Wall
Street.
Fueling investor optimism are projections that the number of Internet users will swell from 63 million
in 1998 to 177 million in 2003, according to International Data Corp. That's a lot of eyeballs for
advertisers' messages.
''My inclination is that NetZero will have a dramatic increase in advertising because it's free,'' said
David Menlow, editor of IPO Frontline, a Millburn, N.J.-based newsletter for individual investors.
But thus far, providers of free access have had mixed success in keeping customers, and most have
yet to earn money.
NetZero, for instance, disclosed in a filing with federal regulators that it had signed up 1.68 million
users -- but only about 890,000, or 53 percent, actively used the service.
Freeserve, an upstart pioneer of free Web access in Britain, has yet to make money and is
expected to report another loss when it posts its latest quarterly results next week. In fact, those
losses come despite the fact that Internet access providers in Europe get to share in telephone
revenues as subscribers dial up. |
