Financial Times June 3, 1999 Article:
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Financial Times is the WSJ of Europe and even excells the WSJ. Anyway, here is the article:
THE GUARDIAN: AFTER THE GOLD RUSH : FREESERVE TAPPED A RICH VEIN
WITH ITS INTERNET SERVICE. BUT, ASKS TIM PHILLIPS, CAN IT FLOURISH IN
A HIGHLY COMPETITIVE CLIMATE?
THE GUARDIAN: AFTER THE GOLD RUSH : FREESERVE TAPPED A RICH VEIN WITH
ITS INTERNET SERVICE. BUT, ASKS TIM PHILLIPS, CAN IT FLOURISH IN A HIGHLY
COMPETITIVE CLIMATE?
91% match; The Guardian - United Kingdom ; 03-Jun-1999 01:40:56 am ; 877
words
If Freeserve's corporate affairs director Lesley Smith thought her working week
was winding down on the evening of Friday May 21, she could not have been more
wrong. Just as most of us were preparing to go home, Freeserve discovered that
email for many of its 1.8 million customers wasn't getting through, sparking a
weekend of frantic maintenance.
'I never want to go through that again,' she says of Freeserve's first major
breakdown since it was launched on September 22 last year. 'It was very bad
news, but all the email was retrieved and delivered by Monday afternoon.' For the
UK's largest free internet service provider, the glitch could hardly have come at a
worse time. Freeserve's success has encouraged Dixons Group to consider
selling shares in the ISP. But as merchant bankers discuss its value, Freeserve
faces two threats to long-term viability.
The competition among the UK's ISPs has intensified. Already at least 50, from
Microsoft to Arsenal football club, offer a subscription-free service. Now Tempo's
Screaming.Net and X-Stream Network are offering a free off-peak calls to the ISP
too, and if users demand free connections, then revenues that come to Freeserve
from its share of BT's profits on local calls will disappear too.
Smith reluctantly admits that Freeserve may have to copy freephone internet
providers like X-Stream. 'We might get severe overload problems on the telephone
network if everyone has free calls to the internet. But we will lead whichever model
becomes the dominant model,' she promises.
Paul Myers, managing director of X-Stream Network, claims to recruit between 300
and 500 disgruntled Freeserve users a day, partly thanks to his policy of
occasionally offering free calls at weekends. 'Freeserve now has a product that's
just not as good as the rest. All it offers is free internet access,' he says, adding
that this is no longer enough for ISPs to thrive. From today, X-Stream will also offer
its 350,000 users a personal 0870 number on which they can retrieve email,
voicemail and fax from any telephone or fax machine for the cost of a national call.
It's services like this, says James Eibisch, the research manager at analyst IDC,
which will make free ISPs popular, not primarily the cost of the call. To survive, he
says, ISPs will have to offer the opportunity to shop, bank or communicate more
efficiently. 'Internet access will be a no-cost item. The paid-for services have had
customer loyalty - there has to be a good reason to cancel that contract.
'Free ISP customers are much more fickle. Freeserve has to do it by providing what
people really want, to work its way into your daily life.' In the last five weeks alone
Freeserve has offered five new services. Last week, it appealed for 100 guinea
pigs for a month-long test of Telserve, a competitor for X-Stream's fax and
voicemail number, that also offers cheap conference calls for up to seven users.
Since May 19, users have been able to register for Presto Phone, offering up to
77% off international calls, and 33% off national calls if they call through an access
number, as they would with a calling card.
These join three new content areas: the Finance Channel, offering share prices
and information, an Education channel offering GCSE revision, and the Desktop
Lawyer, which lets you download and customise legal documents. Smith says
Freeserve's aim is to find content that gives practical, UK-based help. 'People in
the UK don't want American news and offers. They want to know about the Spice
Girls, soccer, and the weather in Bournemouth. The Legal Channel offers the
UK-specific information you need to buy a house, get divorced or make a will.' But
are these extra services the right ones? asks Adam Daum, who has researched
Freeserve for market analyst Inteco. He says it has been recruiting so fast in a
'land grab', it has left little time to profile what its users want from the web. 'Has
Freeserve created a monster or a gold mine?' he says. 'We know it has created a
huge audience in an uncontrolled way.' Freeserve members, says Daum, are
'slightly more female, a slightly broader age group'. To keep its customers loyal, it
must know them much better. 'Investing in a financial channel is fine,' he says, 'but
only if your users are people who buy shares.' Smith disagrees. 'It's like
broadcasting - anything that brings users to the site drives up our advertising
revenue,' she says, adding that this revenue is 'growing exponentially'.
But if Freeserve adds too much content too fast, it may find that growth will slow.
Daum says that in the US, many web users have learned to ignore internet
advertising, which is creating only half the customer response that it was 12
months ago. 'So if Freeserve is betting its future on advertising revenue, that's
pretty shaky,' he adds.
Despite Daum's scepticism, he thinks Freeserve's scattergun launch policy is its
best chance of success. 'Eventually the portal may be stuffed so full of things, it will
lose its character and be no more than a giant shopping mall,' he says, 'But in
Freeserve's position I'd be announcing things like crazy too.'
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