RealTime IT News

Will ZapME! Get Whittled Down To Size?

Early investors in free 'Net access to schools provider ZapME! (IZAP) may be rueing the day they missed this important lesson: Companies with no revenues and unproven business models targeting markets subject to the crosswinds of political activism are risky bets.

There were trouble signs right away. The company flunked its IPO test last Oct. 20 - shares were offered at $11, opened at 10 = and closed at 9 =. Only five other Internet stocks had worse debuts in 1999.

Since then IZAP has been a non-starter, its high point - and I hesitate to call it that - coming on Nov. 16, when shares hit 13 >, an anemic 25% above the offer price. The stock has spent most of the past month trading below $10 per share.

Don't expect things to get better any time soon. A lobbying effort by a coalition of educators, authors and interest groups has begun to drive ZapME! and its Trojan horse of free Internet access out of the schools and to force corporate sponsors to sever their partnerships with the company.

News of the lobbying bid, announced yesterday, sent IZAP's price down to 8 9/16 Thursday afternoon, a drop of 11% from Tuesday's close of 9 5/8.

The coalition is urging all 50 U.S. governors and state educational leaders to "protect children from ZapME!" The group also is asking corporate partners such as Dell Computer to end their affiliation with ZapME!

What alarms the coalition is that ZapME! is using its offer of free computers and Internet access for schools to bombard students with advertising and compile personal information about students for advertisers and sponsors.

"ZapME!'s business model is beyond redemption," the coalition wrote in a press release. "In essence, it plants computers in the schools as advertising delivery, market research and surveillance machines."

This perfectly describes ZapME!'s business model. It's the same strategy employed by Christopher Whittle more than a decade ago when his Channel One offered to install free televisions in classrooms in exchange for the right to broadcast ads into the schools. The firestorm of protest sank Whittle's dream, and sold Channel One in the mid-'90s for a big loss.

Many of the same people who objected to Whittle's TV scheme are now lining up to battle ZapME! And just as before, this is not a storm that will blow over soon. ZapME! will be sucked into a non-stop round of skirmishes on the local school level as parents and educators protest the company's plans.

With only scant revenues to date -- $444,000 through the first nine months of last year - and protracted trench warfare looming, ZapME!'s prospects for eventually gaining a passing grade from the market are remote.

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