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Free Internet Access: 1stUp Turns Up the Heat

With numerous sites now offering free dial-up Internet access, high-speed access becoming readily available, bulk connectivity costs dropping and advertising dollars spent increasing, investors are left with a lot of due-diligence work. What Internet access companies' will benefit from these strong trends that are shifting our entire Internet economy?

CMGI- (CMGI) majority owned, 1stUp.com is a good place to start. The company is still private, though it's likely we will see an S1 filing within the next month.

1stUp.com's technology provides a scalable solution indirectly delivering consumers free, advertising supported dial-up Internet access. Unlike other ad-supported providers, 1stUp.com caters to corporate partners, allowing these partners to offer their users a branded, free Internet access service. High-profile 1stUp.com corporate clients include Excite@Home (ATHM), AltaVista, and Bolt.com among several others.

Reporter@Large had the opportunity to sit down and speak with Charles Katz, 1stUp.com's chief executive officer.

Reporter@Large: So Lets talk about what 1stUp.com is really all about.

Katz: Well, 1stUp.com provides ad-supported Internet access technologies that allow companies to offer ad-subsidized, free Internet access to their consumers.

Reporter@Large: What kind of businesses does 1stUp.com target as potential partners?

Katz: We segment them into three different groups: 1) Internet companies. Companies like AltaVista or Excite that already have an online presence and want to continue and further communications with their users even after they've left that core Web site. 2) Computer Manufacturers. These are companies that have the first crack at the consumer once they've bought a computer. 3) Brick and Mortar companies. Businesses like newspapers, banks and retailers that have a trusted brand name with their consumers but maybe don't have a strong Web presence yet and this is a way to get a lot of their users online and to push those users to their online content.

Reporter@Large: I especially liked the deal you guys did with Excite@Home. It seems only natural for a high-speed access provider to offer a step ladders approach from free dial-up access to the company's premium paid-for broadband services.

Katz: Yeah, from our perspective it makes a lot of sense to try and get people online. We think we can play a very strong role in the broadband market as well. We may not offer free broadband access, but the idea of ad-subsidizing Internet access remains the same, whether it be dial-up, broadband, or internationally as well.

Reporter@Large: So the 1stUp.com model will benefit in the era of broadband.

Katz: Absolutely.

Reporter@Large: And as Internet access becomes more of a commodity, how exactly does 1stUp.com's model benefit?

Katz: As the costs of connectivity come down, the direct costs of offering the service come down as well. So it makes our direct cost service offering cheaper. We're taking advantage of two key trend lines: 1) the cost of connectivity is coming down and 2) the amount of online advertising spending, particularly to the top Web sites, is going up. So as those curves grow farther and farther apart, the business model becomes more and more valuable.

Reporter@Large: Can you give us an idea of the different players involved in 1stUp.com's business?

Katz: Sure. There's the backbone Internet service providers (ISPs) like NaviNet, PSI Net or Split Rock. These guys simply provide connectivity fro