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FreeDSL Sees The Light Of A Profitable Day

Winfire and its FreeDSL service is bringing in more than it's taking out, officials were more than happy to announce at a press conference Tuesday.

Officials have plenty of reason to crow. The Internet service provider's service and its digital subscriber line free-to-pay model, subject to criticism by peers, the press and analysts, is bringing new customers in and getting them hooked on its paid services.

Chad Steelberg, Winfire chairman and chief executive officer, said his company's model, coupled with a general inclination by subscribers to stay with their first broadband provider, made upgrades to the premium services inevitable.

"Broadband is a drug," Steelberg said. "Once (a new customer) is introduced to this particular narcotic, there's no going back. Our goal has been to introduce subscribers to an inexpensive way to experience broadband, and then to get them to move up to our paid, premium services. And it's worked, with 65 percent of our subscribers moving immediately to the paying services."

The free-to-pay model was first adopted by Juno Online Services Inc., netting the dial up ISP millions and launching the company to the top as the third largest ISP in the nation, behind America Online Inc., and Earthlink, Inc.

It's a model that's worked well for Winfire, also, reducing the free ISPs need to depend on ad banner revenues for its continued existence.

Pricing for the premium services start with the $9.95 a month service, which delivers up to 144Kbps with no ad banner. The service is tiered until it reaches the top, with DSL Premium at $34.95, which promises 604Kbps - 1.5Mbps (depending on the local exchange carrier and distance to the central office) and a free DSL modem.

According to Winfire officials, only 12 percent of its revenues in the third quarter came from ad banner revenues. The lion's share of its revenues, or 42 percent, came from paying subscribers. Another revenue generator is the commission Winfire receives for every DSL modem it sells, to the tune of $10 to $20 per modem.

That, coupled with its completely automated order-to-installation process, has kept the ISPs overhead down and its profits up, bringing it to gross margin profitability. By way of comparison, Netzero Inc., a strictly free dial up ISP, has been promising zero margin profitability since 1998, with no results. It has taken Winfire 10 months, since the launch of FreeDSL in January.

Richard Shields, Winfire chief financial officer, said there are several reasons for the ISPs success these past months.

"The catalysts for reaching this objective so quickly have been: first, our success in upgrading customers from FreeDSL into monthly subscription packages," Shields said. "Second our success in launching value-added network services like, bandwidth-on-demand, which provide additional revenue for little or no incremental cost, and third our ability to negotiate favorable prices with our local exchange carrier partners in exchange for our provisioning volume."

Shields said the company will continue its expansion into new ventures to increase profit margins in the future. Officials are currently looking at providing virtual private networks, network-based firewalls, content filtering and fixed IP addresses.

Currently available in 27 markets around the country, Winfire expects to reach 42 by the end of the year. Financing the deployment comes in the form of its third round of funding, which has garnered around $17 million from investors.