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.
