Familiar Names Jump on Free Access Bandwagon

Forget $20 a month to surf the Internet. Now, in a battle for eyeballs, an increasing number of players are offering free Internet access.

NetZero (NZRO), a free
access provider, signed up more than 1 million
“subscribers” (users might be the word here) in only about eight months. A
leading Web portal, AltaVista, recently began offering free access to registered users. On the
first day, 50,000 users signed up. In less than two weeks; AltaVista had
registered over 225,000 subscribers. By Dec. 13, the company had hit the 1 million user mark.

The companies are hoping that the personal information and online behavior
collected will help them better target their advertising and e-commerce
offerings. The end result should be higher
click-through rates and higher price and volume purchases by
customersadditional and improved
sources of revenue by exploiting the dying model of traditional access.

The overwhelming leader in the consumer access space, America Online Inc. (AOL), currently
generates 75 percent of its total
revenue from subscriber fees. Richard Branson, the chairman of U.K. entertainment conglomerate Virgin, recently talked about his plans for a radical online
initiative.

Branson was quoted
as saying, “We want huge numbers of people to come to us, and that is more
important than the $20 a month theyll pay.”

Virgin could very well be the next
large-scale player to begin
offering free Internet access services in the U.S.

Key trends to follow now will be:

1. Free access users cannibalization of subscriber users and fees from
   existing, traditional access providers.
2. The separation of brand buyers and price buyers.
3. Community (sticky) features/services that lock customers into an access
   service.
4. An access providers potential scalability into other businesses and
   markets. This is especially important for AOL which generates 75 percent of its
   current revenue from subscriber fees.

Excite@Home (ATHM) was the latest access/portal company to dive into the world of
free dial-up access. On Thursday, the high-speed access provider launched
FreeWorld in an effort to attract new users who will hopefully, at some
point, convert to the company’s paid, high speed access service.

As Internet access becomes more of a commodity, investors need to find
businesses that are able to scale their model away from subscriber fees.

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