NetZero Banking On The Intangibles

What’s in a domain name?

A lot, if you’re a free Internet service provider that doesn’t have
ownership of the freeinternet.com name.

Details are sketchy and even a hint at a price tag produces a figurative
zipping of the lips when it comes to NetZero Inc.’s non-binding letter of
intent with FreeI Networks Inc., Friday. FreeINet announced it had filed
for Chapter 11 bankruptcy protection earlier that day.

But the domain name and subscriber base are certain targets for the
acquisition, NetZero officials said Monday. According
to a spokesperson, more details would be released later this week.

Steven Harris, IDC senior research analyst of ISP markets, said the
acquisition was expected, even though the lack of details wasn’t.

“Freeinternet.com’s acquisition came as no surprise, since it was one of
the most vulnerable free ISP services,” Harris said. “Its subscriber base
was not huge, and its method of generating revenues, through
advertisements, required that they make it real inexpensive to offer the
service. Once you start contracting with Shaq, you’re spending a lot of
money.”

Harris went on to say NetZero’s decision to acquire FreeINet’s subscriber
base is difficult to assess, as many people who use free Internet services
usually have another free service to begin with. In effect, Harris said,
they’re likely getting subscribers that are already double-dipping with
NetZero.

While mum’s the word about future of NetZero Inc., the free Internet service
provider is definitely looking to cash in on the free Internet name.

According to Brent Zimmerman, NetZero director of investor relations, the
intangible benefits to the freeinternet.com domain name could be worth its
weight in gold.

“The domain name is one of the intangible assets were looking at,” said
Zimmerman. “Getting their domain name would be very beneficial to
use. (FreeINet) has spent a lot of money marketing that domain, in
addition to the price they paid for the domain itself.

“We see that as a benefit for us down the road,” Zimmerman
continued. “People are going to remember those Shaq and Baby Bob
commercials in the future, get on their computer and type
‘freeinternet.com.’ We see that as a good thing and are looking to make
the letter (of intent) binding, probably with cash/stock for the subscribers.”

In its press release Friday, NetZero said it had signed a “non-binding
letter of intent to acquire certain assets of FreeI Networks Inc.” What
those certain assets were had analysts and the media alike guessing
throughout the weekend.

Mark Goldston, NetZero chairman and chief executive officer, said in the
Friday release “our intent is to provide maximum continuity for
Freeinternet.com users. NetZero intends to help Freeinternet.com users
transition as smoothly as possible so they can continue to enjoy the
benefits of free Internet access and e-mail.”

As NetZero waits for the court’s ruling on FreeINet’s future, or lack
thereof, the free ISP will have to scramble to make sure it can indeed
offer continuous Internet service to its potential customers. While
NetZero has the most subscribers with 4.9 million, it only offers service
in 4,000 cities nationwide, 2,500 less than FreeINet.

That NetZero was going after the subscriber base was self-evident. It has
the potential to add more than 3.2 million users to its fold, assuming
people want to make the transition.

It’s a model Juno Online Inc., has used with great
success, building its free-to-pay Internet model into the third largest ISP
in the U.S.

That was enough for investment firms to issue initial approval of the
deal. Goldman, Sachs & Co. gave its seal of approval Friday afternoon in
its research report.

“While specifics are not known at this time, we initially view the deal
favorably as it will allow NetZero to continue

to gain scale through the
addition of Freeinternet.com’s 3.2 million registered users which should
make the platform more attractive to larger advertisers and drive down
networks costs over time,” the Goldman, Sachs & Co. report stated.

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