Will ZapME! Get Whittled Down To Size?

Early investors in free ‘Net access to schools provider ZapME! (IZAP)
may be rueing the day they missed this important lesson: Companies with
no revenues and unproven business models targeting markets subject to
the crosswinds of political activism are risky bets.

There were trouble signs right away. The company flunked its IPO test
last Oct. 20 – shares were offered at $11, opened at 10 = and closed at
9 =. Only five other Internet stocks had worse debuts in 1999.

Since then IZAP has been a non-starter, its high point – and I hesitate
to call it that – coming on Nov. 16, when shares hit 13 >, an anemic 25%
above the offer price. The stock has spent most of the past month
trading below $10 per share.

Don’t expect things to get better any time soon. A lobbying effort by a
coalition of educators, authors and interest groups has begun to drive
ZapME! and its Trojan horse of free Internet access out of the schools
and to force corporate sponsors to sever their partnerships with the
company.

News of the lobbying bid, announced yesterday, sent IZAP’s price down to
8 9/16 Thursday afternoon, a drop of 11% from Tuesday’s close of 9 5/8.

The coalition is urging all 50 U.S. governors and state educational
leaders to “protect children from ZapME!” The group also is asking
corporate partners such as Dell Computer to end their affiliation with
ZapME!

What alarms the coalition is that ZapME! is using its offer of free
computers and Internet access for schools to bombard students with
advertising and compile personal information about students for
advertisers and sponsors.

“ZapME!’s business model is beyond redemption,” the coalition wrote in a
press release. “In essence, it plants computers in the schools as
advertising delivery, market research and surveillance machines.”

This perfectly describes ZapME!’s business model. It’s the same strategy
employed by Christopher Whittle more than a decade ago when his Channel
One offered to install free televisions in classrooms in exchange for
the right to broadcast ads into the schools. The firestorm of protest
sank Whittle’s dream, and sold Channel One in the mid-’90s for a big
loss.

Many of the same people who objected to Whittle’s TV scheme are now
lining up to battle ZapME! And just as before, this is not a storm that
will blow over soon. ZapME! will be sucked into a non-stop round of
skirmishes on the local school level as parents and educators protest
the company’s plans.

With only scant revenues to date — $444,000 through the first nine
months of last year – and protracted trench warfare looming, ZapME!’s
prospects for eventually gaining a passing grade from the market are
remote.

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