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From...
Last call for free Web access
NetZero is the latest ISP to try offering free Net connections tied to advertising. So far, no one else has made the business model work.
October 26, 1998
Web posted at: 1:10 PM EDT
by Jason K. Krause
(IDG)
-- It should be the ultimate Internet play – free Net access, paid for
by advertising to a captive audience. Such services would speed the Web's
transformation into broadcast TV (free as long as you put up with intermittent
ads), make Internet access ubiquitous and enable serious one-to-one marketing.
Trouble is, everyone who's tried to do it so far has failed.
The latest company to have a go at the free-Internet game is NetZero, based in Westlake Village, Calif. NetZero is launching with 10 advertisers and 150 pilot users, and the technology is pretty convincing. When a customer logs on, an ad window about the size of a normal banner appears. It can be dragged around the screen and positioned unobtrusively, but if customers try to kill it, their Internet connection is cut off. When people sign up for the service, they fill out customer profiles that let NetZero target ads by geography and special interests no matter where they surf -– something that has not been possible on the Internet at large.
Additionally, NetZero CEO Ron Burr says ads can be targeted based on which site is being browsed. "If someone goes to a car-buying site, our technology could put an ad banner for a bank's loan and financing services right there in his or her face," he says. NetZero estimates that 1,000 customers surfing for 20 hours a week would create 1.4 million banner ads a month.
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Fair enough. Yet as NetZero launched, a free ISP out of Cincinnati, Ohio – Tritium – was forced to suspend service. Tritium launched its network in January with technology quite similar to NetZero. It ran low on money this summer and has suspended operations indefinitely. However, founder Michael Lee says he "absolutely" plans a relaunch and is looking for partnerships or investors to make it possible.
Lee says he learned two lessons from the experience. "The technical problems are in getting cheap bandwidth, which has only become available in the last two years," he says. "But the real battle is getting advertisers to realize the potential of the market. Obviously, we were ahead of that curve."
Tritium may be the most recent free ISP to fail, but it's not alone. A long-distance telephone provider called J3 Communications in Dover, Del., lasted just three months. Silicon Valley-based CyberFreeway used an ad banner technology imported from its Japanese parent company, Hyper.net, but went under in 1997. Analysts and competitors say CyberFreeway failed primarily because customers couldn't adjust to the ad banner, which was developed for Japanese browsers and dominated the right-hand side of the screen. Bigger.net, a free ISP servicing Los Angeles and the San Francisco Bay Area, is surviving, but filed Chapter 11 in December 1997. (CyberFreeway charged a $29.95 set-up fee; Bigger.net charges a one-time, $59 fee for its software and $10 a year for e-mail.)
At Tritium's launch, Lee believed 100,000 customers would be enough to sustain the business and to attract advertisers. Tritium claims that over 25,000 active customers signed up and that another 110,000 customers registered but were never processed. But now both Lee and NetZero say critical mass is 1 million customers.
Surprisingly, even NetZero's venture capital backers seem to think NetZero is a long shot. Jim Armstrong of Idealabs Capital Partners venture capital fund, a spin-off from start-up incubator Idealabs, claims that the VC's founder, Bill Gross, rescued NetZero's business plan from the garbage can before taking another look and backing the venture. "This is a concept investment," says Armstrong, who holds a seat on NetZero's board. "No one else would've made this investment, but if it should happen to succeed, we want to be the ones who made it happen," he says.
So far, Idealabs has made a minimal investment in NetZero – just $1 million at its launch. Sources close to the deal say NetZero will have to jump through lots of hoops before any more money is forthcoming. Armstrong hopes to see 15,000 customers in the first 180 days, a feat he calls not "unachievable." But, he adds, "If this doesn't work, I think it'll be a long time before someone takes another chance on a free ISP."