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Report: Consumers Reject Free ISPs

By Tim McDonald
Aug 2, 2000 12:00 AM PT

Although more Internet Service Providers (ISPs) are venturing into the free service market, a new study by International Data Corp. adds further evidence to the belief that the free services may not yet be worth the cost to consumers.

Report: Consumers Reject Free ISPs

The IDC findings, released Tuesday, were based largely on the testing of several leading free ISPs, including BlueLight.com, Excite FreeLane, Freeinternet.com, Juno, NetZero and the now defunct WorldSpy.net.

"Free ISP services fared pretty dismally for the most part," IDC researcher Steven Harris said. "With few exceptions, free ISPs have a long way to go to meet even the low expectations of U.S. ISP consumers, especially as [the ISPs] attempt to get started."

Negatives Add Up

Reasons for the free ISPs' struggles cited by the study included hidden costs, inconvenience and the amount of time needed to operate most of the services.

The free services require users to download the dial-up software, which can be lengthy. Also, those signing up for the service are usually required to provide "scores of demographic information," according to the study.

Most of the services heavily monitor user online movements for marketing purposes, though most inform users up front. In addition, the study cited problems logging in to the service as well as slow connection times.

Blocked Content

Advertising, the primary source of revenue for all except the defunct WorldSpy, remains the bugaboo of free services, distracting and annoying users.

Most require users to download software that enables advertising bars to pop up on the screens and block content, forcing users to move around. By contrast, traditional banner advertising is unobtrusive.

"What ISPs must keep in mind is that the point of getting online is to be able to see the content," the IDC study said. "Interfering with that essential point lessens the quality of the experience."

The study recommended users subscribe to several different free services so that backups are always available.

Lining Up at a Crowded Market

Companies offering free Internet services have proliferated recently, joining an already crowded market. A recent study by Jupiter Communications said 6.2 percent of all users will log on through a free ISP this year, and predicted that the number will jump to 13 percent by 2003.

Niche sites such as Simpsons.com, Kmart, Seventeen, Gay.com and Spinway have entered the free market. Also, several major Web portals are now offering free versions of their services, like Yahoo!, Excite, AltaVista and Lycos.

The biggest free service is NetZero, which has acquired four million users since 1998, half of whom access the service at least once a month.

Analysts Divided On Market Potential

Analysts are divided on the potential of the free Internet access market. Most of the services are now losing money and industry experts point to various risks, such as the high cost of acquiring subscribers, the massive turnover and whether consumers will tolerate being bombarded with constant advertising.

Several free providers have failed recently, including Freeweb and WorldSpy. WorldSpy, which had set a million subscribers in a year as its goal, signed up only 260,000. It redirected them to Juno last month after it ceased operations.

Other industry insiders claim there is a niche in the market for the leading free providers, pointing to a recent surge in lower-income households coming online. Juno Online Services, for example, which offers both paid and free services, reported its free service jumped by 330,000 subscribers in June.

Experts also predict consolidation in the shaky market.


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