Best of the ISP-Lists

Profiting from Selling Cheap Service

Members of the ISP-Investor list discuss pricing your services. Can you make money charging $9.95 per month?

[October 6, 2000]

On the ISP-Investor list in September, KT brashly threw out a challenge when he boasted,

"I get positive cash flow from my $9.95 operation. Yes, you heard it right: I actually make money on $9.95 a month and buck the trend that these customers are worthless."

BL agreed that the $9.95 model is both viable and attractive:

"We too are a $9.95 ISP, in Reno, and we are profitable with 2K subs and 9 tech support and everyone being paid for their time. We were not profitable at 1K subs; it just doesn't cover the tech support and the guy who has to keep everything running. But 2K subs does, and 4K subs would be very profitable. I'll admit that $9.95 subs, prepaid on average 6 months, are not worth as much as $19.95 subs that pay monthly, but they are certainly still worth plenty. I suspect also that those of you who charge $19.95 are losing customers to NetZero and $9.95 ISPs a lot faster than we are. $9.95 is a viable business model. I just wouldn't want to do it with less than about 2K subs."

But others contended that the market demands a more premium service:

[RS argued] "The kind of customers who pay $19.95 to $21.95 to get quality service are not as likely to switch to a free ISP as the ones paying $9.95. I can count on one hand the number of $19.95 customers we've lost over the past three years to a free ISP, and some of those came right back. We've lost customers to cable and DSL, maybe, but not to free ISPs."

[JK added] "If $9.95 is a viable model, then we need to question some of the industry leaders: AOL, Prodigy, MSN, Dell, Gateway, ATT, Sprint, Earthlink, etc. All charge $19.95-$21.95. Either these people do not understand business, or they know something the $9.95 ISPs do not know. The fact is that the $9.95 ISP is eventually going to fall behind in the services they offer. Are these ISPs offering the advances and features that are needed to keep pace with the business? No. All they are doing is selling a stale product that is eventually going to disappear. Anyone can give a product away at a low rate, but it takes a business person to create plans and pricing that can sustain the business over the long run."

As an alternative, PP suggested offering both ends of the spectrum at the same time:

"Why not take advantage of both the $9.95 and the $19.95 crowds, and offer both, with the higher priced service being your premium offering? Give the premium service customers priority for access and bandwidth, and let the $9.95 folks experience busy signals every once in a while."

—End