Best of the ISP-Lists

Another One Down

The professionals on the ISP-Marketing list discuss the meaning of Freei's demise.

[October 18, 2000]

On the ISP-Marketing list in October, DL observed,

"Freei just filed for bankruptcy: another free ISP bites the dust. Best part of this is the move of Freei customers to NetZero, each one of which adds to the burn in NetZero land. It's worth noting that Freei blasted through about $88 million of other people's money before taking the dive."

A number of respondents spoke of the imminent doom of the free ISP model:

[PF offered] "All free services are built on two things: ad revenue or percentage of sales kickbacks. Since neither of the two core services they rely on (banner ads or e-commerce) are as strong as they need them to be, they will have losses. B2B is strong but B2C is struggling, and at an obscenely low profit margin. And the last nail in the free Internet coffin is that none of the free ISPs have any idea of how to judge a customer as active. I think NetZero calls an active customer one who is on once every 30 days."

[RK noted] "When the free ISP model finally falls apart, it's going to be a bonanza for everybody who stuck it out. I see huge sign-up fees in the future. We're already seeing $25 to $50 sign-up fees in Detroit."

Others argued that, if correctly managed, the model can and will be successful:

[EA suggested] "What amuses me about the Internet is the arrogance of people with post-graduate degrees, lots of cash (until now) and little experience with business plans that are great on paper but which cannot be executed in the real world. The free model can be a remarkable marketing tool for an organization, but only if carried out in a way that makes business sense. It'll be interesting if NetZero and others can make it work." [AC added] "Many of these business plans were contrived when it was possible to achieve $30 CPM for banner ads. Now most sites are fortunate to achieve $3 CPM, and many achieve $1 CPM.

It should be obvious that the CPM model can never sustain a free Internet service, especially when most of it is blown on unnecessary extravagance and massive over-employment. Free Internet services can certainly survive and prosper, but they have to be managed lean and mean, and generate incremental revenues through e-commerce type activities rather than CPM.

I have always believed in the free ISP model, and still do. The model will only work, though, if costs are in line with income. Once those lessons are learned, the free ISP concept will definitely be sustainable in the long term, and will form a cornerstone of the industry."

—End