Free, ad-supported Internet access sounds like a great idea, but there are significant concerns about whether the business model will work.
The concept is simple enough--free access for subscribers willing to tolerate a stream of ads delivered while they're online. But while marketers and agencies are intrigued by the prospect of tapping into an Internet service provider's user database, they wonder if these mostly regional players can lure a sufficient number of subscribers and enough advertising to cover costs.
"I'm always concerned about things that are free," said Anthony Manson, group director of Y&R New Technologies, New York. Companies that provide free, ad-supported e-mail or free Internet time in exchange for reading ads have yet to prove their business models work.
"The next great battleground for advertisers will be the ISPs," said Taki Okamoto, assistant media director at Leo Burnett USA, Chicago. "The ISPs are sitting on huge databases that are important for targeted advertising."
So far, few of these services have gotten much advertising support.
@bigger.net, which last month launched with a splash suitable to its name, claims to have advertisers pounding on its door, but it won't say who. The service is "free" to the user after a one-time fee of $59.95 and a service charge of $10 per year thereafter.
CEO Jeff Fortin said he expects to sign deals with local and national advertisers within weeks, but added that the company's business plan doesn't call for advertising to kick in until summer.
Another player, Interactive Hyper Net (http://www.hyperusa.net), partnered with San Jose, Calif.-based ISP Cyber FreeWay (http://www.cyberfreeway.net) to launch a free access service in the San Francisco area in late December. The one-time registration fee is $29.
While only a few local advertisers have signed onto Cyber FreeWay's service, Hyper Net does have a successful track record. Its Tokyo-based parent company partnered with Japanese ISP ASCii Corp.; that 8-month-old service has garnered 140,000 users and 314 advertisers to date, including blue-chip companies PepsiCo, Toyota and Anheuser-Busch.
SUBWAY SIGNS ON
Smart World Communications, which launched its free access service in September, didn't close its first major sponsor deal, with Subway Sandwiches & Salads, until last month. Subway has placed ads on the ISP's start-up page and on interior pages.
Consumers pay $69.95 for the software plus a one-time $19.95 registration fee.
If ISPs are to win at the ad-supported Internet access game, they must sign up enough users to make it worthwhile for advertisers.
"An ISP would need at least one million users to be interesting to advertisers," said Kevin O'Connor, CEO of DoubleClick, an advertising network.
Further, "to get ad rates high enough to subsidize the entire cost of the ISP, [there need to be] effective personalization methods in place," said Ross Rubin, senior analyst at Jupiter Communications.
PERSONALIZATION IS KEY
Personalization is in fact the key to many of these services; Hyper Net, for example, maintains a user database that enables advertisers to reach targeted demographics and schedule delivery during key hours.
Also key is the ad delivery. @bigger.net and Hyper Net deliver ads in pop-up windows that reside on the desktop while a user is online.
Smart World offers its users a choice of seeing ads in a separate window or watching full-screen ads for 5 to 10 seconds each time they click into a new page.
The ISPs believe they can generate more revenues from ads alone than from the typical user-fee-based system.
Hyper Net's official ad rate is 15 cents per impression; based on current estimates that users spend an average of 15 hours online per month, VP-Marketing Aaron Shapiro believes the company' 60-second ad views can generate $135 per month per user--far exceeding the standard monthly ISP charge of $19.95.
An ad rate for @bigger.net is not yet determined. However, Mr. Fortin projected that for the first year, subscriber fees would account for 25% of revenue, with advertising making up the rest.
Copyright February 1997, Crain Communications Inc.