Marketers reel after free ISPs exit business

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It's one of the worst things that can happen to a marketer. You co-market a product using your brand name, and suddenly your co-marketer disappears, leaving you hanging and consumers upset not at them, but at you and your brand.

The sudden exits of Corp. and Spinway from the free Internet access and e-mail space made that scenario very real last week for a number of marketers, leaving them reeling. E-mail addresses from News Corp.'s and, and free Internet service from eight TV stations, the Dallas Morning News and Seventeen magazine, and special Web service for customers of Ameritrade all threatened to disappear as soon as today along with the free Internet services offered by several portals.

1stUp, owned by CMGI, was the free Internet service provider for partners including AltaVista, Lycos and Excite@Home.

AltaVista, controlled by CMGI, last week risked alienating its users by announcing it was shutting down its free service. It's done a deal with Microsoft Corp. to offer AltaVista customers three months of MSN service free, followed by a $21.99 monthly fee.

Meanwhile, Lycos and Excite were looking for alternative providers for their free ISP services, but wouldn't disclose details.

"It really upset the higher-ups in this organization," said Robert Forsyth, director of Web operation for Allbritton Communications Co., which a little over a year ago signed with 1stUp to let its nine TV stations offer free Web service. He said the company got about two weeks' notice of 1stUp's shutdown and scrambled to find a replacement service, then to notify current Internet users that they needed to download new software, all without enraging existing customers.

"We are trying to salvage it and hoping that with the climate and news coming out about the Internet, people will be less upset," he said, adding that his biggest fear is that instead of finding out from e-mail, or repeated announcements on newscasts, customers will learn of it when they can't get on the Web.

"If we were starting over, I would have to examine very slowly whether to co-market. But we don't have much choice here," noting the company's desire to have some replacement in place.

Allbritton, which has paired with a second Internet provider and is airing messages on its TV news programs urging viewers to download software from its new partner, is in better shape than some. While it offered e-mail and free Internet service, only the free Internet service came from 1stUp, assuring the e-mail addresses will continue.

News Digital Media offered both free Internet and e-mail from 1stUp for its Simpsons Web site and more recently for the X-files Web site. More than 200,000 consumers signed up.

Ross Levinsohn, senior VP, said the most immediate worry was retaining e-mail long enough to permit a smooth transition to another service. That e-mail service was to stop Dec. 10, unless News Digital could negotiate an extension.

"It is causing us problems," he said. "There are valuable customers and viewers of our site who we have been marketing to one to one, and this could affect our relationship with them."

While he said News Digital, like Allbritton, believes a good portion of its users had the service as a backup e-mail or Web service, the problems still could affect relationships with customers.

"One of the gems of the Internet is the ability to surf for nothing and from marketers' perspective to develop one-to-one relationships. This eliminates both, and consumers don't care that the underlying company went under. They say, `Hey, the Internet access, the free access just went away.' "


Mr. Levinsohn, who came from AltaVista Co. in October, said the experience will make him look a lot more closely at co-marketing.

"We and everyone else is taking a much closer look at the companies we do business with than we did a year ago," he said.

Noticeably mum on the subject has been Yahoo!, which negotiated a deal to provide the home page and content for Spinway's partners in a co-marketing deal.

When Spinway shut down last week, Kmart's agreed to buy its key assets and continue a version of the company's free service, but it was still evaluating what that would be.

Spinway had more than 5 million subscribers with partners including Barnes & Noble, Costco Wholesale Corp. and Spiegel. Yahoo! issued a statement saying it had been informed of the acquisition and that according to BlueLight, there would be no interruption in free service to Spinway's customers.

A spokeswoman for Spiegel said a decision has not been made on the future of the company's free ISP. "We are closely monitoring the situation and developing a plan that will best serve the free Web subscribers," she said.

Mark Goldston, chairman-CEO of NetZero, the leading free ISP in this space with 5.7 million registered users, is relishing the downfall of the co-branded providers, which he said were doomed to fail because of flawed business plans.

"Imagine a turbo tsunami," he said. "All those people who've been intoxicated by free Internet access are pretty angry. ... They're certainly not going to go back to paying $250 a year."

He said NetZero is willing to broker partnerships with marketers like it has with Aetna US Healthcare, but the partnerships would have to be on what he considers good economic terms. For instance, he contends that the co-branded ISPs gave away the ad revenue on their home pages to their partners, something that he finds unacceptable because NetZero derives 25% to 30% of its ad revenue from its home page.


While NetZero recently reported it had $220 million in cash and no debt, Mr. Goldston said it, too, has been affected by the downturn in ad sales. NetZero lost $28.9 million on revenue of $16.5 million in the third quarter. Its stock, which peaked this year at $40, closed Dec. 8 at a low of 97 cents.

Contributing: Alice Z. Cuneo.

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