Senior executives told the company's 40 employees more than a week ago that Freemark would close its doors unless it received a cash infusion or struck some other life-supporting deal.
"Freemark is in a very transitional state," said an executive close to the company. The service was seeking at least $5 million to $10 million to stay afloat.
Cambridge, Mass.-based Free-mark has been in talks with companies including Juno and its backers about a possible merger.
But Charles Ardai, president of Juno, based in New York, said a merger isn't a possibility.
"We could always benefit from acquiring their 40,000 customers, but their technology would be useless," he said. Juno as soon as this week could announce a deal to begin soliciting Freemark subscribers.
Freemark executives declined to comment for this story.
The troubles at Freemark (http://www.freemark.com) are indicative of a simple fact: Money talks, and investor funding runs only so deep in an online company dependent on advertising as a primary revenue source.
Freemark and Juno launched last April to provide free e-mail to consumers. Both companies said they would solicit advertisers to foot the bill.
But while Juno (http://www.juno.com) had the backing of well-endowed investor D.E. Shaw & Co. and the promise of at least $100 million to jump-start the service, Freemark was significantly less capitalized.
AMERITECH, CMG BACKING
Freemark had funding from CMG Information Services, Ameritech Corp. and other smaller investors. Industry executives say the c0mpany's first round of funding amounted to about $5 million, followed by a second round totaling close to $8 million.
Juno has spent more than $20 million on advertising created by Jordan, McGrath, Case & Taylor, New York. It now boasts about 800,000 subscribers.
The service claims it has more than 30 paying advertisers, including Columbia House Records, Miramax Films, Sony Theatres and Ford Motor Co.'s Lincoln-Mercury division.
Freemark, which has never had the budget to advertise its service as extensively as Juno does, has signed 40,000 subscribers and at least 50 advertisers, including Citibank, Campbell Soup Co., Nabisco Foods and Time Life.
Just how much money either service has been able to generate via advertising sales is questionable, however. Even more important, analysts say advertising alone won't foot the bill in the long run, no matter how deep the investors' pockets.
"Time and time again, success in the online arena is about push marketing and the heavy cost of customer acquisition," said Greg Wester, research director at the Yankee Group. "Free e-mail folks with little revenues to offset marketing expenses are left with very little."
Columbia House signed on with Juno as a charter advertiser. Although the company initially was not charged for advertising, it currently is paying to be on the service.
Juno charges 8 cents to 10 cents per impression; ads are delivered with each piece of e-mail and also appear on-screen while a user is writing a message.
"Both Freemark and Juno approached us, and we decided Juno seemed to be more together," said Cindy Dale, director of electronic media at Columbia House. "We're pleased with the leads our advertising on Juno has generated for us, but continuing our advertising will depend on the back-end analysis-how many customers and sales we've actually acquired from our efforts on the service."
MORE SERVICES NEEDED
Going forward, analysts agree that free e-mail providers will have to begin adding additional services like content delivery or direct sales of merchandise if they're going to survive.
Juno is already beginning to experiment with selling merchandise via its service and charging users for transferring files.
"E-mail is rapidly becoming a commodity offering, and there will be an increasing universe of people who already have e-mail," said Adam Schoenfeld, VP-senior analyst at Jupiter Communications. "People will want more."
Despite the troubles at Freemark, others are entering the free e-mail sector.
HotMail (http://www.hotmail.com) and USA.Net's NetAddress also offer free e-mail service. The services are Web-based and don't need proprietary software like Juno and Freemark do.
HotMail says it has signed up more than 500,000 subscribers since its July launch; USA.Net (http://netaddress.usa.net) launches today. Both companies position themselves as an alternative for business people who are uneasy using their corporate e-mail for personal reasons.
"It'll always be real tough for a company that has only free e-mail in their quiver to pull it off," said Mr. Wester. "Companies will lose [subscribers] as they go upstream and get personal access accounts of their own that can offer something more than e-mail, like Web browsing or content delivery."