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Free ISPs: The party could end soon

Bharat Kumar

CHENNAI, July 10

FREE Internet access as a corporate strategy to rope in users has had its first casualty: the New York, US-based Worldspy.com.

Worldspy is reported to have shut shop and is turning over individuals interested in a free Internet account to Juno.com, which also provides free Net access.

The Web site, www.worldspy.com, urges visitors to download software required to use Juno's free Net access service. In the bargain, it salvages some money as Juno has agreed to pay an undisclosed sum for the exercise.

Aspirants in the Indian free Net service sector can take a few lessons from this collapse. The prime reason for Worldspy's poor fortunes: its risky revenue model.

A Redherring.com report says that Worldspy avoided advertisements while providing free Net access to customers so as to make the service better for subscribers. Alternatively, it expected to generate revenues from its online shopping mall.

In other words, online retail sales were expected to subsidise the cost of providing free Net access to about 260,000 subscribers.

Let us look at the options that a free ISP, without a real-world presence in any industry before entering the New Economy, has before it.

Firstly, if the ISP depends purely on advertisements for survival, that strategy itself can prove risky (see Business Line issue dated March 30, 2000 for estimates).

Alternatively, if the ISP looks at revenues from online sales that will subsidise free Net access, then it needs to make sure that enough subscribers visit the online mall, enough make purchases and that enough revenues are generated to subsidise the cos t of free access.

This means that the first-mover advantage is crucial to beat other free ISPs with much the same profile. For instance, the same Redherring.com report says that AltaVista is scheduled to soon announce that it has roped in 3 million subscribers for its fre e Net access service, against WorldSpy's 260,000. Clearly, it's not a game for slow movers.

Finally, even if the subscriber base is large enough, there is no surefire way of ensuring that they do not use the free Net access to shop elsewhere.

Even if the ISP is the first and the best of free ISPs, there is a need to counter players with real-world assets. For instance, there has been the case of a European bank -- KBC Bank of Belgium -- that offers free Net access to its account-holders as a value-added service.

A big-time retailer in India with massive financial and physical resources in the real-world could offer free Net access to the public and give its subscribers discounts at its online retail store. An Internet start-up would find this difficult to counte r.

Even if the upstart free ISP surmounts all the above obstacles, e-commerce revenues in India are very low currently, and one only has guesstimates to base a business model on, which can prove risky in the long run.

One of the few free ISP models that has succeeded for a reasonable period is in the UK, where revenue sharing between a Net access provider and a telephone service provider is prevalent.