No more free rides: it's the end of the free lunch on the Web, but consumers can still snack - Tech News - aftermath of the electronic commerce crash - Brief Article

Black Enterprise, Jan, 2002 by Rebecca Rohan

From the late 1990s through much of 2001, online vendors pushed free services as if they were going out of style--and now they have. BlueLight.com now offers cheap, not free, ISP service; 555-1212.com began charging for directory lookups; NetZero.com has cut its number of free hours; and PalTalk. com has added premium rooms alongside its free voice chats.

What happened? Enticed by the idea of delivering "eyeballs" to advertisers to pay their bills and turn a profit, entrepreneurs offered free Internet access, e-mail accounts, Web space, online data storage--you name it. Back then, you couldn't click without landing on a free offer. But today those free lunches are becoming light, few, and far between.

WHY THE CHANGE?

There were only so many advertising dollars to support free Websites, and shakeouts were inevitable, even with, out the tech-sector stock plummet and recent world events. The soft ad market meant free services had to change their strategies or die. Network Commerce Inc. (www.networkcommerce.com), a technology and infrastructure services company, began charging for its formerly free e-commerce hosting service, FreeMerchant.com, in the first quarter of 2001. Why the switch? "Many Internet companies were initially funded toward rapid growth and expansion," explains Dwayne Walker, chairman and CEO of Network Commerce. "From 1995 to 1999, and during the first half of 2000, the orientation was toward market share. Near the second half of 2000, the focus shifted toward profitability--positive cash flow."

That meant companies had less time to show investors how they planned to make money. "In the last six to 12 months, depending on the sector, more investment companies decided not to invest unless a company would be profitable within a quarter. That used to be within one to five years," remarks Walker.

Mark R. Goldston, chairman, president, and CEO of United Online (the company formed when NetZero and Juno merged on September 25, 2001), adds, "Free is not going away, but many sites that were previously free now also have pay services. Major players will still have a free component to their business" NetZero (www.netzero.com) still offers free Internet access of 10 hours per month, down from 40, alongside a new $9.95-per-month Platinum service that doesn't show the user banner ads.

Network Commerce still offers a FreeMerchant Web account as a 30-day trial, but the focus is now firmly on its Bronze, Silver, and Gold packages, priced from $39.95 to $99.95 per month. With more than 4,000 paying customers, "The change has gone very, very well for us," says Walker. "We can't be 100% certain, but moving to a fee-based service has given us a shot at profitability within a six- to eight-month window for that specific business within our company."

WILL IT FLY?

Former free service providers are aware that their customer base is price-sensitive and tend to charge far less than fee-based competitors--for now. But how will that go over with customers who have become accustomed to free services?

Whit Andrews, a research director for Gartner, a technology and business consulting firm based in Stamford, Connecticut, says, "I had a number of people say to me, `All we need is 1.5% of our user base to sign up for such-and-such a pay service or....' But the percentage was far lower than 1%. People, for the most part, didn't sign up for the pay services."

Adds Andrews, "It's the tragedy of the commons: Free resources are aggressively used by a small part of the populace. If you open up the commons for everyone to graze their sheep, one person is going to go get their whole flock. An aggressive freeloader could surf competing sites for a particular service or product for so long that he or she never needed to pay."