Clicks for Free

American Demographics, Feb, 1999 by Jennifer Lach

Are consumers willing to read ads in exchange for no-fee Internet access? One company thinks so.

NetZero, a startup in Westlake Village, California, knows that advertiser-supported Internet access has suffered from a few hangups. One company, Bigger.net, declared bankruptcy last fall after failing to generate enough interest among advertisers to continue its free service for customers. The Tritium Network, based in Cincinnati, suspended free Web access last year to search for more investors. Amid these industry setbacks, NetZero debuted its ad-supported Internet service last October and signed up more than 130,000 subscribers within the first three months. "We were a national provider from the get-go, unlike other [companies] that started on a local scale," says CEO Ronald Burr. Plus, he adds, NetZero takes full advantage of the targeting capabilities of the Web.

Indeed, target advertising plays a strategic role in NetZero's business model. Subscribers to the service fill out a detailed profile with their application, identifying their age, gender, household income, marital status, and other demographic tidbits. They're also asked to check off hobbies, like travel and health. As consumers surf around the Web, NetZero monitors their browsing behavior to finetune their profiles. Invasive? Maybe. But the company contends that the data helps to deliver ads relevant to users' lifestyles and interests. To ensure privacy, the company keeps subscriber names, addresses, and phone numbers separate from their profiles.

Roughly 40 percent of NetZero's 40 direct advertisers target ads, Burr says. Some pinpoint consumers by demographics. Nissan, for example, hones in on NetZero families to promote its new minivan, the Nissan Quest. NetZero can also segment subscribers based on the phone number they use to dial in to the service. Bell South directs its ads only to consumers who access NetZero from area codes located in southern states. Other companies that advertise on the service include Sprint, Music Boulevard, and Capital One.

URL targeting is perhaps NetZero's most attractive option for marketers. It allows clients to display ads only when a subscriber visits particular sites. An airline, for instance, could run a promotion every time a user surfs to a travel page like Travelocity or Expedia. Contextual targeting works, says Greg Smith, director of strategic services at Darwin Digital, the interactive marketing division of Saatchi & Saatchi, because the ads reach consumers when they're in the right frame of mind. Displaying a car ad to people at auto-related sites, he says, is much more valuable than blanketing the same ad to all online households with kids. If a woman is visiting an auto site, the thinking goes, she's probably shopping for a car.

Rates on NetZero range from $15 to $65 CPM, comparable, Smith says, to the rest of the industry. Ads appear in a 3 1/2-by-1-inch window planted on a subscriber's desktop and change every 30 seconds. Users can move the window around, but can't minimize it or slide it partially offscreen.

The company projects 1 million customers by May, but Smith wonders if user fatigue will set in. "With Internet access so cheap, how long will it be before people think these ads are annoying?" he says. Harry Derhaley contends he won't be one of those people. Derhaley, a 33-year-old computer consultant from Brooklyn, New York, signed on to NetZero after learning about the service through a weekly computer radio show. He says he doesn't pay much attention to the ads while he logs roughly 70 hours online each month. Will he stick with the service? "Absolutely," he says. "I've never had a busy signal."

Still, not everyone is convinced that free Web access for the masses will yield positive business results. "At some point, the costs of trying to target certain people outweigh the benefits," says Mark Snowden, senior analyst at Inteco, a market research firm in Norwalk, Connecticut. Free access, he suggests, may work better as a customer-retention tool rather than as a means for grabbing new eyeballs. An online brokerage firm, for example, could offer free Internet service as a reward to clients who trade every day. Which site loads first when those valued customers connect to the Web? You already know that answer.

SURFERS RATE WEB ADVERTISING
                                                 Agree   Disagree

Advertising is needed to keep content free        53%      11%

Targeted ads are fine if the Web site or          50%      18%
ISP doesn't give out names/addresses

Web ads are less obtrusive than direct mail       43%      23%

Web ads are less obtrusive than TV commercials    43%      24%

Would pay extra to subscribe to sites             22%      37%
without ads

ISPs should be able to sell subscriber lists      16%      61%
the way magazines do

Neutral answer not shown

Source: INTECO