"While we were encouraged by our growth in subscribers, given the current financial market conditions, this deal with Juno was our best alternative," Sharon Rothstein, CEO of WorldSpy, said in a statement.
WorldSpy went one better, keeping its service free of marketing messages that usually pay the bills on most no-fee Internet accounts.
According to New York-based market research firm Jupiter Communications, 6.2 percent of all Internet users will log on through a free connection this year, doubling to 13 percent by 2003. But whether the giveaways will pay off for the businesses sponsoring them remains uncertain. When WorldSpy launched its service it had anticipated signing up a million subscribers within 12 months--leaving the company well off its projected pace when it shuttered its business last week.
WorldSpy's collapse is a boon for Juno, which has spent heavily to attract new subscribers. In May, Juno reported it had more than 10 million registered subscriber accounts, compared with 8.14 million at the end of December. The company said it spent $44.8 million in the first quarter marketing its service to new subscribers, up from $2.7 million in the year-earlier period.
Juno's competitors also have embarked on spending sprees to lure customers. Westlake Village, Calif.-based NetZero said it spent $12.9 million on sales and marketing in its third quarter ended March 31, compared with $522,000 a year earlier.
Analysts said WorldSpy was unable to take in the revenues needed to support the cost of access.
"The window of opportunity for players offering free access and building a brand name from scratch are over," said senior analyst Zia Daniell Wigder of Jupiter Communications. "It's too expensive; there simply aren't the online ad dollars to go around to create an ad-supported model, and there's far too much competition in the market already from strong brand names."
Wigder said WorldSpy operated on a commerce-supported model, attempting to bring people to its online shopping mall and hoping they would make purchases to offset the cost of access.
"The model that WorldSpy was pursuing is a very difficult one to make work," Wigder said.
The ISP will receive compensation in the form of Juno common stock for each former WorldSpy subscriber who becomes a Juno subscriber during a three-month referral period.
Although WorldSpy customers will have Internet access at no cost through Juno, they will continue to receive email messages addressed to their WorldSpy accounts. Subscribers who convert to Juno will also have the option of upgrading to one of Juno's billable premium services, such as its high-speed service, Juno Express.