The Web portal said today that it will bundle its services with Spinway.com, a free Internet service provider, to sell packages to retailers and other companies hungering to offer Internet access. Through the other companies' sites, Yahoo expects to increase its own traffic.
Yahoo will provide content
Together, Yahoo and Spinway have been eyeing deals with offline retail chains for some time. The companies last December partnered with Kmart's BlueLight.com e-commerce site to offer free Internet access and content; it has since signed 2.5 million customers. And, as previously reported by CNET News.com, Yahoo and Spinway may be close to striking a deal to offer a free ISP service for toy retailer Toys "R" Us.
But the free ISP model remains in question. The costs for managing an ISP network are high, and many question whether advertising can generate enough revenues to wow investors. Added to the scrutiny is the business of online advertising in general, which some financial analysts are beginning to poke at to see if it's working.
"The economics of the free ISP business are bleak," Wit Soundview analyst Jordan Rohan said. "It's very difficult to develop an advertising- and commerce-based model which supports the cost of access that the free ISP bears."
The deal underscores Yahoo's desire to tap a large reserve of potential new customers: mainstream Americans. The idea behind offering an ISP service is not only to attract more viewers, but also to develop a closer relationship with them. When people sign up for the service, their start pages will include Yahoo content. The portal giant hopes this will turn them into daily customers.
Unlike its rival America Online, which has 23 million paying members, Yahoo depends heavily on branding and marketing to lure Web users to its site. Although Yahoo continues to be one of the most popular destinations on the Web, its competitors are just one click away.
According to Media Metrix, Yahoo was the No. 3 Internet destination in May with nearly 48.9 million unique visitors. It only trails AOL and Microsoft sites, which have 59.2 million and 49.3 million unique visitors, respectively.
"Yahoo can definitely create an advantage by becoming more closely tied to its users' experience," said Rohan.
Like other free ISPs such as NetZero and CMGI's 1stUp.com, people who sign up for Spinway are required to accept a persistent window on their computer screens that serves advertisements. But unlike other free ISPs, Spinway users are not required to click on the ads. The company relies not only on banner ads but also on video-streaming ads. In addition, it touts its ability to let advertisers target their messages to consumers.
Yahoo is not the only company to set its sights on retail chains for growth. AOL and Microsoft have both struck deals with retailers such as Circuit City and Radio Shack to market their online services to shoppers.