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AltaVista to enter free ISP game

The Internet search site will soon fire a new salvo in the Web portal wars, offering a free dial-up ISP service, according to people familiar with the plans.

Internet search site AltaVista will soon fire a new salvo in the Web portal wars, offering a free dial-up ISP service, according to people familiar with the plans.

Offered in conjunction with a start-up called 1stUp.com, the dial-up access will be supported by advertisements, using much the same model as low-cost or free computer packages.

The move marks a long step forward for AltaVista into territory now dominated by America Online and thousands of smaller Internet service providers. By providing both access and information, the company hopes to tie users much more closely to its Web site, much as AOL has long kept a close relationship between its dial-up subscribers and its content areas.

But AltaVista's move could also raise the stakes significantly in the portal wars, possibly making free or subsidized Internet access the next must-have feature for competitors in the same way free email accounts became ubiquitous almost overnight.

"There's always a me-too kind of attitude on the Internet," said Bruce Kasrel, an industry analyst with Forrester Research. In this case, other portals are likely to hold off for at least a short period to figure out whether the service can be offered at a profit, he added.

AltaVista's ride
After spending years in the shadow of the more aggressive portal sites, AltaVista finally is expanding its services and marketing to match its ambitions. The company is hoping to ride the momentum created by its purchase by CMGI last month to a new level of public awareness.

Today, the company officially unveiled a new stock and finance channel, along with a personalized page that will allow it to compete more directly with the popular customizable features of Yahoo or Excite. Executives said they will spend $10 million to market these features in the next ten weeks.

Also in the works is an independent "MicroPortal" that will sit on users' desktop screens and provide a small window into AltaVista's news, finance, weather, and search services. That will launch in late July, the company said.

But the free ISP marks the most dramatic departure from the traditional Web portal model. Most of the other portals do have co-branded dial-up access services, but none are free or have attracted large subscriber bases, analysts say.

Sources close to the company said the idea was primed in part by Compaq Computer's venture into free Net access. Late last month, Compaq--AltaVista's parent company before its sale to CMGI--agreed to include NetZero software on one model of its home computers and took a financial stake in the ISP.

Paying with information
The idea of free Internet access has yet to prove itself beyond a few isolated companies in the United States, with several early entrants folding without being able to make a profit. More recently, however, NetZero has burst onto the market with close to 1.2 million users in just over nine months of operation and little in the way of traditional marketing.

Like NetZero, AltaVista's service will be supported by a small box on users' screens, containing advertisements and links back to the AltaVista Web site. The box will stay active as long as the user is online.

To sign up for the service--as with other ad-sponsored services--users will have to give up some personal information and give the company the ability to track their online surfing habits. Individual information won't be given to advertisers, but the aggregate information will allow advertising companies to target their ads to individuals' interests.

"This is the only way that will allow us to provide a significant amount of subsidized access," said Charles Katz, chief executive of 1stUp, the company that is providing the free access for AltaVista. "Customers will be paying for Internet access one way or the other. This way, they won't be paying with dollars, they'll be paying by giving up a bit of their screen real estate."

Analysts say these factors serve as a brake on the growth of free access services.

"Free ISPs generally appeal to a niche of subscribers in the U.S.," said Joe Lazlo, an industry analyst with Jupiter Communications. "There is always a share of the online audience that doesn't go for it, that doesn't like the targeted ads and lack of privacy inherent in the service."

1stUp, which provides the wholesale ISP service and the ad-box software, will also market its services to other large companies, hoping to spread the idea widely among other popular brands online and off.

Meanwhile, AltaVista is planning a heavy marketing effort around its free service, possibly including AOL-style distribution of disks advertising the access and containing the software, sources familiar with the plans said.

The service could launch as early as next week but is still in the final stages of testing and could be delayed until the end of the month, sources said.