Can a free Net service survive?

Though free or nearly free Internet access providers have come and gone, a new company launching a free, ad-based service today is determined to make the model work.

"We feel making the connection free will remove one of the major barriers for consumers to get online," said Bob Pack, a spokesman for NetZero, the free, advertising-driven ISP launching today.

"We've taken the model of being a free ISP and eliminated the flaws," Pack said. "We have proper funding. We're not building out our own dedicated network."

NetZero, funded in part by Idealab's venture capital arm, intends to build a large service with several hundred thousand users in the first year by drawing them to a free network. Subscribers will get access in exchange for filling out a detailed profile that advertisers can use to send them highly targeted ads.

A 1-inch by 3.5-inch window for ads will pop up every time a user logs on. The subscriber will be able to move the window around, but he or she will not be able to remove it, Pack explained. That way, the advertiser has uninterrupted access to the consumer.

The business model sounds good on the surface, but analysts are skeptical about the company's ability to make money, especially in light of the many failed attempts ISPs have made to offer ad-supported Net access.

"It's a really, really, really, really, really, really tough business," said Jim Nail, a senior analyst specializing in advertising at Forrester Research. "Access is expensive. They're taking on a huge liability by offering open-ended free access that's advertising supported. To make the $20 or so bucks back that typical access costs, they've got to sell 1,000 ad [impressions] per user per month.

"There have been a couple before that that went belly up that couldn't manage the economics of it," Nail added.

In fact, the market is fairly slim. A few companies, such as FreeRide, are offering the free service--but there is a long list of casualties in this market.

Though advertising is growing on the Net, funds still are fairly scarce, Nail said. And the money that is available tends to get concentrated in the companies such as America Online, where advertisers are guaranteed a larger audience.

Additionally, he added, time and again consumers have shown that they are willing to pay a premium for good service. For example, millions of consumers who could get free television service opt instead to get cable.

"People are always willing to pay for a better product," noted Brian Oakes, an analyst with Lehman Brothers. Oakes also questioned the ability of any free ISP to make a buck.

But Pack said the company feels like the time is right: "Ad revenue is ramping up," he said, adding that at the same time, prices are coming down. "So there will be a nice convergence.".

He agreed with analysts that not all Net companies will start offering services for free, however.

In fact, the free service comes at a time when many services, such as AOL, have found it necessary to raise prices and eliminate unlimited service for heavy Net users.

"I think NetZero is not the answer for everyone, but it is certainly the right answer for a significant amount of users online," he said.