NetZero sees IPO by year's end
The Los Angeles-based free Internet service provider says it plans to go public by the end of 1999, as it is poised to pass some of the biggest players' subscriber numbers.
The upstart Net access company, which opened its doors just last October, says it will rival the subscriber figures of all but the biggest ISPs in just a few months.
NetZero's chief executive Ronald Burr claims the company will reach 700,000 subscribers as of tomorrow--just three weeks after hitting the half-million mark in March.
The company's growth rate puts NetZero on track to pass the subscriber figures of established national ISPs like MindSpring, EarthLink, or AT&T WorldNet, in just a few months.
But the question remains whether the new company can squeeze profits from its growing subscriber base, an issue that leaves some analysts skeptical.
NetZero is part of a growing trend of advertiser-sponsored Internet and computer companies to hit the technology world in recent months. It is funded by Idealab, the venture capital firm that also helped start Free-PC.com, a company which gives away ad-subsidized personal computers. NetZero provides the default Internet service for Free-PC.com.
Business plans
While its subscriber numbers put the company quickly on the Internet's map, executives are beginning to flesh out details on NetZero's business plans.
Burr says the company plans to reach profitability in the second quarter of 2000, about the same time it hits 7 million subscribers.
At that point, the company plans to be taking in about $8 million in revenue, largely from advertisers and sponsors, Burr said.
That's an ambitious goal for a company that isn't even two years old. But analysts say the dollar figures aren't unreasonable, if subscriber growth maintains its current momentum.
Some question whether that revenue figure and estimated break-even point--which would translate to just over a dollar in costs per subscriber--can genuinely bring the company into the black, however.
Most ordinary ISPs make only small profit margins charging subscribers $20 a month, which means their costs for bandwidth and marketing are considerably higher than $1.50 per customer, noted Jim Nail, a senior analyst with Forrester Research.
In response, NetZero says it has deals with several backbone providers that give it volume discounts on bandwidth, with costs that will continue coming down as subscriber figures grow.
In the longer term, Burr said he is looking at expanding the company's services into broadband, such as DSL, or digital subscriber line.
High-speed Net service is more expensive than dial-up access, so it may be difficult to provide a free service, he said. But the advertising-subsidized model should allow the cost to consumers to be significantly cut, he added.
"Broadband is absolutely in our future," he said. "Maybe it won't initially be free. But it might be half-price or something."