By Lydia Leong, Gartner Analyst
Free Internet service providers (ISPs) have had trouble finding sustainable business models.
Free ISPs must discard
the notion that the quality of their service--particularly customer service--can be lower than the levels provided by ISPs that charge customers. Furthermore, free Net services neither can continue to cannibalize the Internet audience, nor can they become just one of many secondary service providers used by those Internet users. Instead, free ISPs must become the preferred service providers of a new generation of Internet users.
Failure to make those adjustments will likely cause many free offerings to go out of business. To be viable over the long term, free ISPs must:
• lower the cost to acquire new customers
• retain customers in their target markets
• serve customers with appropriate ads and services.
Successful free ISPs will achieve those goals through a self-reinforcing process. By targeting people who do not already have personal Internet access, free ISPs can tap into the large market of "middle America." That includes people who cannot afford to spend $20 a month for Internet access
or do not use the Internet sufficiently to justify paying for access.
Inexperienced Internet users are unlikely to begin using an ISP that does not make the sign-up and set-up process extremely easy, even if the service is free. First-time customers must either obtain their Internet connection
software offline or have it bundled with their PC.
Technical difficulties and downtime are also likely to turn these customers away. Therefore, the successful free ISP must provide a quality of service comparable to that of its for-pay counterparts. Although customers are not paying a fee, they are paying with their time and the "annoyance" of advertisements, so they must still feel they are receiving value.
Advertising revenue is critical to the success of free ISPs. Although their customers might not do much e-commerce, and thus would be less attractive targets for dot-com advertising, the future free ISP audience is quite similar to that of prime-time television. Since free ISPs track the Web
surfing habits of their customers, click by click, they can deliver ads in a highly targeted manner--thereby providing companies that traditionally advertise on television with an alternate means to reach middle America, and potentially to achieve higher returns on marketing expenditures.
Moreover, the more relevant an ad is to a customer's interests, the less likely the customer will be to consider it an annoyance. Consequently, the more time people spend logged onto the free ISP service, the better their Internet experiences become.
Once it has attracted new customers, the free ISP must build brand loyalty and value-added services. One way of doing that is through the operation of a unique portal service. Another is to partner with a strong brand and build services that complement that brand. For example, the BlueLight.com free ISP involves Spinway.com, Yahoo and Kmart. People can obtain sign-up CDs from Kmart's brick-and-mortar stores to use BlueLight, a Kmart-branded portal designed to
appeal to the "middle American" Kmart shopper.
That kind of strategy drives the acquisition of new customers, many of whom are likely to be first-time Internet users, from a market with known demographics and retains them with targeted services and advertising.
Such a recursive approach will distinguish successful free ISPs from those that rely upon the appeal of a giveaway. There is no substitute for knowing one's customers and serving them well.
(For related commentary on free ISP NetZero, see TechRepublic.com--free registration required.)
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