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"Will Free Internet Access Spell Doom and
Gloom for today's Cost Providers?"
by Kevin Hopson
There is little doubt about America Online (AOL) when it comes to name
recognition. When people think of AOL, they think of the net. Many investors are asking themselves one question, though: will the brand names associated with large Internet service providers (ISPs), such as AOL, be
enough to keep current subscribers from switching to free access providers?
Free Internet access is the latest ploy to draw people (mostly potential
buyers) to company websites. For example, WorldSpy, a company considered to be the equivalent of an online mall, recently announced that it was going to offer free Internet access to people in an attempt to lure
them to their website. In addition, the company plans to offer this service without the use of advertisements, a major source of revenue for today's cost providers. Now that more and more companies are starting to
offer free Internet access, and some are doing so without the use of ads, what incentive is there for subscribers to stay with their current ISPs?
Customer Loyalty is Overlooked
While many analysts believe that free Internet access will be a big blow to
cost providers, they are overlooking one major point when making this prediction - customer loyalty. Most subscribers do not realize that free ISPs lack the security and technology that most cost providers possess.
For example, some free ISP companies are selling subscribers' personal and demographic information to advertisers and other interested companies. AOL did this about a year ago and, needless to say, subscribers were
not too enthusiastic about it. It didn't take long for the company to put an end to this, realizing that one million loyal customers was more important in building a brand name than two million angry customers.
Furthermore, since most free ISPs do not have the advanced technology base that cost providers do, they often lack quick connection speeds and tend to be more vulnerable to overloads.
It is clear to many that AOL is the premier Internet provider on the net.
With its name recognition and leading customer base, currently at 18 million and growing, free Internet access will likely have but a small impact on the company. But how will this affect smaller cost providers?
Emsanet Could Emerge the Winner
It is likely that only a handful of small ISPs will emerge from today's
fierce competition. One company that believes it can survive the recent slew of free ISPs, and even prosper from the current consolidation in the industry, is a company called Emsanet Internet Services. Emsanet,
which expects to be online by fourth quarter 2000, and plans to go public sometime in 2001, feels that there will be continued demand for low-cost Internet access.
Emsanet is a company with a unique niche. Unlike AOL, Emsanet is geared
towards tech savvy web users. AOL is more appealing to beginners because it offers subscribers around-the-clock technical support in case they encounter any difficulties. Experienced web users do not need to pay
$21.95/month for tech support, though. This is where Emsanet steps in. This low-cost provider offers no-frills (no ads), unlimited Internet access for $18 (or $6/month) for the first three months and only $12/month
thereafter. Emsanet is not aiming to be a content provider like AOL. Instead, it wants to act as a portal, allowing users to get connected to the web and then link to other sites. More and more users are switching
to low-cost providers because they can get connected for a cheaper price and use the company's browser software to link up to other ISPs.
AOL, for instance, offers accounts to nonmembers for roughly $10/month.
This means that people can still access AOL even if they do not use the company as their ISP. The company knows that losing customers to lower cost providers is inevitable. As a result, AOL is starting to offer
nonmember accounts to web users to try and offset this trend. This adds revenues in a different manner by targeting individuals who do not intend on becoming AOL members but are still interested in gaining access to
member services. One of the most widely used features of AOL is its chat rooms. Many web users are purchasing AOL accounts just so they can have access to the various chat rooms and instant messaging capabilities.
Emsanet Aims to Be the Middleman for Internet Access
In a way, Emsanet compliments what AOL is doing. The company gives
subscribers the luxury of accessing AOL but without the annoyance of sign-on ads, the hassle of being kicked off, and the impatience associated with slow access speeds. Theoretically, a person could purchase a
nonmember account with AOL and then use Emsanet as their ISP to link up to AOL. This would be equivalent to receiving AOL and all of its member services. Users would pay roughly the same price that they would if
they had signed up for an AOL subscription, but would be getting quicker connection speeds since Emsanet offers higher speed access than AOL.
This is one of the markets that Emsanet is targeting. The company considers
it to be a middleman approach to Internet access. Stefan Abel, President and CEO of Emsanet, believes that consolidation will only help companies like his prosper. He feels that a lot of web users prefer the
smaller, local ISPs over the bigger name companies because they offer subscribers more freedom. Many subscribers feel that they are currently under the power and control of the larger, more well known ISP companies.
As consolidation within the industry continues, investors will likely see
large ISP and communications companies, such as AT&T, buying up smaller, regional ISPs to add to their portfolios. This will just negate what people are currently trying to do. Users are switching over to
smaller ISPs because they are cheaper and, in most cases, faster. If the big name companies start buying up smaller ISPs, subscribers who are trying to break free of these companies (i.e., AOL, Mindspring,
Earthlink, etc.) are back to where they originally started. In this situation, it is only a matter of time until subscribers switch to another local ISP, and when that occurs, companies like Emsanet will be waiting
with open arms.
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