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Dateline: 5 April 2000 Early Edition
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The Truth About Free Internet Access?
There is no such thing as a free lunch -- and anyone who thinks otherwise has a lot to learn about life.

New Zealanders are now in what may appear to be the enviable position of being able to choose from a growing range of "free" Internet services and I've had a lot of email from people asking if there are any catches and whether they should dump their existing ISP.

First-up, let's look at just how these companies are going to survive and make money.

Well, call me a cynic, but I'd say that a free-ISP service is an ideal vehicle for exploiting the Net-mania that still exists amongst investors.

If I had a spare million dollars, here's what I'd do:

  • Create a free ISP service -- just the bare bones would do.
  • Promote it heavily, and extol the virtues of free Net access.
  • Run it for several months with a view to keeping its users nice and happy.
  • Sell it or float it on the stockmarket.
  • Retire in comfort and luxury
Look at it this way -- the recent sale of part of IHUG was done with a valuation of around $1,000 per customer. If you can invest $1 million in a free ISP service and gather 10,000 to 50,000 sign-ups then you potentially have a company that is worth, using the same valuation metric, somewhere between $10-50 million.

In fact, even if we were to allow for the lesser value associated with the users of a "free" service, this company would still be pretty easy to value at between $5-$25 million.

Now that's not a bad return on a $1 million investment over a 3-6 month period is it?

But... the big question is... what happens after the founders of the business sell-out?

The new owners or shareholders are, sooner or later, going to want to see some real return on their investment -- which means that the users of that free service are going to have to be squeezed good and hard. That's going to mean vastly increased levels of advertising (if they can find enough advertisers) or they're going to have to find some other way of extracting some revenues out of that user-base.

I'm not saying that this is what the current crop of free ISPs are planning -- but it's the only way I could see anyone getting a significant return on their money when setting up such a service.

One thing that worries me a great deal about the free ISP services is that you have to give them an email address before you can sign up.

I wonder why you can't just sign-up online and use the "free" email address you get as a result? Perhaps its because they want your REAL address?

Certainly in the case of i4free, it appears that their "notices" (aka: advertising) will be directed to the email address you provide and when the pressure comes on to spin a profit, you can be sure as eggs that there will be a fair amount of such "notices" arriving every day. Of course you can opt out -- but if you do -- you lose your free Internet access.

So it would make good sense to rush off to Hotmail or Yahoo Mail and get yourself a throw-away email address to use for signup purposes -- rather than risk ruining your primary account by having it become the target for dozens of daily advertising "notices."

The other thing that worries me about i4free is that you have to install special software on your PC. Now call me paranoid (anyone remember the RealVideo snooping?) but I'm a little reluctant to open up my PC and my Net activities to any organisation that relies on generating a powerful and accurate profile of my individual preferences and habits in order to sell its advertising to the market.

There have also been the inevitable reports of the installation software screwing up users' PCs to the extent that they have been forced to reinstall Windows to restore its proper operation.

I'm afraid that I still don't see how free Internet access can survive in a market as small as New Zealand.

So... sign up by all means and use them as much as you like while they're still truly free -- but remember the caution about what email address you give, be wary about installing any new software on your PC, and don't ditch your existing ISP, you may need them.

Nick Wood Says
Yesterday I said I'd get IHUG's perspective on the blocking issue and so I spoke at some length with Nick Wood on the issue.

Nick made no bones about the fact that they blocked FreeNet and i4free for purely commercial reasons.

The analogy discussed was somewhat akin to TV1 being allowed to refuse advertising for a competitor such as TV3.

Nick says that he doesn't believe the free model will be sustainable and that IHUG was attempting to protect its users -- which may be a little disingenuous -- I think I preferred his acknowledgement that this was really about dollars and cents.

One thing that has to be acknowledged is that the Internet access business is becoming somewhat cut-throat and it can be argued that ISPs have a right (some would say a responsibility to shareholders) to protect their turf. Nick says, if people are really that angry about IHUG's decision to block the sites then they'll vote with their feet.

Whether you agree or not -- I must say that as someone who has to struggle each day to find something new and interesting for my readers I'm glad we still have a few "personalities" who are prepared to stir up the waters on a semi-regular basis, even if I don't agree with what they're doing.

The big downside of the corporatisation of the Internet is that it has become largely faceless. For example... at one time a good number of people could name the people who headed up each of the ISPs around the country -- these days they're all largely nameless, faceless suits. Ah.. I detect a whiff of nostalgia in the air ;-)

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