Absa Bank`s decision to offer free Internet access to the marketplace has sparked off a lot of soul-searching within the Internet Service Provider Industry (ISP). But if we are to learn anything from history, offering free Internet services is not exactly the wisest way to grow a company`s client base, branding, or perceived goodwill.
This is according to Douglas Reed, managing director of leading ISP, Data Pro, part of the JSE Securities Exchange listed Control Instruments group.
"Just a few months ago, free ISPs were seen by the media and analysts as the next big technology wave. But, over the last few months, the scenario has shifted dramatically, with ISPs customers increasingly looking to quality and value-added services above price-based decisions."
Initially consumers were lured away from established ISPs, such as America Online (AOL) - which charges $21.95 per month - by free Internet providers such as NetZero and Juno. These consumers, said Reed, were willing to provide some personal data and live with a small advertising bar on their desktop in exchange for unlimited Internet access. Other service providers, such as WorldSpy and Freewwweb, went one step further: they did not even require users to have advertisement scroll across their screens - they relied on the sales from products on their site to support their operations.
But these operations proved to be more costly than originally anticipated, and the inflows also less then anticipated. Income generated from on-line advertising has also not been as robust as originally anticipated.
Since the initial fanfare of free Internet services, market realities have painted an entirely different picture: in a few short months, the free ISP market has done a dramatic turnaround. Players such as WorldSpy and Freewwweb - who entered the market with much ado - both filed for bankruptcy in mid-2000.
And the bad news drum-roll did not end there. The once high-flying ISP AltaVista, threw in the towel at the end of last year and Spinway, the ISP for Kmart`s on-line initiative, Bluelight.com, closed its doors in early December, 2000.
"Despite the hype, the free ISP model was actually doomed to failure. At the best of times it was even difficult for players to survive through advertising dollars alone.
"It`s also important to remember," Reed pointed out, "that not every user will want to use an e-mail address that boasts a bank`s brand. Corporate users, or companies, in particular, don`t necessarily want to send a message to customers that they want to, or need to, make use of free offers. It`s a pride and perception issue. It`s also highly unlikely that large droves of home users will leave their current ISPs to join ABSA. They certainly might try Absa`s freemail service - but they are unlikely going to simply desert their current providers. In the interim they will run two accounts, with most simply using the Absa dial-up option to take advantage of the free surfing time - a cost Absa will have to pay for."
Reed also pointed out that Absa is not the only one to launch strategic Internet initiatives. M-Web has just launched a full on-line banking and shopping service in conjunction with BoE banking arm NBS under the icanonline banner. "M-Web`s offering is not free, but it is a lot different to Absa`s offering because it takes advantage of, and merges, the cost-effective NBS on-line and electronic banking platform with M-Web`s Shopping Zone - and it is also debit card rather than credit card-driven. Even people without a bank account, or who bank elsewhere, can open an icanonline account through the web-site and then debit it when they buy goods or financial services."
Reed also pointed out that M-Web spends about R140 million a year just supporting its infrastructure and customer base. "It`s a great idea of offer free Internet services," said Reed, "but someone, at the end of the day, has to pay for the overheads - which simply increase as the number of subscribers increase. It may ultimately prove to be an exceedingly expensive way of buying marketshare and goodwill."
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