Attack of the Free ISPs

There is another reason why AOL needs Time Warner, besides its cable systems.

Time’s content may be the only asset that can save AOL from the assault of the free Internet service providers (ISPs).

Consider that NetZero is now the third largest ISP in the U.S., with three million subscribers. Consider that CMGI’s 1stup, which has one million, is signing affinity deals left and right. Freei.net has become a fixture among cable advertisers and is also looking for affinity deals. If you represent a mere half-million ISP prospects, Freei says, you can get in on this action.

If you’re reading this from, say, the U.K., you should know up-front that America’s free ISPs really are free, at least they’re free of cost. There are no per-minute charges on the calls (unless you’re making a long-distance call from the ISP’s nearest modem bank) and, thus, no kickback from the local phone monopoly. Everything has to come from advertising.

All the free ISPs I’ve described so far offer the same value proposition. An extra advertising bar is on the screen at all times, and reaction to that banner can be tracked on a personal level because of the registration process. Advertisers can know not just what their click-through rate is, but who clicked and what they’re like.

Now there’s another way to do this business.

WorldSpy Inc., based in White Plains, NY, has gone from zero to 150,000 users in less than two months without using that extra ad banner. The catch is, President Sharon Rothstein said, that users are locked into the worldspy.net start page, which is filled with ads, merchandise and affiliate links. You can go anywhere you want ad-free, but you start every session with WorldSpy’s offers.

“We were the 17th fastest growing site in November,” before advertising began, she said. Some 20 percent of her users come from AOL, 20 percent from NetZero, and 70 percent use the service regularly.

WorldSpy comes from an incubator called iCentennial launched by a former commodity trader, Alan Clingman. A sister company, MicroPortal, manages the actual delivery of the service, and another sister company, 2000 Logistics, handles fulfillment. The company also has its own buyers scouring the market for product deals it can offer through WorldSpy. Rothstein said 40 percent of her shoppers are repeat buyers.

The “first-screen” advantage has long been powerful, ever since the launch of the first Netscape Navigator. Even today the most popular start pages – Zona Research says they are those of AOL, Microsoft and Netscape – maintain enormous mindshare.

First-screen advantage, in other words, has translated into a huge market advantage. That’s why PC makers have signed deals with portals like Excite and Yahoo to win those defaults. Essentially, WorldSpy is buying that mindshare and, Rothstein said, growing well with it.

Now, if the first screen can be bought from consumers profitably, for the equivalent of $20/month in ISP services, what does that do to your e-commerce strategy? What, for that matter, does it do to AOL’s?